The price of restoring it is likely to be much more than just more prudent borrowing and greater transparency. It is likely to be a demand for a restructuring at the top: this means a much clearer distinction between the Royal Family, the Dubai Government and the businesses of the glittering Emirate.
“It has absolutely destroyed confidence. Who will do business with Dubai now?” said Christopher Davidson, an expert on Gulf economics at the University of Durham. “Sheikh Mohammed was hinting for years about a full sovereign guarantee behind these developers.
“The international financial community, and I know this to be the case in London, won’t do business with Dubai again,” he said. It’s a really devastating scenario.”
Experienced analysts no longer trust the Government’s statistics, claiming they do not fully reflect the amount Dubai owes its foreign creditors. EFG Hermes, a regional investment bank, thinks Dubai could owe as much as $150 billion (£91 billion), twice the size of the economy and two and half times its officially declared debt. Dubai World alone owes British banks $5 billion. The extent of Sheikh Mohammed’s personal holdings in the big state-owned companies is often unclear. “We are probably talking many many years before we see a resolution,” said Fahd Iqbal, Gulf strategist at EFG.
Sheikh Mohammed, 60, who took over in 2006, has presided over Dubai’s final growth spurt. His image appears in every marble hotel lobby and public building. He is, in effect, a benign dictator, a man not to be crossed but who wants to be liked.
His grand vision for Dubai, however, is over. Even if its richer neighbour Abu Dhabi helps it out again financially, it will not be with the blank cheque Sheikh Mohammed had hoped for. He may have surrounded himself with “yes men” who sugar-coated worsening news, but Sheikh Mohammed cast himself as Dubai’s chief executive and if this were a company he would be on his way.
Such an outcome may not displease Abu Dhabi nor the United States. Dubai and Iran are trading partners, and arms shipments have been intercepted sailing from Dubai’s ports bound for the Islamic Republic.
Sheikh Mohammed’s anointed successor is Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, 27, but he recently made a gaffe by telling the World Economic Forum that the economy was “humming again” just days before the Dubai World crisis. Sheikh Mohammed’s older brother and official deputy, Sheikh Hamdan bin Rashid Al Maktoum, is largely unassociated with the boom and a more experienced possibility.