Why Dubai’s Troubles Won’t Hurt Masdar

Dubai, one of the emirates in the United Arab Emirates, has been all over the news lately because it announced that its investment arm, Dubai World, won’t be able to pay its massive debts in time. That might lead some to wonder whether a prominent UAE project, Masdar City–a city that will produce no carbon dioxide emissions if it works as planned–will be affected.

It probably won’t. Masdar City is backed by not by Dubai, the most famous of the UAE emirates, but by the emirate of Abu Dhabi. Although less visible internationally, Abu Dhabi is actually far larger and richer than Dubai. Abu Dhabi also has most of the UAE’s oil reserves, while Dubai has largely exhausted its oil and relies on real estate and other investments. So while Dubai is hurting, Abu Dhabi is doing okay.

If Masdar is hurt, I think it will be indirectly. Some experts worry that trouble in Dubai could lead to a freeze in credit markets beyond the UAE, which could hurt real estate investment generally. Although Abu Dhabi is providing funding for the basic infrastructure for the city, much of that project is supposed to be financed by outside investors, who might be reluctant to invest given a tough financial climate.