Nov. 10 (Bloomberg) -- The United Arab Emirates, which plans to award the Persian Gulf’s first nuclear power contracts this year, may start a regional arms race as its neighbors seek similar technology, according to a Chatham House report.

“Risks from nuclear proliferation cannot be eliminated entirely” from the U.A.E.’s program, Ian Jackson wrote in “Nuclear Energy and Proliferation Risks: Myths and Realities in the Persian Gulf,” published today. “It is possible that the genuine desire of Gulf states to engage in civil peaceful nuclear power could possibly tip the region into a nuclear arms race, especially if state intentions are misunderstood.”

The U.A.E., the fourth-biggest OPEC producer, is turning to nuclear power because it doesn’t produce enough natural gas to meet demand. The government has an atomic-energy agreement with the U.S., a necessary step to awarding construction contracts, and will prohibit the enrichment of uranium on U.A.E. soil.

A French group including Areva SA and Electricite de France SA is competing for U.A.E. power-plant contracts against groups led by General Electric Co. and Korea Electric Power Corp.

The civil nuclear agreement may create more than 10,000 jobs, while commercial opportunities could exceed $40 billion, according to the U.S. Chamber of Commerce.

‘Political Decision’

“The judgment on which Arab countries may be permitted to develop nuclear energy has become a political decision of western states, which must authorize the technology transfer,” said Jackson, a consultant on nuclear energy regulation.

Other Gulf nations’ oil income allows them to acquire the latest advanced nuclear technology to meet future power demand and “it is unlikely” this can be kept totally separate from the technology for nuclear weapons which requires similar scientific knowledge, the report said.

“The UAE would probably gain sufficient domestic capability to weaponize its civil nuclear energy program within 10 years,” said Jackson. The Emirates Nuclear Energy Corp. plans to train 2,300 of its citizens by 2020, he said.

Arab Gulf states, including the world’s biggest oil producer Saudi Arabia, may also seek to counter Iran’s nuclear developments, the report said. The Sunni-led Gulf monarchies fear Iran’s Shiite clerical regime.

“A matching civil nuclear energy program undertaken jointly and rapidly by Gulf Arab states would be a sensible strategic precaution” to Iran’s ambitions, Jackson wrote. It would have “an implied military deterrent value because it keeps opponents guessing about whether the state also has a hidden nuclear weapons capability.”

A spokesperson for the Emirates Nuclear Energy Corp., responsible for implementing the U.A.E.’s nuclear program, declined to comment.

By foregoing the development of domestic uranium enrichment and spent fuel reprocessing capabilities, “the U.A.E. has made it impossible for any future U.A.E. nuclear sector to produce weapons-usable nuclear material, thus severing the principal link between civil nuclear energy and nuclear weapons development,” according to a Web site produced by the U.A.E. embassy in Washington D.C.

To contact the reporter on this story: Ayesha Daya in Dubai at adaya1@bloomberg.net

Last Updated: November 10, 2009 08:58 EST