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Midnight at the OasisDubai's visionary rulers have avoided political controversy, but that will likely end in 2007.

By Ian Bremmer
Posted Wednesday, Jan. 10, 2007, at 2:57 PM ET

Dubai's economic success story is not a new one, but the sheer scale and pace of the city-state's development now looks to rival the growth of Shanghai. Even more remarkable is that this postmodernist explosion of glass and steel has arisen so near the heart of an increasingly volatile Middle East.

Dubai's development is fueled not just by petrodollars—though they are clearly a big contributor—but also by the foresight of Sheik Maktoum bin Rashid Al Maktoum and Dubai's remarkable diversity. U.A.E. officials say 80 percent of Dubai's 1.4 million people come originally from someplace else. Others insist the true percentage is above 90 percent. These foreigners have come to Dubai mainly to make money.

Dubai's current ruler, Sheik Mohammed, understands this. Dubai's diversity allows him to ignore the domestic and regional political controversies with which leaders in Saudi Arabia, Bahrain, and Qatar must contend and has transformed the capital city into a Middle Eastern amalgam of Singapore and Las Vegas.

Still, Dubai cannot remain a safe haven from politics much longer. During my recent visit there for the Arab Strategy Forum, I encountered a deep foreboding about the region's future, an anxiety—and anger—unlike any I've seen in the Gulf in more than a decade. My conversations with Arab officials and businessmen revealed three sources of this extraordinary pessimism.

The first is centered in Iraq. The forum revealed near-total Arab opposition to the recommendations of the Iraq Study Group, unveiled in early December by James Baker and Lee Hamilton. The view expressed most often and most emphatically during the meetings, both publicly and privately, was that the study group's plan addresses domestic U.S. political needs at the expense of realistic solutions to the problems the war has created for Iraq and the region.

The widespread fear in the Gulf is that the U.S. policy will create security hurdles that Iraqis cannot possibly clear in the time the study group provided. Were the report's recommendations to be implemented, the country's fledgling army and police would be given another 15 months of training before they would be expected to accomplish on their own what the U.S. military has been unable to do in three years—disarm those who threaten the country's stability.

Iraqis—and their Arab neighbors—also believe that the Bush administration will soon withdraw U.S. combat troops, whatever the state of Iraq's security forces. The White House has made clear that no immediate drawdown is in the offing, that a short-term surge of up to 20,000 troops is the preferred option, and that the president will not be bound by the study group's recommendations. But now-majority Democrats in Congress will use the document to add political pressure to the president's problems, feeding Arab frustration with America's unwillingness to see the mission in Iraq through to some form of sustainable stability. Nearly every political conversation I had in Dubai included some version of this simple verdict: The United States broke Iraq, and the United States should fix it. Virtually no one in this part of the world believes that will happen.

Almost everyone I encountered predicted that Iraq's neighbors will be left to re-establish order once Americans have gone home, an issue the study group essentially ignored. The strong Shiite showing in Bahrain's November elections has exacerbated both their fear and their anger. Many Gulf Arabs insist that the growth of Shiite influence in the region is a direct result of the war in Iraq and the sectarian violence it has unleashed.

The second source of pessimism flows directly from Washington and generates stronger anti-American sentiment than I've experienced in the Gulf before. U.S. support for democratization in the region makes Arab officials more than a little uneasy. Signs of trade and investment protectionism in Washington make matters worse.

The controversy over Dubai Ports World's failed bid to acquire operations at several U.S. ports may have been largely forgotten in the United States, but it's alive and well in the Gulf. The Emirates were taken completely by surprise by the ports uproar in February 2006, and the sense of grievance in Dubai lies just beneath the surface of any conversation on U.S. policy.

But the greatest source of pessimism in the region centers on Tehran. The most provocative speech during the forum came from Ali Larijani, Iran's top national-security official and lead nuclear negotiator, who pointedly rejected the prospect of talks with the United States until Washington renounces its "unilateralist policy" in the region and completely withdraws U.S. troops. (He was deliberately vague on whether he meant from Iraq or the entire Middle East.)

Without so much as perfunctory mention of the importance of diplomacy, Larijani complained that the United States wants Iranians to "spend their time producing mineral water and tomato paste" and asserted that under no circumstances would Iran renounce its right to a nuclear program. He then called on his visibly uneasy Arab audience to develop nuclear programs of their own and to join Iran in the creation of a nuclear OPEC.

This is where Middle East politics crashes the gates of Dubai's prosperous isolation. What local officials (and investors) don't yet seem to realize is that, as the international conflict over Iran's nuclear program comes to a head, Dubai will become increasingly (and directly) involved.

The U.S. Treasury Department is now pressing a number of states to freeze the assets held in their banks of high-ranking Iranian officials with connections to the country's nuclear program. Dubai is the primary conduit for Iranian capital flows. That's a primary reason why President George W. Bush, Vice President Dick Cheney, and former Defense Secretary Donald Rumsfeld passionately, though unsuccessfully, defended Dubai Ports World during the controversy last year. Still, U.S. ties with Dubai are strong—and U.S. pressure for Sheik Mohammed's assistance on Iran will continue.

Iran still has plenty of influence with Dubai's leadership, as well. Tehran recently filed a formal protest with the Emirates government over a decision to allow an Iranian dissident to speak there, quickly winning a government reversal on the issue. Iranian President Mahmoud Ahmadinejad has complained directly to the sheik about his willingness to allow U.S. troops to train on his territory. Anxious as ever to ensure politics does not interfere with business, Sheik Mohammed's government would very much like to avoid even the appearance of choosing sides. In 2007, that will no longer be possible.

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Ian Bremmer is president of the Eurasia Group, a global political risk consultancy, and author of the book The J Curve: A New Way To Understand Why Nations Rise and Fall.
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