Israeli Diamonds Are Dubai’s Best Friend as Profits Beat Policy

By Henry Meyer and Gwen Ackerman

June 1 (Bloomberg) — Two women gaze through the eye slits of their black niqabs at the window of Dubai”s latest jewelry store. The glass cases, lit by crystal chandeliers, show gems that include a 52-carat diamond priced at $25 million.

The name of the store”s owner appears only on catalogues and gift bags: Israeli billionaire diamond investor Lev Leviev, who has four other outlets in the emirate under the Levant name.

He is expanding just as Dubai vows to crack down on links with Israel after the January murder of a senior Hamas official that local police blamed on Israeli agents. Separately, companies in the emirate import high-value polished diamonds from Tel Aviv for sale to Gulf neighbors in defiance of a boycott of Israeli goods by Arab nations, including the United Arab Emirates to which Dubai belongs.

“It”s another example of Dubai making money from things that other Arabs won”t touch,” said Jim Krane, a Cambridge, U.K.-based expert on the U.A.E. and author of “Dubai, the Story of the World”s Fastest City,” published last year. “The diamond business is such that you can”t get into it without dealing with Jews and Israelis.”

As shown by Dubai”s resistance to U.S. demands to curb its $12 billion of trade with Iran, the Middle East”s main trading center isn”t letting ideology get in the way of business, said Christopher Davidson, a professor of Middle East politics at the main campus of Durham University in Durham, U.K.

Gems and Real Estate

Mumaij Moidu, a spokesman for Leviev”s Dubai-based Levant, said diamonds sold at the store are mined in Africa, polished in New York and then sent to Dubai.

“We have nothing to do with Israel,” he said. “We are an American brand.”

The $32 billion worth of stones that pass each year through Dubai to global customers such as China and India include more than $200 million from Israel, according to Gil Feiler, managing director of Info-Prod Research Ltd., a Tel Aviv-based business information firm specializing in Arab countries.

The trade helps support an economy hurt by a real estate crash that saw prices plunge 50 percent from late 2008 to the end of 2009, according to Saud Masud, head of Middle East research at UBS AG in Dubai.

Ahmed bin Sulayem, who founded Dubai”s diamond exchange in 2002 and made it the fourth-largest global trading center by sales, says Israel”s trade is good for business.

“It”s open access to the Oman market, Qatar, Saudi Arabia,” Bin Sulayem, 32, said in an April 25 interview in the Dubai Multi Commodities Center. “It just makes the pie bigger.”

Diamond Tower

Bin Sulayem, sitting on a couch on the 51st floor of the Almas tower, which means diamond in Arabic, said Dubai was showing the way to a “diversified future” through promoting tolerance between Jews and Arabs.

“It”s not stone-age challenges,” said Bin Sulayem, dressed in a traditional white robe and headdress. “We live in a different world now.”

Diamonds from Israel make their way to Dubai via destinations such as Belgium, Switzerland, New York or Hong Kong, said Chaim Even-Zohar, the main shareholder of Tacy Ltd., a Ramat Gan, Israel-based diamond-research company.

“We have an interest in being able to market through Dubai and Dubai has an even greater interest in Israel buying its rough diamonds,” Even-Zohar said.

The Israeli diamond cutting and polishing industry, based in Ramat Gan in a complex outside Tel Aviv, specializes in the larger and better-quality gems that are popular in the Gulf.

Murder in Dubai

The six oil-producing Gulf Cooperation Council nations represent the third-largest diamond market in the world after the U.S. and Japan. They account for 8 percent of global diamond sales, according to Johannesburg-based De Beers, the world”s largest diamond company.

The chill between the emirate and Israel came after Mahmoud al-Mabhouh, a founder of the armed wing of Hamas, was found suffocated in his Dubai hotel room on Jan. 20. Dubai police blamed the murder on Israel”s spy agency, Mossad.

More than 30 Israeli suspects used European and Australian passports to enter the country, Dubai authorities said. Israel has neither confirmed nor denied any involvement in the killing.

Dubai Police referred questions about its measures to curb Israeli ties with the emirate to the Dubai Government Media Office, which didn”t respond to e-mailed requests for comment.

Mohammad al-Tayeb, commissioner-general of the Arab League”s Central Boycott Office in Damascus, said the body has no powers to enforce the ban on trade with Israel.

Sovereign Countries

“Each country is sovereign and implements decisions in its own way,” he said in a phone interview. The 22-member Arab League includes Egypt and Jordan, which have signed peace treaties with Israel and have diplomatic and trade ties with it.

Israel”s involvement in the Gulf diamond market took off after 2004, when it didn”t oppose Dubai”s entry into the Antwerp-based World Federation of Diamond Bourses, said Bin Sulayem.

The federation”s rules mean Dubai has to provide entry to its territory for individuals from all members, including the Israel Diamond Exchange, Ya”akov Almor, a spokesman for the global trade group, said in a phone interview.

Dubai”s diamond trade went from a small regional operation less than a decade ago to become the fourth-largest diamond trading center after Antwerp, Mumbai and Tel Aviv. About $18 billion of rough diamonds and $14 billion of polished diamond imports and exports passed through Dubai in 2009, according to the Multi Commodities Center.

Skyscrapers and Islands

Dubai has been forced to focus on its traditional strength as a commercial hub after the emirate borrowed $109 billion to build skyscrapers and man-made islands, provoking a debt crisis and the world”s worst property crash last year.

Even-Zohar, an Israeli, said he has made presentations at gold and diamond conferences in Dubai without hiding his Israeli connections.

Leviev, 53, who was born in Soviet Uzbekistan and immigrated to Israel in 1971, has outlets in five locations in the Gulf emirate, including three at hotels controlled by Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum”s Jumeirah Group.

Leviev”s store in the Dubai Mall opened on April 13. Officially known under the local brand and managed by a Moroccan business partner, the store has brown-colored Leviev catalogues and gift bags.

The diamond trade is too self-contained to allow Dubai to boycott Israel, said Yitzhak Gal, chief executive officer of Rosh Ha”ayin, Israel-based Gulf Links, which aids Israeli companies operating in the Gulf. “If you are a large player, you can”t be left out.”

To contact the reporters on this story: Henry Meyer in Dubai at hmeyer4[at] Gwen Ackerman in Jerusalem at gackerman[at]

Last Updated: May 31, 2010 16:01 EDT

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