Last month, Dubai caused a squall in the capital markets: the emirate stunned investors with a request for a standstill on some of the debts of Dubai World, a state-owned company. This week, Abu Dhabi, its oil-rich neighbour and the senior partner in the United Arab Emirates, started to clear up that mess, providing $10bn in funding to its cash-strapped neighbour.
During Dubai's boom, investors had assumed that state-associated companies enjoyed implicit guarantees from Dubai. The botched announcement of the intention to restructure Dubai World's debts therefore stoked fears about the solvency of the city-state. Guarantees from Abu Dhabi, with its hundreds of billions of dollars in savings, should soothe investors' concerns.
The ultra-rich emirate, which had already given $15bn of support to Dubai this year through its banks and through the UAE central bank, gave these funds with a host of warm words about its “partner” in the UAE. What price Abu Dhabi extracted from Dubai in private may never be known, but the money was given with no public strings attached.