Toplines

The United Arab Emirates (UAE) is intensifying economic pressure on Iran to discourage Iranian efforts to control or disrupt navigation through the Strait of Hormuz. The UAE announced on August 18 that it would halt all trade and financial transactions with Iran.[1] The announcement comes after the UAE accused Iran of launching missiles from Iranian territory toward the UAE on August 18.[2] The UAE later said the missiles unsuccessfully targeted vessels to disrupt ”maritime navigation.”^[3] Iranian Foreign Affairs Ministry spokesperson Esmail Baghaei denied that Iran launched these attacks.[4] Iran has recently attacked tankers near the Emirati coast.[5]

The UAE has previously supported US efforts to undermine Iranian control of the strait, which suggests that the UAE’s decision is part of a broader effort to raise the costs of Iran’s attempts to control or disrupt maritime traffic.[6] The timing of the UAE‘s decision also suggests that the UAE may seek to influence ongoing Iran-Oman negotiations over the future management of the strait. The Associated Press reported on August 18, citing two regional officials, that the Trump administration told Oman that it opposes elements of the yet-to-be-announced Iran-Oman agreement, including joint Iranian-Omani management of the strait’s exit route.[7] An Iranian analyst close to the regime separately stated on August 18 that the UAE is playing a significant role in increasing US pressure on Oman over the agreement.[8] The UAE’s decision may, therefore, also seek to prevent any Iran-Oman arrangement that grants Iran any control over navigation through the strait.

The UAE’s decision will further weaken Iran’s already deteriorating economy by restricting both its access to essential imports and its ability to repatriate export revenues and circumvent sanctions. Roughly one-third of Iran’s imports have come from the UAE, and the largest proportion of Iranian imports in the last five years come from the UAE have made the UAE.[9] The UAE also serves as a critical hub for Iran’s shadow-banking and sanctions-evasion networks through which Iran generates significant revenue.[10] Approximately 80 percent of Iran’s imported foreign exchange reportedly comes through the UAE.[11] Cutting this channel will exacerbate Iran’s pre-existing foreign-currency shortages and make it more difficult for the regime to finance both imports and exports.[12] An Iranian sanctions-focused analyst assessed on August 19 that the impact will be particularly significant amid the ongoing US naval blockade on Iran because trade between Iran and the UAE occurs beyond the US naval blockade line in the Persian Gulf, and thus, the UAE likely provided Iran with an important channel for obtaining goods despite the blockade.[13] The UAE’s decision will compound the economic pressure that the blockade has already imposed on Iran.

Iran will likely respond to the UAE’s decision with greater military and economic pressure against the UAE rather than abandon its efforts to secure greater control over the Strait of Hormuz. Iran will likely view the UAE’s actions as both an immediate economic threat and a broader challenge to its core objectives, which include controlling the strait. Iran could seek to impose costs on UAE shipping or territorial security to demonstrate the consequences of opposing Iranian efforts to control or disrupt navigation through the strait. Such actions would be consistent with Iran’s repeated use of force against Gulf states to compel them to accept Iranian demands since the start of the US-Iran war in February 2026. ISW-CTP previously also assessed that Islamic Revolutionary Guards Corps Commander Major Ahmad Vahidi’s faction — whom ISW-CTP continues to assess is driving regime decision-making — may be willing to accept some economic costs and the risk of renewed war if doing so enables them to achieve their core objectives, including Iranian control over the strait.[14] Increasing Emirati alignment with the United States will also drive longer-term hostility between the UAE and Iran. It is not clear the extent to which the Iranian regime decisionmakers have internalized the ramifications of long-term hostility with the UAE, given the economic relationship between the two states.

The resulting economic pressure on Iran from the UAE’s decision will nevertheless likely increase regime concerns about domestic unrest, but it is unclear whether those concerns will compel Vahidi’s faction to make meaningful concessions. The UAE supplies almost 37 percent of Iran’s essential goods imports (which are not prohibited under the US blockade and sanctions), which makes the loss of access to trade with the UAE particularly significant to the domestic Iranian population.[15] The Emirati decision to impose economic penalties on Iran comes after Iranian officials and media have expressed growing concern in recent weeks about deteriorating economic conditions and the potential for domestic unrest.[16] The regime already appears to be pursuing multiple measures to mitigate these risks rather than reconsider its core demands, however. Iran has taken initial steps to increase access to foreign currency and strengthen alternative economic relationships, including with Tajikistan, although the effectiveness of these efforts remains unclear.[17] The regime is also simultaneously preparing for potential unrest, which is consistent with its longstanding approach to suppressing dissent rather than addressing the underlying economic grievances that drive the unrest.[18]

Iraqi Prime Minister Ali al Zaydi is under pressure from both the United States and Iranian-backed Iraqi actors over Iraqi militia disarmament but appears to be responding primarily to militia pressure at this time. Qatari-owned regional media reported on August 19 that Zaydi’s plan to increase security measures and deploy a special Iraqi Counter Terrorism unit near Jurf al Sakhar, south of Baghdad, was only to monitor the movement of people and vehicles and would not lead to a raid or a military incursion into the militia’s key site.[19] This is a reversal from previous reporting, which claimed that Zaydi was preparing for Iraqi security forces to retake Jurf al Sakhar.[20] Kataib Hezbollah has refused to allow the Iraqi government to exercise sovereignty over Jurf al Sakhr for over a decade and has used the area to store weapons and launch attacks against US and foreign targets in Iraq and the region, including in March and April.[21] Conducting an operation to retake the area would require significant planning, mobilization, and coordination among Iraqi security forces. It would also be a notable move in favor of US pressure on the Iraqi federal government to disarm the militias. Zaydi’s hesitation to follow through on this operation demonstrates how much influence Iranian-backed Iraqi actors retain over Zaydi’s government.

The recently reported plan to only “monitor” Jurf al Sakhr indicates that Iranian-backed actors, including the militias and leaders within the ruling Shia Coordination Framework, have coerced Zaydi into responding to their directives rather than complying with US pressure to rein in the militias. Zaydi initiated the government’s disarmament campaign and set September 30 as the deadline for the campaign’s completion. Zaydi initiated the campaign and set this deadline in part due to US pressure on Baghdad, which included offers of additional US funding and investment in Iraq if Zaydi is successful.[22] Multiple Iranian-backed Iraqi militias, including those that are closest to Iran and that have been the most kinetically active in recent months, continue to refuse to disarm and resist government efforts to rein them in.[23] The Iraqi militias are also circumventing and delaying the government’s disarmament efforts, including by handing in inoperable or small amounts of weapons.[24] Many Iranian-backed actors pressured the Iraqi government into surrendering a Harakat Hezbollah al Nujaba leader over to the Popular Mobilization Forces (PMF)–which contains a number of Iranian-backed militias–after Iraqi authorities arrested the leader earlier in August.[25] The Supreme Judicial Council then dropped his charges.[26][27] Pressure from Iranian-backed actors similarly thwarted former Prime Minister Mustafa al Kadhimi’s attempts to crack down on the militias.[28]

Members of the framework are reportedly concerned about the government’s recent attempts to crack down on the militias and the potential for armed confrontation between the militias and the government. Some framework members are even attempting to negotiate settlements between the federal government and the militias that have included “weapons management” proposals and delaying government demands to disarm until after US forces leave Iraq.[29] Zaydi’s September 30 deadline currently corresponds with the planned withdrawal of US-led international coalition forces from Iraq.[30]

Iran has also dispatched senior Iranian officials to Baghdad in recent days to discourage conflict between the Iraqi federal government and the militias. These officials are also discouraging disarmament. Iraqi sources told Saudi media on August 19 that Iranian Parliament Speaker Mohammad Bagher Ghalibaf relayed Iranian proposals to unspecified Iraqi officials that aimed to avoid a confrontation between the federal government and the militias.[31] Iran also reportedly proposed “freezing” or hiding heavy weapons and transferring weapons to Iran until the militias reach a political settlement.[32] Zaydi’s supposed previous plan to send Iraqi security forces to Jurf al Sakhr reportedly prompted IRGC Quds Force Commander Brigadier General Esmail Ghaani’s recent visit to Baghdad on August 10, during which he urged militia leaders to avoid armed confrontation with the government and to reach a settlement to avoid handing militia weapons to the state.[33]