The Dubai crisis: What is Abu Dhabi going to do?

The Dubai crisis could benefit Abu Dhabi

As the global financials markets wait for some sign of improvement or to see if some form of organised restructuring of Dubai's debt is forthcoming, the world looks to Abu Dhabi. However, the emirate's refusal to essentially sign a blank cheque to underwrite Dubai's debt has shocked many, leading to speculation about what Abu Dhabi could be planning.

Abu Dhabi, the capital of the United Arab Emirates, isn't just among the world's richest cities but also one of the most stable. With oil reserves, a stable ruling class in the Al Nahyan family and a rumoured $800 billion in sovereign wealth, Abu Dhabi could wipe out Dubai's, again rumoured, $70 billion debt in an instant, yet they are choosing to do nothing. Why?

Unstable markets

Dubai's property investment market has always been rocky, and during the economic recession even more so. As such, Abu Dhabi has been in a position to watch certain vulnerabilities open up in Dubai's markets, whilst positioning themselves to take advantage of it. If Abu Dhabi do begin to cherry-pick Dubai's more premium assets, it could see Abu Dhabi solidify its regional power base, despite being the hub of influence in the UAE.

Abu Dhabi has already begun to secure itself some of Dubai's most lucrative assets. The emirate already has majority stakes in the Burj Dubai skyscraper and the Emirates airline, both crown jewels in Dubai's treasury.

A government official has already been quoted as saying, "We will look at Dubai's commitments and approach them on a case-by-case basis.

"It does not mean that Abu Dhabi will underwrite all of their debts.

"Some of Dubai's entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist."

The issue of Dubai's debt is a more complex problem. Whilst the press have reported Dubai's debt as $70 billion, some analysts have said this could be hugely conservative. As such, the last thing that Abu Dhabi wants to do is to burden itself with such enormous debts, especially as it is currently moving to make itself a truly global, 21st century city.

There is also the 'face-saving' aspect of the crisis. The Al Nahyan family could bail out Dubai's ruling family, the Makhtoums, but they are currently implementing a news blackout in order to secure private deals. As such, pride could be playing a huge issue for both Dubai and Abu Dhabi in asking for and offering help.

Is change coming?

For years, Dubai has been seen as the UAE's wunderkind - rapidly expanding, and becoming overtly Westernised and glitzy in the eyes of the region's more conservative Islamic countries. This financial crisis could easily see favour fall away to Abu Dhabi, and the Al Nahyan family know this.

Despite Dubai's ruling classes saying that Dubai will continue to be the hub of the region with its "modern infrastructure, diversification of the economy, tolerant lifestyle and efforts to promote education and create a vibrant economy", this recent loss of confidence could easily see businesses seek a new regional base.

If this happens, the leadership of Dubai could easily fall, allowing the emirate to be reigned in. With Abu Dhabi's vision of a new modern Islamic state, this could be extremely beneficial to them. However, this all depends on how the next few weeks play out. With Dubai's reputation tarnished, do not be surprised if Abu Dhabi starts to reap the benefits, taking projects and businesses originally destined for Dubai.

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