24/7 Wall St.

Abu Dhabi did the unexpected. It provided fellow member of the United Arab Emirates Dubai $10 billion in funds. Four billion dollars of that will go to give support for Dubai’s real estate fund Nakheel. The balance will go to Dubai World as its tries to restructure its obligations.

The capital clearly buys Dubai time and may even allow it to permanently alter the terms of the money it owns to banks and other lenders. But, it probably came with harsh conditions, although it is not clear what those are.

Abu Dhabi controls about 85% of the UAE oil reserves, but Dubai has valuable fields including the offshore Fateh and Southwest Fateh deposits. Abu Dhabi may have gotten preferntial rights to the oil and gas from these regions. Dubai also holds valuable real estate outside its borders. Some of this may have been pledged to Ahu Dhabi in exchange for aid. Most of these properties have lost some of their value in the collapse of the global commercial real estate markets but they are likely to regain their value over the next decade. Abu Dhabi has the wealth to wait.

Abu Dhabi may also have decided that protecting the financial reputation of the UAE was critical. Although the sovereign states within the UAE operate completely separately from one another, the Dubai default issues have made the world financial community concerned about the stability of the region.

One this is certain. The money from Abu Dhabi was not “free.”

Douglas A. McIntyre