France has agreed a £2 billion deal to build nuclear power stations in the Gulf and in return has secured a military base there.

The French base in Abu Dhabi would accommodate up to 500 troops. It would probably serve as a maintenance station for France's naval vessels in the Gulf and could also be used as a springboard to send troops into the troubled region.

“France responds to its friends,” President Sarkozy said, calling the deal “a sign to all that France is participating in the stability of this region”.

The French moves followed an American promise to sell £10 billion of weaponry to Gulf states to help them to counter the influence of Iran.

Mr Sarkozy toured the region on the heels of President Bush, who is wrapping up his week-long visit today in Egypt. The timing of Mr Sarkozy's announcement hints at an emerging contest for clout in the Gulf, where Sunni countries are regarded as key allies for the West.

While the prime concern of Mr Bush has been to shore up support for his efforts to isolate Iran, Mr Sarkozy touted his trip as pure business. The French deal is poised to deliver a £3 billion windfall to French power companies including Areva, Total and Suez.

With the price of oil soaring to $100 a barrel, Gulf states are desperate to develop alternative energy sources to fuel refineries and construction in order to free up their own oil for export.

Nuclear power would also provide a cheap way of meeting the region's demand for desalinated water and electricity, which has skyrocketed as countries such as the United Arab Emirates pursue aggressive growth.

Under the agreements, French companies would develop civilian nuclear energy in Gulf countries including Saudi Arabia, Qatar and the UAE. Some analysts worry that the build-up of nuclear capacity in the area could trigger a regional arms race with Iran. Others consider a Western-allied, nuclear-powered Gulf as presenting a possible way out of the crisis with Iran, which has huge economic ties to the UAE, just across the Strait of Hormuz.

“One could imagine a scenario where the Gulf becomes a place where Iran could base its enrichment facilities, overseen by a reputable third country,” said Michael Knights, a lead analyst at Olive Group, a security consultancy company.

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