It’s not really a surprise to see Abu Dhabi hand over another bunch of dollars to its wayward relative Dubai. It had to be so; it was just a matter of time. The bailout or handout or whatever one wishes to call this latest transfer of money was necessary to shore up the reputation of the Emirates.

It’s the second time that Dubai has had help from it’s more conservative and wealthier neighbour. In February 2009 Abu Dhabi pledged $10 billion to prop up the ailing Emirate in a move to assist Dubai’s $20 billion long-term bond program. The Central Bank of the UAE bought up the first tranche of the bond issue.

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This latest bailout of $10 billion has been a must-do action. When one of your poor relatives, and Dubai with very little oil reserves may be considered that, gets ahead of itself by engineering a building boom literally built on sand it is but a matter of time before the white flag is hoisted.

Add to this extraordinary grandiose real estate vision a global recession that world wide knocked property prices down a peg or two and one could easily see that the possibility of an economic shock in Dubai were highly likely.

Initially it seemed as if Dubai had decided on a solo flight by announcing on 25 November 2009 a unilateral decision to restructure $26 billion in debt. For this you may read – not pay its debt obligation on time.

The global market went into shock. It was as if the stock exchanges simultaneously suffered heart attacks. Some reaction had been anticipated as the announcement was cleverly made just before Thanksgiving on 26 a long week-end in the USA and the Eid al-Adha Festival a few days later on 28 November.

It is mooted by economists that the fall-out would have been even worse if this timing had not been used to soften the blow. Regardless of this clever timing, the markets reacted dramatically with stock exchanges posting serious drops and currencies such as the Euro and Pound taking part in jittery dance routines.

To a certain extent the dessert dust stirred up is still inhibiting a clear view of the action. It seems that the bailout coincides with a deadline for a payment related to an Islamic bond or sukuk due on Monday December 23.

Whatever the reason, whether an Islamic bond or the global economy, the funding provided by Abu Dhabi has one significant purpose and that is to shore up confidence in not only Dubai but the entire Middle East block of countries.

It will be immensely damaging to the entire region if one of its members defaults on repaying interest on debt never mind the capital sum borrowed. A severe knock to ones reputation is of greater significance than any actual reality.

Lehman Brothers discovered this when they had to close their doors on facing irreparable damage to their reputation. And casting ones mind even further back the demise of Arthur Anderson was such an instance too.

Abu Dhabi had to face the fact that it needed to fight for the reputation of the UAE as well as the entire Middle East Region. It’s a heavy responsibility to carry, but regrettably this Emirate has little choice in the matter. The consequences to the region of allowing Dubai to falter would be a hugely damaging blow from which the region might not recover for many years.

