Check out the story at http://news.bbc.co.uk/1/hi/business/8418013.stm

Good points. What it definitely does show is that the bankers still have not learnt their lessons fully. And it shows that they are still living in the delusion that everything will soon go “back to normal”. The institution of banking has been profoundly shaken by this recession – and it seems that more shaking must happen before rebuilding can begin.

And that analogy is about as perfect as it gets for Dubai itself…

The problem at the moment though is that the world is not responding in a rational manner and the chain events we have seen over the past year or so have been unprecedented. Who would’ve thought, at the time of the nationalisation of Northern Rock, that this was the start of events that would rock the financial sector to it’s core? It is predicted by leading figures in economic circles that the world economy is too fragile and a “W” rather than a “U or a V” recovery is expected. Much of what you point out would’ve been known by the markets and yet the response was very panicky. Like you I don’t think Dubai will represent the next wave, but like Northern Rock it may be a ripple that sets off the next wave.

Personally I hope this ripple washes ashore and remains just that, a ripple. But in these unsure and unprecedented times no one can be sure and I think that is why the markets responded the way they did at the news from Dubai.

Thanks for you comment, I hope you are right, I think you are but we are living in unpredictable times.

Dean

It certainly is scary to see this Dubai crisis, since Middle East oil money has been seen as a calm and steady “pot of gold” to help everyone else out. However, Dubai has been in crisis for some time, and this mini-crisis moment should really not be a surprise to anyone with an eye on that region. My predictions are as follows:

1. This will not turn out to be a huge crisis. All the banks that have exposure in the region should have known the risk, and have probably got some contingency in place. So, after a few days (or weeks at the most) of “panic” (as the media might label it), calm will return. Of course, there will be some casualties in Dubai itself. But that should be no surprise to anyone who has been to the place. Growth there has been too fast for too long, and was clearly unsustainable (even before the global financial crisis). But, even more importantly, the culture of Dubai has been diluted and strained for too long. See a previous post at this website (see especially the comment made by my colleague, Barrie Bramley): http://www.connectioneconomy.com/2006/07/07/dubai-in-the-connection-economy/

Which leads me to my second point…

2. Dubai has done what it has done because it is nearly out of oil. But it’s next door neighbours have no such (immediate) concerns. Abu Dhabi has been giving money to Dubai for at least a year now. And there are strings attached. I have heard from many reliable sources that the Abu Dhabi money is being given on the basis that Dubai roll back some of its more liberal stance on culture. So, for example, all children are being taught Arabic and the Koran at school. My children are taught English and Christianity at their school in London, so that seems only fair – but I believe that many foreigners are up in arms about this. Some of the mosques have stopped using the standardised call to prayer. I doubt they’ll change the weekend back to Thursday and Friday like in most Arab nations, but I wouldn’t be surprised if they did.

My second prediction then is that Abu Dhabi and Saudi Arabia will help bail out Dubai. But they’ll do so on the condition that they get to control the culture and religion of Dubai, and revert to a more Arab/Islamic approach.

I also predict, paradoxically, that this could be a good thing. Good for Dubai, which needs to reclaim its culture and find a style of its own. Good for Islam (I say this from a Western, Christian viewpoint) in that it will force further work on integrating Islam into a modern, globalised, connected world environment. And it will be good for the world economy, as the Middle East won’t melt down.

I suppose we’ll know in a few months time whether I am right or not…