But that does not mean that there will not be long-term consequences for the confidence that the Arab world engenders elsewhere and for some of the larger firms that find themselves in trouble.

The fabled wealth of the Gulf has always been there for companies or countries in dire need of a lender of last resort. The sheikhs of the royal family of Saudi Arabia could always be counted on whenever things got tight.

Or so it was assumed. But the plight of Dubai and its rather less than transparent ruling house is not just about another bunch of high flyers who never for a moment believed their hubris would one day be brought low. Certainly, for the present, the contagion appears to have been confined to the immediate area of Dubai and Abu Dhabi apart from the British banks, HSBC and Barclays, exposed to the emirate's real estate sector.

But apart from the loss of Abu Dhabi as a friendly port in a financial storm, there are powerful implications for Middle Eastern finance and Islamic banking in particular.

The latter had been strongly claiming that had the Western world been following the precepts of Islamic finance, the worst manifestations of the financial crisis would have been avoided. In technical terms — such as a more even sharing of the risk and reward — that would have been true — until the system appeared to have failed to meet its first serious challenge. The first not to come to Dubai World's aid were its closest associates in Abu Dhabi.

When the lender of last resort fails to step forward at the crucial moment there have to be serious questions asked not only of the state of Dubai and the way it regulates its companies but about the Islamic framework in which the bond was put together.

There has been constant tension between the two for decades — a combination of Abu Dhabi's disdain for its upstart sibling and Dubai's feeling that Abu Dhabi was in the slow lane and failing to fly the flag for the Gulf. There was some truth to both points of view, particularly from Abu Dhabi's viewpoint as Dubai's projects — such as ski jumps in the desert and the world's only seven-star hotel — became ever more bizarre and ecologically unacceptable.
But when the Nakheel sukuk, Islamic bond, began to look shaky there should have been some very fast footwork, not only to shore up Nakheel itself, but to make sure that the concept of the sukuk itself did not suffer. These are instruments which are still comparatively in their infancy not only in the world of Middle East finance but on the world stage where they are looking to get a greater foothold.

One school of thought maintains that in one fell swoop Dubai and its confreres have managed to undermine the sukuk concept for quite selfish and short-term reasons at a time when it was beginning to gain traction in the rest of the world. They see it as all the more galling since the damage has been done by a Gulf centre which was working to build a reputation as a general financial centre rather than one which has put in all the hard work over the years building up Islamic finance as a viable alternative to Western financial methods.  

Alternatively it can be argued that the damage has been largely contained not only to Dubai itself but to the Gulf region and that, ultimately, the system did work in the sense that Dubai has managed to stay in business with an 11th hour $10 billion lifeline from Abu Dhabi which headed off a default on the Nakheel bond. It enabled Dubai World to repay an immediate $4.1 billion which had fallen due but payment on which could have been stretched out with a 14-day grace period.

The cash injection should keep Dubai World afloat for a while but its delivery prompted more questions than it answered with no word of the conditionality attached and what the next step would be in tackling the overall $35 billion due in bonds, loans and repayments over the next couple of years. Not least is the question of whether the $10 billion is a loan or a grant. 

It is hardly credible that there are no conditions. The rulers of Abu Dhabi are known to have wanted to acquire control, or partial control, of some of Dubai assets such as its highly prestigious airline, Emirates, which is the seventh largest in the world. The emirate also has some of the most ambitious transport development plans imaginable centred round the expansion of its airport to feature no fewer than six runways in a bid to make it the east-west hub par excellence.

With $700 billion on tap in its sovereign wealth fund funding, Dubai's shortfall was no great stretch for Abu Dhabi and indeed meeting its full requirements would be a relatively simple matter but, and this may be part of the Abu Dhabi strategy, there is no guarantee that the way Dubai World has been run that it would be a good investment and that needed to be drawn to the attention of its managers and the world at large.

Perhaps teaching Dubai a lesson was a key element of the strategy before any further commitments are made. On the other hand, without threatening the whole future of the United Arab Emirates federation, perhaps Abu Dhabi had no choice.

But with investors now piling in to take advantage of heavily marked down Dubai notes — remember that it has its entire infrastructure established — the emirate is a good long-term bet for bargain seekers. The same frenzy has been under way with foreign buyers buying into Kuwait and Qatar who both have strong energy elements to  underpin their national exchequers, unlike Dubai.

Though Dubai is now talking about bringing in a strong bankruptcy regime there remains the nagging concern about the lack of transparency about the whole affair. Even the best informed outsiders know precious little more than they did at the outset and the introduction of managers close to the royal family, rather than experts, into key positions in the affected concerns only gives rise to continued worries.

If Dubai and the rest of the regional ruling houses can learn from this experience then something good will have come of it. If not, then the region and the world are in for some more unpleasant surprises.

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