For the UAE, Iran is both enemy and trading partner.

ABU DHABI, United Arab Emirates -- As the United Arab Emirates spends billions to defend itself against a perceived Iranian threat, it also enjoys a robust trading relationship with its potential foe.

The UAE sees Iran as both a threat and a valued trading partner, events during the last two years have shown.

International efforts to impose economic sanctions against the Iranian regime for its alleged plans to develop nuclear weapons might be a tough sell in the UAE, which has strong economic ties with Iran.

The UAE is one of Iran's largest trading partners. Boats from across the Gulf arrive in Abu Dhabi's port loaded with goods. Shiites make up a significant portion of the population--about 16 percent. There are nearly as many ethnic Iranians residing in the nation as native Emiratis, according to the CIA World Factbook.

In May 2007, Iranian President Mahmud Ahmadinejad visited the UAE--a first since the Iranian revolution in 1979. The Emirati prime minister reciprocated with a visit to Tehran.

Sheikh Mohammad bin Rashid, prime minister of the UAE and ruler of Dubai, after the visit was quoted in local news reports as saying that "allegations by aliens that Iran is a threat to the region are vague, as regional states share a lot of historic and contemporary common grounds."

Nevertheless, the UAE continues to ink deals with U.S. arms manufacturers to upgrade its air- and missile-defense systems.

Trade between Iran and the UAE is flourishing, with an estimated $14 billion in non-oil goods flowing between the states in 2007, according to Arab media. The bulk of that, some $9.8 billion, is said to be UAE exports to Iran.

A firm based in Dubai was recently accused of serving as a front company that allegedly funneled to Iran aircraft engines purchased by an Irish trading company called Mac Aviation, according to Agence France-Presse.

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There are thousands of businesses operated by ethnic Iranians in the United Arab Emirates and the United States has also pressured UAE-based banks to stop exchanging money with the regime.

The United States is also a trading partner with Iran. It legally exported $683 million worth of goods in 2008 and imported $102 million, according to the U.S. Department of Commerce. Smuggled U.S. consumer items--everything from cigarettes to iPods--also make their way to Iran through Dubai's freeport, as Conde Nast Portfolio magazine documented in a September 2008 article.

Mark Fitzpatrick, senior fellow for non-proliferation at the International Institute for Strategic Studies, said at the IDEX conference that the world may have to live with an Iran that has the capability of producing a nuclear weapon. He cautions that it isn't known whether the regime has made the decision to actually produce such a device, although it appears that it's on that path.

"Iran today already knows that if it were to take the step of actually producing nuclear weapons, it would invite retaliation just for having it. Israel would not accept Iran having the bomb," he said.

He recommended engagement along with sanctions and containment strategies as a possible response to a nuclear Iran.

But he acknowledged that sanctions don't always work. The European Union, Russia, China, Middle East nations such as the UAE and even the United States continue to trade with Iran.

Sanctions haven't been applied with real "firmness," he said.

"It may not work. I'm not terribly optimistic. But even if it doesn't work, a policy of sanctions, financial pressure, export controls, interdiction and other methods can at least help to keep Iran's nuclear program more limited than would otherwise be the case."

Those strategies in connection with outreach efforts would give Iran a face-saving way to change its policy if it were inclined, he added.

Ahmed Al-Uztath, a scholar at the Emirates Centre for Strategic Studies and Research, said Iran is a cause of instability in the region. But the United States after invading Iraq is a second source of instability. At the same time, it provides a security umbrella for the Gulf states.

He urged the Obama administration to include trusted allies such as the UAE in future discussions.