Too Big to Fail.(International Edition; POINT OF VIEW)(Dubai, United Arab Emirates)(City overview)(Cover story)

Byline: Zachary Karabell; Karabell is president of RiverTwice Research.

The emirate can do better than survive. Vision got it to where it is, and now vision will carry it through.

The recent gala opening of the Atlantis hotel on Dubai's Palm island gave one a strong sense the emirate's elite were fiddling while Rome burned. The sheets had hardly been stripped from the beds of the departing guests when the hotel's developer, the government-owned Nakheel Properties, announced that it was cutting 15 percent of its workforce. Dubai's economy, fueled by high oil prices and easy credit, has been hit hard by the same global contraction that has already hurt much of the world. But reports of Dubai's demise are premature, and those primed to write its obituary should hold fire.

First off, Dubai is just too big to fail. It is the second-largest economy in the United Arab Emirates and retains the backing of the largest, Abu Dhabi, which holds massive oil reserves of nearly 100 billion barrels and has a sovereign wealth fund in excess of $1 trillion. It's never been clear exactly how much of the boom in Dubai, which has no oil of its own, was subsidized by Abu Dhabi. Dubai officials insisted they did it all on their own. Whatever the truth, it's fair to say that Dubai is too important to the U.A.E. for its leaders to let it fall.

Until a few months ago, Dubai was well on its way to achieving its goal of $108 billion in GDP by 2015. Now it's embroiled in the global credit crisis, which has threatened the main source of its growth: construction and real estate. Dubai relied on easy financing to build the world's tallest building, its largest mall and any number of other grandiose projects. Then came the credit crunch and demands that payments be made on a multibillion credit facility. Dubai has been forced to turn to Abu Dhabi for help.

But that's something its big brother can provide. When oil was at $147 a barrel, Abu Dhabi's production of 2.7 million barrels a day earned it cash at a rate of $140 billion a year--not bad for a U.A.E. population of slightly more than a million. Now that oil's hovering below $50 a barrel, the revenue might fall to $45 billion a year--but that's still not bad for a population of slightly more than a million. Abu Dhabi's budget for 2009 predicts oil at $67 a barrel. Even at that rate, the government would reap a substantial surplus, and most experts predict that the price will actually be much higher by the end of next year.

All this means Abu Dhabi can well afford to support Dubai. Though no one has said so publicly, many believe that the ruler of Abu Dhabi promised to backstop Dubai's obligations for up to five years. That matters, but so does the fact that compared with many other parts of the world, and ...