The risk of conflict over Iran's nuclear ambitions has existed for several years with little effect on the Arab world's wealthy oil exporters, most of which have minimal trade and investment ties with their rival on the other side of the Gulf.

In the last few months, however, threats of international military intervention in Iran, and Tehran's threats to close the Strait of Hormuz, have raised tensions to the point where they could have a major influence on investment in the Gulf states and their fiscal policies, some analysts believe.

A recent rise of prices of Gulf states' credit default swaps, used to insure against the risk of a sovereign debt default, may reflect increased concern about Iran. Five-year Saudi Arabian CDS prices have climbed by 22 basis points since the start of this year to 149 bps, their highest level since July 2009, although they remain far below prices for debt-ridden European states, some of which are above 1,000 bps.

"Government spending in the Gulf, which on average increased by 20 percent last year compared to under 15 percent a year over the preceding decade, will probably have to rise more," Said Hirsh, Middle East economist at consultancy Capital Economics, wrote in a report.

"First, military spending is set to rise across the Gulf. Second, the Gulf's governments will need to boost capital expenditure if political tensions lead to a fall in private investment."

Foreign direct investment into GCC states totaled nearly $40 billion in 2010, according to the latest data from the UN Conference on Trade and Development.

While that is not a huge amount relative to the size of Gulf Arab economies — their combined output was about $1.4 trillion last year — much of the foreign investment is in strategic sectors such as oil and gas. So any reduction due to geopolitical tensions could be awkward for the Gulf, forcing a rise in state spending to compensate.

"We are going into the year when international investors are very risk averse. The impact of Iranian tensions could be much more severe than say the revolution in Egypt and Tunisia for capital flows into the Gulf," Hirsh said.

In any case, most analysts think a closure of the Strait of Hormuz would not last long — perhaps just hours or a few days — given the US military presence in the Gulf.

"We believe that it would be a very short-term spike in oil prices because it would become rapidly clear that Iran does not have the military capacity to effectively block the Strait of Hormuz," said Farouk Soussa, Citi's Middle East chief economist.

"The international community's response to any such effort would be swift and decisive, and the Strait would remain open for business."

The effect of a closure of the Strait on Bahrain, Kuwait and Qatar would probably be greater than for Saudi Arabia, because those countries do not have ports outside the Gulf. Later this year, the impact of any closure on the UAE is expected to diminish when it opens a pipeline that would bypass Hormuz and carry most of its oil to the Arabian Sea. The pipeline is due to open by mid-2012.

If the crisis stops short of military conflict, Iran's international merchandise trade may still be hit further by financial sanctions.

With the exception of Dubai, however, GCC trade links with Iran are minor.

"Tensions with Iran have increased but, provided they do not escalate, we think the broader economic impact on the region is likely to be modest," Deutsche Bank's chief emerging markets economist Robert Burgess wrote in a January report.

"The only exception is the UAE, mainly Dubai, where exports to Iran have increased substantially in recent years to $20.4 billion in 2010 or about 7 percent of GDP. These are likely mainly re-exports and reflect the diversion of trade from elsewhere in response to sanctions on Iran, something that the US has increasingly sought to restrict."

The rest of the Gulf Cooperation Council, which comprises Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE, exported just $700 million worth of goods to Iran in 2010, according to Deutsche Bank.

The International Monetary Fund said in May 2011 that international sanctions against Iran existing at that time could harm the UAE because they increased the cost of securing trade finance and raised insurance premiums. Iran has accounted for a little more than six percent of the UAE's total exports and 12 percent of its non-hydrocarbon trade.

The IMF's estimate of the damage to the UAE, however, was not crippling for an economy which is growing at an annual rate of about 3-4 percent.

"Losses from disruptions in strong trade links between the UAE and Iran could reach 0.2 to 0.7 percent of GDP annually," the IMF said following regular consultations with the UAE.

It added: "By complicating the execution of payments and settlements, sanctions risk stifling demand for real estate from Iran, undermining further prospects of recovery in the already weak housing market in Dubai."