Dubai looks to Abu Dhabi for possible aid

It's not known what promises were made inside the halls in Al Ain during the parade of visitors for an important Islamic feast day on Friday. But their new relationship is clear. Abu Dhabi has the cash and cache to be Dubai's white knight — in a Gulf version of a too-big-to-fail bailout or to help calm markets with promises to intervene if Dubai's fiscal mess deepens.

The direction Abu Dhabi takes will likely set the tone for the coming week as analysts try to sort out what banks and institutions have the most at stake in the money crunch — which has suddenly shifted Dubai's image from a desert dream factory of indoor ski slopes and a “seven-star” hotel to a reckless spender sideswiped by the recession and unable to pay its bills.

Just this month, Dubai's ruler, Sheik Mohammed bin Rashid Al-Maktoum, assured international investors that all was well with Dubai's finances and told media critics to “shut up.”

“Depleting market confidence in Dubai carries serious risks for Abu Dhabi,” said Hani Sabra of Eurasia Group, a U.S.-based research firm that assesses political risk for foreign investors in Dubai and the Gulf.

“Differences between the two city-states remain on how to approach the economy and the financial crisis,” Sabra added. “But now Abu Dhabi is obviously the more dominant emirate.”

Dubai's empty pockets — mostly drained by collapsing real estate prices and over-ambitious development plans — touched off panic selling across world markets on fears that the reckoning from the global recession is not over.

Dubai and other Middle East financial markets reopen Monday after an Islamic holiday.

But much attention will remain on Abu Dhabi's response. It stepped in earlier this year with a US$10 billion bailout for Dubai when the first blast of the recession hit. Dubai ruler Sheik Mohammed has stressed the close bonds between the two most powerful emirates in the UAE, which celebrates its national day on Wednesday and offers a perfect forum to display unity.

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