But with increasing instability in the Gulf, from civil unrest to rising tensions with Iran, tankers are wary of passing through the narrow strait into Gulf waters.

This has opened up a lucrative opportunity for a once-sleepy fishing village to transform itself into one of the world's top tanker refueling and oil storage hubs.

"Fujairah is the place to be," said Valery Golovushkin, president and chief executive of Azeri oil firm Socar's trading arm.

The company is building 641,000 cubic meters of oil storage capacity at the port, as part of its strategy to rival top commodity traders such as Trafigura and Gunvor.

Just outside the Strait of Hormuz, through which 40 percent of the world's passes, crude oil carriers are docked in berths in the azure waters off Fujairah, where fishing boats once rocked lazily on the eastern coast of the United Arab Emirates.

"Strategic location, lower risk, cheaper freight, less congestion, significant investment in port infrastructure and refinery expansion" were among the reasons why Fujairah would become the major trading hub in the Gulf, Golovushkin said.

Figures vary, but Fujairah is now poised to rival the world's top two bunkering hubs, Singapore and Rotterdam, thanks to booming demand from the Middle East as well as Asia.

It may eventually challenge Singapore's crown as the top oil storage and products trading center, helped in part by the strong support of emirate of Abu Dhabi.

Fujairah, Abu Dhabi, Dubai and four other emirates make up the United Arab Emirates, the world's third-largest crude oil exporter.

Oil storage has been in demand since the global economic slowdown slowed demand and forced traders to keep oil for sale later at a profit.

But now, with Asia's insatiable appetite for oil and a growing demand outlook for oil products from the Gulf countries, where fuel prices are heavily subsidized, it is all about being close to buyers and making supplies readily available.

"With the political issues of the day and basic food prices skyrocketing, the willingness of governments to change these subsidies is unlikely to be there," Chris Bake, managing director of Vitol Dubai, told a conference in Fujairah.

Arab governments often use proceeds from the sale of crude oil to offset the price of finished products such as petrol and diesel through subsidization.

"Several governments in the region have managed to accumulate significant reserves of wealth... all this translates into higher demand for oil products over the next five years."

And Vitol, the world's largest independent oil trader, has already moved to cash in on this demand.

Its storage facilities at the port makes up about a third of Fujairah's total capacity of 3 million cubic meters, which is expected to soar to over 7 million cubic meters by 2012. Traders say the target will probably take until 2014 to realize.

Oil majors such as BP, ConocoPhillips and Litasco, Russian Lukoil's trading arm are already betting on future demand, and have secured spaces in an upcoming expansion due to come online later this year.

Chinese oil major PetroChina is also in talks with the Fujairah government for up to 1 million cubic meters of storage.

A major pipeline plan to link oilfields in the west to Fujairah in the east will eventually help carry a third of the UAE's output of 2.3 million barrels per day, further boosting Fujairah's strategic value. A planned refinery will also bring an extra 12 million barrels of oil storage.

One key risk that could cloud Fujairah's future, however, is pricing. Traders and international oil companies using the port say handling fees are becoming a sensitive issue.

"What's being debated is the price of this infrastructure — it needs to be very competitive in commodity business," an industry source said, on the condition of anonymity.

"Fujairah is ideally placed to continue to grow because it is a deepwater port and has the commitment by the government to invest more. But to take their business to the next level they have to keep being realistic and pragmatic about this," the source said, referring to prices for handling fees for ships.

Handling fees for the vessels are set by the port authority and vary according to the size of the ship, while bunkering and oil storage activities are operated by the individual private companies.

There is also competition from the port of Sohar, down the coast in Oman, which offers competitive fees for smaller vessels.

"It is quite obvious that competitive pricing is a requirement as are the provisions of up-to-date and state of the art port facilities which the port has invested and is investing heavily," the port's Marketing Manager John Mittelstein said.