What does UK sabre rattling in the Gulf mean for investors?

It is a little alarming to read a story in The Daily Telegraph today about British preparations for an evacuation of the UAE in the event of war, for British families and presumably those of its allies (click here). But this is hardly Berlin in 1939.

Such sabre rattling by the UK is surely a part of the ongoing build up of pressure on Iran to abandon its nuclear program, widely thought to be hiding the creation of weapons of mass destruction. Tough new sanctions have already significantly reduced trade between Iran and Dubai this year, and the removal of subsidies on food and fuel last week signals the Iranian economy is under pressure from hyperinflation (click here).

Evacuation plans

But there have always been contingency plans to evacuate Britons from the Gulf, not that many would actually be in residence if political tensions rose to the brink of war. The vision of the British Navy evacuating hundreds of thousands is fanciful, they would have left on Emirates’ flights long before then and would not be wating for the last helicopter out.

And what exactly is the threat? Iran has been extremely careful to avoid all military engagements with the West. Would it risk doing so in a major crisis? What military capacity does Iran actually have? Or is this a war of words? Let us hope so for this is surely the voice of sanity.

On the other hand, this sort of sabre rattling is not the sort of thing to encourage investment. If pursued too vigorously it might backfire and produce the kind of economic instability it is intended to prevent.

You could imagine Britons dumping their homes in Dubai, and selling out cheaply to whoever was buying. Iranians perhaps? It would be pretty ironic if your country came supposedly to save you and managed to completely unnecessarily ruin you in the process, and give the Iranians a further foothold in Dubai.

Investment opportunity

However, as any sensible local investor would note this would be a buying opportunity like the hiatus in Dubai that surrounded the tragic events of 9/11. Then some investors took flight while hundreds of billions came back from the US and this actually proved to be the start of the Dubai boom that lasted until 2008.

For some canny local investors would probably judge the real threat to be greatly exaggerated. But that would not prevent a major crisis of confidence in local property and stocks which should be avoided unless judged really necessary. The real story is surely that the UAE will boom again once the Iranian stand-off is resolved, along with Iran, and that can only be a matter of time.

Meanwhile, the ArabianMoney newsletter is gearing up for a choppy ride for investors in 2011 and will be on hand with actionable investment ideas through-out the year that are not covered on this free website. This is required reading for those who wish to become successful Gulf investors, and profit from changing circumstances (click here to get your copy).