The United Arab Emirates - comprising seven sheikhdoms, including the internationally renowned Dubai - were on 16 June 2008 elevated to the highest terrorism risk level by Britain's foreign office, acting on credible intelligence provided by the Joint Terrorism Analysis Centre. With warnings of indiscriminate terror attacks against expatriates and travellers to the country, the UAE and Dubai have been placed on a par with Saudi Arabia, Pakistan, and other regional hotspots.

Christopher M Davidson is a fellow of the Institute for Middle Eastern and Islamic Studies, Durham University, and a former assistant professor of politics at Zayed University, Dubai. He is the author of Dubai: The Vulnerability of Success (C Hurst, 2008)

Dubai is not the richest of the emirates, nor is it the UAE's capital (that mantle rests with oil giant Abu Dhabi). However,it is the most populous, and it's very much the business hub. Since the mid-1990s Dubai has faced declining oil reserves and has urgently sought to diversify its economy. Today, with over 95% of its GDP coming from non-oil sectors - including tourism, real estate, and giant "free zones" for foreign companies - Dubai has truly moved beyond oil. It enjoys one of the highest economic growth rates in the developing world and attracts more foreign direct investment than any other Arab economy. It has also drawn millions of expatriates from across Europe, Asia, and Africa. Native "Emiratis" are now less than 5% of Dubai's population.

Over 210,000 European, north American, and other ‘first-world" nationals are living and prospering in the UAE, the majority being based in Dubai. A further 2 million visit the emirate’s sun-drenched beaches each holiday season, with many staying at luxury resorts including the Jumeirah beach and the iconic Burj al-Arab. With dozens of new hotels under construction and with Dubail and – the world’s largest theme-park – nearing completion, Dubai is fast becoming Europe’s favourite long-haul destination.

On top of that, millions more westerners fly on Emirates airline and regularly use Dubai’s airport as a stopover en route to Asia and Australia. Very recently, with foreign-ownership restrictions being relaxed, thousands of European (and particularly British) nationals have also invested heavily in the emirate’s plethora of property projects, including the Dubai Marina, the massive man-made Palm Islands stretching out into the Gulf, and the Burj Dubai – the world’s tallest skyscraper. With David Beckham, Michael Schumacher, and - for Bollywood hopefuls - Shah Rukh Khan as potential neighbours, these have proved irresistible opportunities.

Beneath this glamorous jet-setting veneer exists a massive "middle class" of over a million south Asian and expatriate Arab residents. Without these Dubai would not function. Most starkly, there is also an "underclass" of several hundred thousand Asian construction labourers, all of whom leave their families behind to accept short-term (two- or three-year) contracts worth at least seven times what they could expect in their hometown. There have been problems in recent years - including street-rioting over appalling conditions and slow payments - but these have largely been contained. Expatriate troublemakers can easily be deported, while the bystanders usually prefer to keep their noses down. After all, they are keen not to forego their relatively well-paid jobs, and most are working alongside fathers, brothers, and cousins on their second or third contracts – hardly a step into the unknown.

Also on Dubai in openDemocracy:

Faisal Devji, "Dubai cosmopolis" (19 April 2007)

The circles of security

It is an impressive balancing act on paper – the "first world" coexisting with the "third world" - but so much can go wrong. Dubai is still an absolute monarchy, having undergone less political reform than even Saudi Arabia, and much of the ruling family's legitimacy is drawn from its support of Arab or Muslim causes. It's no surprise that Dubaiand the UAE have been involved as mediators in almost every regional dispute over the past twenty years, even attempting to broker a last-minute deal with Saddam Hussein in the days before the invasion of Iraq.

It's also no surprise that Dubai is now the charity capital of the middle east, having channelled huge sums into projects in Muslim countries in war-torn east Africa and tsunami-hit east Asia. The UAE has been actively engaged in peacekeeping, having sent missions to Somalia, Bosnia, and Kosovo. Its money pours into Palestine and Lebanon, with schools and mosques being named after their UAE patrons. No opportunities for public magnanimity are missed. Qur'an-reading competitions are sponsored. Islamic-studies conferences are generously funded. And a lot of weight has been put behind Islamic banking.

At the same time, Dubai and the UAE rely on a western military umbrella. Although more discreet than some other Gulf states, where there are fully-fledged American military bases, the UAE nevertheless permits the use of its ports and airbases. The second terminal of Dubai's airport has been kept busy since 9/11 with flights to Afghanistan and Iraq regularly laden with United States military freight. Such activity has not gone unnoticed, as evidenced in threats since 2002 from previously undocumented groups such as "The Al-Qaeda Terrorist Organisation in the United Arab Emirates Government" and "The Al-Qaeda Organisation in the Emirates and Oman".

The former warned UAE officials to stop arresting al-Qaida's "mujahideen sympathisers"; boasted that "...you are well aware that we have infiltrated your security, censorship, and monetary agencies"; and demanded that the UAE "...get the idolaters out." The latter called in 2005 for the dismantling of all US military installations in the UAE within ten days, failing which "the ruling families would endure the first of the mujahideen in their faces."

openDemocracy writers explore the worlds of the Gulf states - from political economy and security to culture and memory:

Maryam Maruf, "Spider-Man!" (31 October 2002)

Saeed Taji Farouky, "Shadowplay in Dubai" (21 December 2005)

Paul Rogers, "Abqaiq's warning" (2 March 2006)

Mohamed Al Roken, "Terror, law and human rights in the Arab Gulf states" (10 April 2006)

Jane Kinninmont, "Castles built on sand" (23 August 2006)

Emile El-Hokayem, "Arab Gulf states: the Iran complex" (31 August 2006)

Mai Yamani, "Mecca: Islam's cosmopolitan heart" (6 September 2006)

Fred Halliday, "Al-Jazeera: the matchbox that roared" (23 March 2007)

Bissane El-Cheikh, "Riyadh: city of women" (7 March 2008)

Paul Rogers, "A tale of two futures" (1 May 2008)

To their credit, the authorities have installed iris-scan technology in most airports and have constructed an enormous wall across the previously porous desert border with Oman, much to the chagrin of camping enthusiasts. But such measures are only effective against outsiders. Al-Qaida cells are just as likely to be formed by indigenous Dubai nationals and other Emiratis who have become disgruntled with the way their country is developing. Many baulk at a government that is seen as openly pandering to foreign interests.

There are parts of Dubai where nationals feel unwelcome. Many of the city's top restaurants forbid national dress, on the grounds that alcohol is being served. Alcohol is freely available in the emirate all year round, including the holy month of Ramadan. Prostitution is rife, and homosexuality is tolerated - a crime punishable by death under sharia law. A Dubai government-owned investment entity has acquired a large stake in MGM - one of the United States's largest gambling businesses. Although gambling remains illegal in the UAE, such an overseas association remains sacrilegious.

Most damningly, Dubai is also warming to Israel. With a rising profile in the international system, in 2003 Dubai volunteered to host the annual meetings of the World Bank and the International Monetary Fund: given that Israel is also a member of these organisations, a delegation had to be invited. Until then the UAE had upheld a total boycott on all Israeli relations and trade. Even now, Israeli websites and telephone calls are blocked.

Several UAE nationals have already been implicated in terror attacks, including the pilot of the second place to hit the World Trade Centre and another of the 9/11 hijackers. In 2002 it was discovered that hundreds of "volunteer soldiers" in Afghanistan were UAE nationals. Nevertheless, the topic remains taboo. The most recent terror warnings have been met with outright denial. On 18 June the frontpage of Dubai's most widely read English daily newspaper quoted a conspicuously anonymous "UAE security expert"who claimed that "...these terror advisories usually come in the form of travel warnings issued by both the British and American authorities... this is a case of crying wolf by the officials." The mystery expert went on to announce that "I have reliable information that the British authorities have tried to get information about the alleged threats, but failed to make any headway."

In another piece, entitled "The UAE is thesafest place to live", an unnamed columnist stated that precautions were unnecessary and that there were no credible threats. Such irresponsible journalism has plumbed new depths. Usually, the newspapers can get by with subtle self-censorship, as most journalists are expatriates and want to keep their jobs. But these articles will fool nobody.

What happens next?

It's easy to miss the fundamental point: the worst does not need to come to the worst. There doesn't need to be a terrorist attack for Dubai to collapse and for everyone to lose out. Fear, uncertainty,and a pricking of the large "confidence bubble" that has been building up would be more than enough. Impartial observers, although few and far between, would agree that the Dubai model is severely flawed. If anything, the nature of the economic diversification that has taken place has rendered the emirate more dependent today on external economic forces than it ever was during the oil era.

If Dubai's almost impossibly unstained reputation for stability should waver - which is likely in the face of detractors armed with hard evidence - then foreign investment, the emirate's newfound lifeblood, will dry up rapidly. Speculators will think twice about their real-estate portfolios, as resale value will markedly decline. With hundreds of skyscrapers being built "on the fly" - with down- payments arriving from investors after each ten or so storeys are built - this could lead to a lot of unfinished business. Investors in the emirate's free-zones would also be spooked and would seek to relocate.

In the wake of Dubai's successful free-zones, many other states in the developing world have sought to copy the model, by building zones of their own. Thus, should the pioneer stumble, multinationalswith regional headquarters based out of Dubai would have no shortage of alternatives. Most dramatically, the millions of tourists would vanish. For the months following the 9/11 attacks, Dubai's hotels were fairly empty, with some even shutting off their power to keep costs down. In the event of a direct threat to the UAE, the fallout would be far worse and longer lasting. Dubai's belly-dancers are not even Arab, and it does not have the pyramids, sphinxes, or cedar forests that would allow it to bounce back in the same way that Egypt and Lebanon always have.

Nobody knows when the bubble will burst. But the time will come, whether it's next week or in five years' time. Dubai will unravel, as the prevailing "nothing-can-go-wrong" attitude has left the stakes impossibly high. There is, however, a way out. If a new, more realistic mood is encouraged, if the denials and censorship come to an end, and if the country's amazingly diverse, cosmopolitan community is allowed to develop an awareness of the very real perils facing their home or adopted home - then perhaps Dubai can emerge as the entrepôt city-state that it deserves to become. A middle-eastern version of Singapore or Hong Kong that acts as a global hub, with all vested parties united by a common desire to see it survive and prosper, in the face of acknowledged adversity. It's a bitter pill to swallow, but Dubai's famously astute leadership can do it.