UAE, keen to maintain safe-haven image, tempers tanker attack response

By Alexander Cornwell and Stanley Carvalho

DUBAI (Reuters) - The United Arab Emirates, though a prominent foe of Iran in the Middle East's power struggles, has tempered its reaction to attacks on oil tankers off its coast in an effort to protect its reputation as a safe and stable business hub.

While its close ally Saudi Arabia unleashed a barrage of tweets accusing their mutual enemy of ordering drone strikes on its oil installations on Tuesday, the UAE held off blaming anyone for Sunday's attacks pending an investigation.

Abu Dhabi pledged restraint and de-escalation during what it called a “difficult situation” caused by Iranian behavior in the region.

Iran has distanced itself from the attack, which no-one has claimed. Yemen's Iran-aligned Houthis said they carried out the drone strike on Saudi oil pumping stations.

The divergent approach by two crude-exporting heavyweights illustrates the complexities of dealing with Iran, which they see as a destabilizing force in the region.

Both have lobbied the United States to isolate Tehran, and the two spearhead a military coalition backing Yemen's internationally recognized government against the Houthis.

“Sometimes you need to be diplomatic, we can't destroy our economy's reputation. Others are looking to shake our reliability,” said a UAE oil source when asked why the initial UAE statement mentioned commercial vessels and not oil tankers.

It was Saudi Arabia's energy minister who revealed that two Saudi tankers had been attacked.

As Washington and Tehran spar over sanctions and the U.S. military presence in the region, the UAE is balancing curtailing Iran with protecting its economic interests as the Middle East's tourism, financial and trading hub.

A Western diplomat said the UAE was taking a guarded approach because it does not want “trouble at its doorstep”.

“The UAE is far more pragmatic and strategic, and has more to lose. Saudi Arabia is the bigger concern for Iran so there is messaging coming out,” said another diplomat.

BUSINESS HUB

Western diplomats said the UAE, where expatriates are a majority of the population, shared Riyadh's goals but unlike the kingdom has a diversified economy more exposed to regional shocks.

“UAE authorities are trying to find a fine balance because this a business hub. You don't want to prick the bubble,” said a Dubai-based banker handling marine and energy business. “The right sounds are being made...no alarm bells.”

Dubai, which lacks the oil wealth of the political capital Abu Dhabi, is more vulnerable. It has been pinched by a Saudi-led boycott on Qatar and U.S. sanctions on Iran, for which Dubai was a traditional trade hub. Free zones also depend on unfettered access to Gulf maritime routes.

The emirate, whose economy is focused on tourism and international business services, is suffering a property downturn and a slowdown in retail as it gears up to host the World Expo trade fair in 2020.

“It doesn't pose many risks to Abu Dhabi...but a substantial risk to Dubai, which relies on international businesses and real estate buyers feeling safe there,” said Steffen Hertog, associate professor at London School of Economics.

“Just tanker incidents are unlikely to affect tourism and business though; it would probably take an attack involving civilian casualties to substantially shift the mood,” he added.

Analysts say the attacks appear designed to test the resolve of Washington and its Gulf allies without triggering war by exposing weaknesses in the security of a key oil-shipping route.

If push comes to shove the UAE has deep enough pockets to bail out the economy for months or years, said Jon B. Alterman, director of the Middle East programme at CSIS.

“In the view of many Emirati officials, the threat from Iran is serious and enduring. If it takes a little bit of pain to get to a more secure place, theyre willing to make that investment.”