Major money exchange houses in the UAE have stopped handling Iranian rials over the last several weeks, executives at the houses said, further reducing Iran's ability to trade and obtain hard currency.

Since late last year, Iran has largely been frozen out of the global banking system by US sanctions aimed at its disputed nuclear programme. Washington has used anti-money laundering legislation to make it risky for banks around the world to do business with Iran, including trade financing.

In December, the US government pressured Dubai-based Noor Islamic Bank into stopping the channelling of cash from Iranian oil sales through its accounts, Reuters said.

Iranian businessmen continued to conduct some trade with Dubai and other places, however, by transferring funds through money exchange houses that operate separately from the banking system, traders said. Now many of those houses have stopped doing rial business as well.

Mohamed Al-Ansari, chairman and managing director of Al Ansari Exchange, one of the UAE's top two exchange houses, said the weakness of the rial, which saw its black market rate roughly halve against the US dollar in the year to January, had made it too risky to handle the currency.

"Most exchange companies have stopped dealing in Iranian rial mainly because of its devaluation in the last few months, as well as the regulations imposed by the US regulatory authorities on the financial sector," he told Reuters.

"As such, nobody would like to risk trading in the Iranian rial currency, as it would affect their business."     

Dubai, 150 km across the Gulf, has been a major trading hub for Iran. Re-export trade between Iran and the UAE -- goods sent to the UAE for on-shipment to Iran, and Iranian goods sent to the UAE for on-shipment to other countries -- totalled 31.9 billion dirhams ($8.7 billion) in the first nine months of 2011, latest UAE customs data show.     

Al Fardan Exchange, the UAE's third largest exchange house, also said the depreciation of the rial had made the currency too risky. "For us, from a risk point of view with regard to the fluctuations taking place and the depreciation -- this also applies to the Syrian pound -- you don't have a definite understanding about when the freefall might take place," Osama Al-Rahma, general manager at Al Fardan Exchange, told Reuters.

"We had to stop exchanging even small amounts because if I buy it at this rate and tomorrow it went down, then I'm in a loss position."     

Al-Rahma said that in addition to hurting Dubai's remaining trade with Iran, the halt in rial exchanges would inconvenience tourists travelling to the country. - Reuters