"Dubai is the most Iranian of cities," said Mohammed Reza, an Iranian expatriate who has lived in the Gulf emirate across the waters from the Islamic republic since 1998.

Not many could argue with him. It was Friday lunchtime and the 29-year-old engineer was about to enter the city's impressive turquoise-domed Imam Hussein mosque. Hundreds of his compatriots followed as the call to prayer echoed.

In a city known for glass and steel skyscrapers and industrial free zones, this little enclave in one of Dubai's older districts could be known as Irantown.

Adjacent to the mosque sits one of Iran's largest consulates. Opposite, people mill around an Iranian hospital ordained with intricate Persian scriptures.

"Iranians were among the first to set up business in the United Arab Emirates," a federation of seven emirates, said Salah Salmeen at the Dubai Chamber of Commerce and Industry (DCCI).

"The oil boom and development of shipping facilities to Iran created further opportunities for maximising trade between the two countries."

According to the Iranian consulate in Dubai, at least 400,000 of the UAE's 4.1 million residents are Iranian.

The numbers have almost doubled since 2003. Iran's status as an international pariah, which has increased since President Mahmoud Ahmadinejad's election in 2005, has forced many nationals overseas.

Heavy taxation and the difficulty of acquiring letters of credit have given businessmen few options but to seek opportunities elsewhere.

"If an Iranian company deals with European companies, the European side is always more comfortable dealing with a Dubai-based company as the rules and regulations are not volatile like in Iran," said Mohammed Safavi, general manager at trading firm The Link.

Located just 170 kilometres (105 miles) across the Strait of Hormuz, Dubai has become a satellite state for Iranian capital.

The DCCI has 8,050 Iranian companies registered. The Iranian Business Council's (IBC) numbers are closer to 10,000 businesses, ranging from banking to real estate and oil.

Iranians are also major investors in property developments.

The DCCI estimates Dubai's non-oil trade with Iran was worth eight billion dollars last year, a 30-percent rise since 2004.

"We estimate accumulated assets of Iranians in the UAE to be about 300 billion dollars, while trade between the UAE and Iran was about 11 billion dollars in 2006," said IBC vice-president Nasser Hashempour.

Dubai has become so important to Iran that senior Iranian government officials are rumoured to have set up front companies in the emirate.

"We've heard a lot about non-private sector companies or people belonging to the government investing in Dubai," said Hashempour.

The UAE is by far Iran's largest global trade partner, with exchanges reaching nearly three times those with Germany.

"Dubai is essential to Iran," said Abdulkhaleq Abdulla, professor of political science at UAE University.

"Iran needs Dubai more than the other way round... It can deal with the outside world from here and it will need it more and more if there are (trade) sanctions imposed (over Tehran's nuclear programme)."

The conflict between Washington and arch-foe Tehran has put Dubai's relationship with its neighbour in the spotlight. At a recent conference in the emirate, Stuart Levey, US undersecretary at the Treasury, suggested the UAE would need to think carefully in the future.

The United States, which is known to use Dubai as a listening post to monitor Iranian activity, is a staunch UAE ally.

"We have been successful in balancing both sides," said Abdulla. "The Americans and Iranians know they have been given leeway here to do things they couldn't do elsewhere. I hope they do not tamper with the stability and security that this country is providing everybody."

The UAE prides itself on its diplomacy, and relations with Iran are thriving despite a 30-year feud over three Gulf islands, which the UAE considers occupied by Iran.

The federation, whose natives are mostly Sunnis, also sees the large presence of Shiite Iranians as another example of its social tolerance.

"In terms of the Shiite-Sunni conflict, the UAE, with its large Iranian population, (shows) that it is possible to maintain a cohesive relationship between the two parties," said Narayanappa Janardhan, political analyst at the strategic think-tank Gulf Research Centre.

"Dubai is a platform where you don't worry about sectarianism."