IRAN
Has Dubai's payback gone beyond finances? Some observers believe so.
A U.S. ally, the United Arab Emirates has taken a tougher posture towards Tehran over the past year, under increasing scrutiny from Washington but also out of concern of the risks of a nuclear Iran on its doorstep. Dubai, which has a substantial population of Iranian expatriates and last year generated $5.8 billion in re-exports to Iran, has followed that lead.
Since a new round of United Nations sanctions against Tehran was agreed in June, the UAE central bank has asked financial institutions in the federation to freeze accounts belonging to dozens of Iran-linked firms, and a number have been closed down.
Ships visiting the UAE's ports are undergoing much more stringent cargo checks.
"I think (the crisis) has been good on a federal level, for example in terms of foreign affairs," says the Gulf Research Centre's Koch. "The emirates are working much more closely together. There is certainly a clear commitment in terms of implementing and meeting the requirements of the U.N. sanctions against Iran, and this effort is more centrally controlled."
Christopher Davidson, a historian at Britain's Durham University, goes further. "After November we saw a huge shift in what Abu Dhabi feels it can do on the international stage with regard to Iran and how close it can position itself with the United States," says Davidson, who believes that would not have been possible before the debt crisis, because Abu Dhabi would then have had far less leverage over Dubai.
"We've seen some incredibly hawkish comments which do everything to undermine Dubai's business links with Iran, so Abu Dhabi is in full control of the UAE foreign policy."
Not everyone shares that view. Some, including David Butter at the Economist Intelligence Unit, think the change simply coincided with a toughening of the international community's stance towards Iran.
Still, Dubai's ongoing debt problems mean the emirate has little power to deviate from Abu Dhabi's line. There is also no doubt that the Gulf Arab region as a whole is seriously concerned about the possibility of a nuclear-armed Iran. A rising number of countries have announced big new purchases of weapons in the past year, including Saudi Arabia which plans a $60 billion arms deal with the United States. Analysts say the six Gulf Arab states could spend as much as $100 billion in coming years to overhaul their armed forces.
A LINE IN THE SAND
Back in Dubai, there are signs confidence is beginning to return. Developer Nakheel, whose near-default propelled Dubai's banker on the November chopper ride to Abu Dhabi, has said it will begin building again next month.
After a year away, Dubai's government has returned to bond markets, launching a dual-tranche $1.25 billion bond. Early talk indicates the issue is heavily oversubscribed.
"The hard work has been sorting out Nakheel and Dubai World, and investors are more positive on Dubai because of its strong relationship to the rest of the UAE and as the legacy issues have been or are being addressed," says Aviva fund manager Jeremy Brewin in London.
Dubai World's debt repayment agreement on Sept. 10 "draws a line in the sand to a significant part of the debt restructuring story," says V. Shankar, chief executive of Standard Chartered's Middle East, Africa, Europe and the Americas operations. "There are issues still to be sorted out with Dubai Holding but I think on the back of this, Dubai has a powerful tail wind."
Dubai seems focused on its core operations of logistics and trade. It recently opened the first phase of Maktoum international airport -- part of Dubai World Central's so-called "aerotropolis" complex, a shipping, air and road hub.
"Whilst no government can rule out future issues, we believe the most significant restructuring is behind us," a government representative responded to emailed questions.
Advisers to Dubai say Abu Dhabi is no longer as closely involved in its neighbour's financial affairs as immediately after the debt crisis. At the peak of the Dubai World turmoil, Dubai representatives were meeting with their Abu Dhabi counterparts on a weekly basis. These meetings have been scaled back to become, as one adviser put it, "courtesy" updates.
The government has embarked on a big push to create corporate governance structures, and most of its high-profile young executives are gone, sidelined in a putsch last November. Some, such as the head of Dubai's flagship Dubai International Financial Centre, fell prey to corruption probes. Into their place have come more trusted, established and older names pushed aside during the boom years but now back in favour.
"The only criteria now is 'personal hygiene,' people who are clean," says a long-time Dubai observer, declining to be identified so he can speak freely about a sensitive topic. He argues that some of the old guard's lack of experience in modern finance may make them poorly equipped for the task of rebuilding Dubai's companies. Strategic, "bold, hairy, audacious" initiatives are needed, he says.
"Right now, it's the blame game."
HOW FAR CAN YOU GO?
There is no doubt Dubai needs to encourage entrepreneurship, and continue to give ambitious Emiratis who do not come from wealthy families the chance to make their own fortunes. Its past model is now cited as one of the causes for the endless real estate projects that led to its debt crisis, but parts of it may have to be reinstated if Dubai is to grow. How easily could Dubai slip back into its bad old ways?
"They believe that now the problem is solved," says the former Dubai World adviser, who is critical of creeping complacency just a year after the crisis. "The problem is not solved, they still owe the same amount of money. They will have to pay the same amount, only a little later."
Even with its wings clipped, the emirate is still making big plays. In July, Emirates airline -- one of Dubai's crown jewels and already the biggest customer for Airbus A380 superjumbos -- placed an order for 30 Boeing 777 jets in a deal worth potentially more than $9 billion.
"Everything is now very conservative, it's meant to be based on in-depth analysis of actual sectors," says the source familiar with the restructuring. "Given the chance, Dubai will take it to the same level as before. They will always try to go as far they can with something." (Editing by Simon Robinson and Sara Ledwith)