Gulf investors, feeling scorched by what they see as an anti-Arab backlash in the U.S. Congress, will likely be wary of high-profile investments in the United States after the ports controversy with a Dubai firm.
Analysts said Friday, however, that with Gulf nations awash in cash from oil profits, the United States remains a tempting market to invest. So instead of retreating, over the longer term, Arab investors and governments may campaign to shore up their image among Americans to ensure their money is welcome.
President Bush said Friday he was worried over the message the fallout of the ports controversy will send to the Arab world. On Thursday, Dubai Ports announced that it would give up management of six U.S. ports after an outcry in Congress over security.
In Dubai and elsewhere in the Gulf, the controversy was largely seen as reflecting an anti-Arab bias. Dubai Ports' concession was likely to solidify that belief.
"It's a sobering moment," said Eddie O'Sullivan, Dubai-based editorial director of the Middle East Economic Digest. "People are going to have to be much more careful. There's a fear they [members of Congress] may move on to other targets in the Arab world. If it happened once it can happen again."
Investors and businesses in UAE, Kuwait, Qatar and Saudi Arabia reviewing portfolios for U.S. holdings that could spark a similar uproar in Congress, O'Sullivan said.
"I'm sure they will be reviewing their portfolios. Most of them are in dollar-denominated assets. They'll want to see how vulnerable it is to the U.S. Congress," O'Sullivan said. "It'll be more difficult to finalize an investment proposal that involves an American bank or an American asset."
A short-term backlash could follow: Perhaps a government-owned company will favor European or Asian suppliers over American ones in the future.
Few observers believe it will torpedo giant recent orders by two UAE airlines of Boeing passenger jets. But Boeing may have to look outside the Gulf for future deals, said Youssef M. Ibrahim, managing director of Dubai-based risk consultancy Strategic Energy Investment Group.
"The next deal they will do with Airbus," the European aircraft consortium, Ibrahim said. "Dubai's ability to react is constrained. You can't punish America much if you are so small."
Last year, Dubai companies invested $5.5 billion in the West, much of that in the United States. In the next five years, the six Gulf countries will have a half-trillion dollars in assets to invest.
They may be more disposed to look to Europe or Asia for investment now — but in the end, the amount of cash is so huge that only U.S. assets can soak it up, O'Sullivan said.
"The United States represents 50 percent of the world's economic market, 50 percent of the world's consumption and 50 percent of the assets in which you can put money," Ibrahim said. "At the end of the day, there aren't too many places where you can invest that kind of cash overflow."
The Emirates is unlikely to retaliate strongly for the slight, for instance by blocking the U.S. Navy and Air Force access to critical bases here, a prospect that has worried top U.S. military leaders.
Governments of other cash-rich Gulf countries like Kuwait, Qatar and Saudi Arabia will be loath to ruffle relations with the United States, analysts said.
Shehab Gergash, chief executive of Al-Daman, a Dubai-based investment bank, said he had seen no drop in investor interest in American products or securities.
"Time will tell whether it has any effect" on Arab investment in the States or Arab purchases of U.S. goods, Gergash said.
Many here blame the controversy on American politicians for playing to a deepening anti-Arab bias in the United States. Dubai-based Gulf News said U.S. Democrats were trying to "score political points" against the Bush administration on national security by ignoring the facts of the case.
"It is deemed better to jump on the bandwagon of anti-Arab, anti-Middle East, anti-Muslim tirade that has been popular since the 9/11 attacks," the paper's editorial page said Friday.
Ibrahim said the UAE may move to boost its image among Americans who fear closer ties with the Middle East. It may embark on opinion-shaping ventures that mimic Israel's deft public relations maneuvers: hosting visits by members of Congress, business leaders and chiefs of unions like the Teamsters, which opposed the deal, Ibrahim said.
"They should've invited these people here and shown them around, so they had friends who would defend them instead of attacking them without knowing anything about Dubai," Ibrahim said.