* UAE faces fine balancing act over sanctions
* Embargoes should be lifted, says Iranian ambassador
* Talks a "historic opportunity" for the West
* Iranians in Dubai talk of spreading 'Iranophobia'
By Marcus George
DUBAI, May 22 (Reuters) - An Iranian crewman climbed down from the cabin of the ship and shuffled over to the fence that separated the public road from the quayside.
"Sanctions?" he said, surprised by the question. "No. They aren't a problem for us."
Flicking the ash from his cigarette, he pointed to the souk clinging to the side of the dock, a smattering of stores doing an active business selling household goods, clay pots and garden plants brought by boat from Iran to the United Arab Emirates.
The legal transportation of such goods by rudimentary timber-built ships that chug slowly across the Gulf is at the bottom end of the food chain in trade between the two countries. But even this is facing more intrusive monitoring.
"They now search us regularly for illegal items, drugs, that kind of thing," the boatman said, his voice tinged with tiredness from the 20-hour crossing.
The stepped-up monitoring is a small part of the UAE's drive to enforce elements of tough new sanctions imposed by the United States against Iran to squeeze the life-blood out of its economy and force the clerical leadership into a nuclear agreement.
A further round of nuclear talks between Iran and world powers is set to take place in Baghdad on Wednesday after negotiations resumed in April.
The United States and its allies suspect Iran is using its nuclear activities to hide its attempts to develop a weapons capability, but Tehran maintains its activities are purely peaceful.
Under diplomatic pressure from Washington, the Emirati authorities have quietly imposed some stringent measures that have caused damage to its thriving trade with Iran. Letters of credit from Iranian financial institutions are now almost useless and some Iranian nationals complain of having their local bank accounts closed.
A DIPLOMATIC VIEW
In the peaceful surrounds of Iran's Abu Dhabi embassy, a handsome building in the Persian Safavid style, Iranian ambassador Mohammad Reza Fayyaz refused to be drawn on the current balancing act between Iran and the Emirates.
"As a diplomat, you have good days and bad days," he offered, without elaborating. Instead he launched into a tirade about how embargoes against Iran have failed.
"Can you give me one example of something that Iran has not been able to achieve during 32 years of sanctions?" he asked over tea and pistachios.
"We are an embargoed nation. And of course we will not die from hunger," Fayyaz said, his voice rising as he spoke. "We are capable of improving everything in Iran that is subject to sanctions."
He asserted that despite attempts by the United States and its allies to cut Iran's financial links off with the outside work, Iranian banks continued to operate without significant problems - especially in "the East".
It was all part of the West's "dark dossier towards us", he said. If it wanted to regain the trust of the Iranian people, it needed to lift sanctions as soon as possible.
Oft-mentioned grievances include the West's historic meddling in Iranian politics, supporting Iran's shah and providing military assistance to Iraqi leader Saddam Hussein during the Iran-Iraq war.
In recent decades such talk has instilled an almost pathological conviction among many Iranians that Western countries are responsible for many negative events in Iran.
"This is a historic opportunity," Fayyaz concluded, referring to the forthcoming Baghdad talks.
In Dubai's international financial centre, glamorous, well-heeled and Westernised Iranians mingled in the crisp white confines of the city's newest art gallery, dedicated to Iranian art and owned by a Tehran-based company, on its opening night.
As the champagne flowed, the guests - some sporting tuxedos and ball gowns - purred over works that fused modern contemporary art with Iranian motifs.
The evening at the Rira gallery seemed an orbit away from concerns about nuclear proliferation and sanctions.
Yet those issues were never far from people's minds.
"Do you know how much a bottle of my favourite whiskey costs in Tehran now?" asked one hip young advertising executive who had a taste for Johnny Walker Red Label. "Two hundred dollars. That's sanctions for you."
Another guest visiting from Tehran was optimistic that Wednesday's nuclear talks would be a big step toward averting military action against Iran.
"Iran is hurting but the Middle East simply cannot face any more disruption," he said between canapes. "The West can't stomach more war."
While much of the UAE's Iranian population harbour gripes about the Islamic Republic, they remain vociferously opposed to sanctions.
An Iranian general trader outlined what he said was growing distrust of Western nations. "Sanctions are changing Iranians' behaviour. Does the West really have any right to do this?"
Criticism of the West and the UAE is a regular topic of conversation among many Iranians in Dubai. They cite examples of Iranians being asked to close bank accounts and forced to withdraw from business deals because of their nationality as clear cases of 'Iranophobia'.
Some Iranians feel sanctions are needed to force Iran's religious leadership into reform, however.
"I really hope they bring Iran out of this situation and take away this cage around people," said one executive of a large Iranian media enterprise who did not want to be named.
"It could be a new horizon," he added referring to the Baghdad meeting.
Even he harboured concerns about the real motives of the United States and Europe, however.
"The current environment of fear helps Western countries sell weapons around the region. They profited before sanctions and benefit with them." (Editing by Sonya Hepinstall)
SANCTIONS ON IRAN: