The disappearance of Djinn, the United Arab Emirates' first horror film

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In December 2011, at a cinema on the edge of Hyde Park – a stone's throw from Edgware Road, London's Arab quarter – 300 punters were filing out of a test screening of Djinn, the United Arab Emirates' first horror film and the eighth full-length Emirati feature to date. Image Nation Abu Dhabi, the government-backed company who made it, had scored a coup: persuading Texas Chainsaw Massacre legend Tobe Hooper to direct. And it seemed to have paid dividends. "It's the return of the master," crowed one viewer at the screening.

Then Djinn vanished. It didn't appear at the Dubai film festival, where it had been offered a red-carpet premiere. Promised spring and summer 2012 release dates came and went. It was puzzling: shooting on the story – a Rosemary's Baby-esque spooker set in a fishing village redevelopment in Ras al-Khaimah – was nearly a year back; post-production almost six months gone.

After Djinn's Cannes launch in 2010 hailing the country's entry into the commercial fast-lane and the early rash of publicity in government-sponsored publications, the silence was deafening. With Hooper's imprimatur and an intriguing collision of modern genre thrills and traditional Arabic culture, Djinn had the potential finally to bring global attention to the fledgling UAE film scene ; "a much-awaited film for all our distributors around the world", Fortissimo, Image Nation's international sales agent, was saying. But come the end of the year, more tumbleweed.

Shortly after the London screening, an Italian website, Moviesushi, printed a possible reason for Djinn's disappearance. According to a source on the production: "Someone close to Abu Dhabi's royal family has seen the movie and does not appreciate its portrayal of the UAE, and considers the movie to be politically subversive." The old suspicion surrounding the Emirati industry had risen again: that it was too tightly supervised from above (usually through the National Media Council censorship body) to blossom freely.

Michael Garin, Image Nation's CEO, says the story is a "total lie" and that "politics are not what we're about". The company is still, according to him, "excited" about Djinn, which they plan to have on sale in February at the Berlinale and to release in the UAE in the first quarter of 2013. He blames the delay on having to fulfil the requirements of the Director's Guild of America (DGA), "things that we would never have to do with any other local production": safeguards for directors like mandatory test screenings and the right to produce two director's cuts before Image Nation takes control of the film.

But one source who worked on Djinn says that there may well have been high-level concerns – if not objecting to the portrayal of the country, then at least failing to understand the project. "I do find that believable," they say. "Horror films are not appreciated in these parts. They are generally seen as totally foreign, culturally speaking, and the fate of Djinn shows a disregard so quick it ignores the fact that regardless, horror is still one of the most, if not the most commercially lucrative genre."

Garin disagrees with that judgment, saying Image Nation's research shows that UAE audiences are "thrilled" at the prospect: "It's a genre that they really like that is now in their own language and their own locale." It's true there is no fundamental incompatibility between Islam and the film's subject matter: djinns are part of Qur'anic cosmology and related folklore, and there is a small existing body of Arab-language horror, mostly from Egypt: Sadir Guhannam (The Ambassador of Hell), from 1945, is cited as the first such film.

Another person involved with Djinn believes that local pride was the real reason for its awkward gestation, and for the rewrites and restructuring that Garin admits have caused holdups with the DGA. "I suspect that the Arab Spring was not a good thing for poor Djinn," they say – believing that such a flagship film project going out under an American film director's name may have been a source of embarrassment and what exacerbated the creative struggles.

Post-Tahrir, there has been throughout the region an upswell in Arab pride and a desire to not be seen in hock to western governments that, in the UAE, has resulted in greater pressure to prioritise Emirati citizens – already a loaded issue in a country where only 13% are native-born, and reliance on foreign expertise is essential. The source speaks of a sudden "coldness" by the UAE leadership towards the idea of westerners in high-profile positions, and this seems to have hit the cultural sphere: Peter Scarlet, at the Abu Dhabi film festival, David Shepheard, at the film commission, and Tony Orsten, at local media zone twofour54, all departed this year as heads of their respective institutions.

Garin won't comment on the specifics of what has happened on Djinn. But it shows the tensions in the film industry in the UAE, as a potential beacon of its lightspeed passage into the modern world. The CEO is trying to introduce a sense of proportion to the country's first steps in the business where, famously, nobody knows anything: "One of the biggest problems generally here is this is a society where failure is punished severely. Failure of all kinds. One of my biggest challenges in building up Image Nation is making people feel safe to fail. If you don't take creative risks, you'll never achieve creative excellence."

Djinn, with a budget just over $5m (£3.1m), is not a big risk for such an oil-rich nation – but the money is beside the point (Garin admits that the economics of making films for Emirati audiences, in a country that still has under 300 screens, won't add up for another five years). How it's treated and what form it's released in by the present Image Nation team (it was commissioned by a previous incarnation) could indicate the future direction of the wider Gulf industry. Garin says the company now prefers a more modest strategy, focusing on locally themed, locally staffed productions.

One of the sources agrees that a period of "naïve optimism" is coming to an end – "a birthing period in an environment of 'just throw money at it' that allowed people to believe we could compete with Hollywood by approaching the product in terms of scale". "Acceptable losses" like City of Life, Dubai's much-publicised feature debut, and Black Gold, Qatar's 2011 oil epic, which looks to have haemorrhaged around $50m, are likely to be scarcer from now on – particularly given the world economic climate.

Djinn, when it goes on release, could be left as a relic of that era. What remains to be seen if Garin's slow-stream alternative for UAE cinema – relying partly on the Arab Film Studio lab to gradually drum the country's cinema skills-base up to critical mass – is fast enough for the country's young film-makers. There is talent there: that much is obvious from City of Life director Ali F Mostafa's visual pep, and the irrepressible supply of shorts that have mostly been the country's showings at its own film festivals. Garin is aware of the need to feed the younger, media-literate and cosmopolitan generation that is growing up in the Emirates: "[Otherwise] we're going to lose them to LA and New York. These guys and girls are not going to lose their passion for the industry."

It's far from obvious that the current Emirati setup, with its strong censorship, offers enough opportunities. Image Nation Abu Dhabi, with its government links, offers the clearest route to the green light – but is still heavily linked to establishment families (chairman Mohammed al-Muburak comes from a family with close ties to the country's crown prince; the head of the local arm, Mohammed al-Otaiba from a family of diplomats) with a vested interest in the status quo. Garin says there is no direct political interference, but it's not clear how much freedom there is, either.

The company is due to announce the start of production on another feature before the end of the year, with three TV series and another film to come in 2013 – Garin says all "push the envelope". They're going to need to if the industry is going to keep up with neighbouring developments: it's ironic that, while there's no full-length fiction-feature from the Emirates at this week's Dubai film festival, star Arab pick is the Saudi feature Wadjda. It was, of course, filmed clandestinely by a woman in a country where it's illegal to go the cinema. But if there is any temptation the powers that be to intervene, perhaps they should remember horror's rule No 1: the repressed always returns.

Djinn will be released in the UAE next year; the Dubai film festival ends on Sunday.