January 16, 2008 / 10:51 AM / 12 years ago

UPDATE 2-Biggest Bahrain bank freezes Iran business -sources

(Adds background, denial of visas to Iranian businessmen)

By Mohammed Abbas

MANAMA, Jan 16 (Reuters) - Bahrain’s largest lender by market value, Ahli United Bank, has suspended business with Iran, yielding to U.S. pressure to isolate Tehran over its nuclear programme, two sources familiar with the matter said.

Two sources with knowledge of policy at Ahli United AUBB.BH said banking activity with Iran had been “frozen”. The sources declined to comment on how this would affect the bank’s affiliate Future Bank, set up in 2004 with two Iranian partners.

Iran, increasingly isolated from the West, has long had close economic ties with most Gulf states, especially the United Arab Emirates and Bahrain, Arab allies of Washington and home to the Middle East’s biggest financial centres.

Although business is flourishing, from formal trade and tourism to smuggling across the Gulf, U.S. efforts to cut Iran’s access to the global financial system are taking their toll.

A member of the Bahrain parliament’s finance and economic committee, Jasim Ali, said this week the government was putting pressure on Ahli United to freeze its Iranian operations.

Ahli United established Future Bank as a joint venture with Bank Saderat Iran and Bank Melli Iran.

Future Bank’s main business is wholesale investment banking, and it targets financial flows between Iran and the Gulf. The bank aims to channel debt and equity capital from the Gulf into Iran, Future Bank’s Web site said.

Future Bank officials were not immediately available for comment.

IRAN-BAHRAIN TIES

During a Middle East tour this week, U.S. President George W. Bush urged Gulf states to confront Tehran “before it is too late”. The United States, which has a naval base in Bahrain, is pressing the United Nations to tighten sanctions on Iran, accusing it of seeking nuclear weapons, a charge that Iran denies.

The UAE was bowing to the pressure and blocking attempts by Iranian companies to incorporate there, Nasser Hashempour, vice-president of the Iranian Business Council in Dubai, said this week.

Banks in the United Arab Emirates, the second-largest Arab economy, have stopped issuing letters of credit to Iranian companies, bankers in Dubai said.

Bahrain’s Al Ayyam newspaper reported that 130 Iranian businessmen representing 40 companies had been denied visas to take part in a trade fair next week.

Tensions between Iran and Bahrain flared last summer when an Iranian newspaper editor said Bahrain was a province of Iran and should be returned, triggering protests outside the Iranian embassy.

A visit by Iran’s foreign minister shortly after reduced tensions and Iranian President Mahmoud Ahmadinejad followed later that year, boosting ties. Bahrain signed a deal to import gas from Iran.

A U.S. intelligence report in December said Iran had halted its nuclear weapons program in 2003. Iran says it is developing nuclear technology for energy purposes. (Reporting by Mohammed Abbas; Editing by Elizabeth Fullerton and Erica Billingham)

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