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There remains continued fallout over the delay in more than $60 billion in debt repayment from United Arab Emirate State, Dubai. At this point in time, the situation looks contained and relatively small compared to the approximate $2.7 trillion that will be written off bank books as a result of the global credit crisis.
That said, this could play out in many different ways. The one that seems most logical is for Abu Dhabi, the seat of the U.A.E. and a country that has 80 billion barrels of oil to help Dubai pay the debt. For that Abu Dhabi will probably seek some Dubai properties as well as a reduction of ties to Iran (which at this time is very tight). Furthermore, there will probably be more oil pumped from Abu Dhabi to generate cash flow in order to come to Dubai’s aid.
On the flip side, should Abu Dhabi stay on the sidelines, the cost of credit insurance and therefore debt service will rise for emerging markets and investors will continue to shift currencies to the U.S. dollar. Time will tell. Stay nimble.