Iran relishes Dubai's "paper sand"

PRESS TV, Iran:

The current financial crisis which has resulted in scarce credit and slumping oil prices has forced international financiers to dump assets in Dubai city, Bloomberg reported.

"Dubai is more precarious than it has ever been,” said Christopher Davidson, a professor of Middle Eastern affairs at Durham University.

"If the property industry collapses in Dubai, it will be finished. Dubai's relative autonomy will come to an abrupt end," added Davidson, the author of "Dubai: The Vulnerability of Success.

He added that Dubai's push into luxury property developments was a mere diversification on "paper sand".

On Saturday The New York Times reviewed of his book, Dubai: The Vulnerability of Success. An extract from the review:

Mr. Davidson further contends that unstable neighbors threaten Dubai’s success, but here he may have matters reversed. When Egypt and Iran stifle their entrepreneurs, many of them find a wide berth in Dubai. When Saudi Arabia imposes cultural restrictions on its population, Dubai offers a place to drink and let loose. When India and Pakistan have trouble creating jobs for their large populations, Dubai absorbs labor migrants. When Iraq or Lebanon descends into war, Dubai profits from rebuilding them.

In short, until a vast arc of countries from East Africa to Southeast Asia changes substantially, Dubai will remain poised to benefit by providing a relatively open, secure, low-tax, business-friendly alternative.

I've read Davidson's book and the reviewer is on to something here. Indeed, all these points about the advantages Dubai gets from its neighbors are made by Davidson. With respect to Iran, these advantages trace back many years, and Davidson covers this history well. And while the subtitle, "the vulnerability of success", sounds prescient Davidson did not see the vulnerabilities in the sense of the present problem a leveraged system in an environment of a systemic breakdown in willingness to lend.

The NYT review sees a silver lining in the financial crisis:

It was also written before the credit crisis and global contraction, and he makes no mention of Dubai’s economic vulnerabilities. In fact, the world’s searing financial debacle could turn out to be salutary for an overleveraged Dubai, reining in local inflation as well as an insane real estate market.

Whatever the short-term pain, the U.A.E. is awash in liquidity, and Dubai’s hefty investments in infrastructure appear likely to persist and to yield future dividends. Above all, accumulated expertise should enable Dubai to continue aggressive pursuit of global market share across its service industries. That growing prowess abroad, no less than pathologies at home, is a central story about Dubai that has been missed amid the glitz.

Of course in the quote at the beginning of this post, Davidson could still be right in his recent comments quoted in Bloomberg that "If the property industry collapses in Dubai, it will be finished. Dubai's relative autonomy [i.e., from Abu Dhabi] will come to an abrupt end." For example, there's the rumor that Abu Dhabi wants an interest in Emirates Air "as the price of a multi-billion pound cash injection" to Dubai. The UAE stock markets have been closed for the holidays. Will an announcement come after the markets reopen?

Lyrics | Harold Arlen lyrics - It's Only A Paper Moon lyrics