The Emirates’ oil-rich capital Abu Dhabi cashes in Dubai’s struggle to pay its bills

Dubai’s decline gives way to Abu Dhabi’s rise

ABU DHABI, United Arab Emirates — There’s no greater symbol of the shifting fortunes in the Gulf than the surprise renaming of the world’s tallest building in Dubai after the leader of neighboring Abu Dhabi, who bailed out the faltering city state.

For years, the United Arab Emirates’ capital Abu Dhabi played the role of rich but bland neighbor as flashy Dubai strutted to international stardom. That all changed when the bills came due.

Abu Dhabi — awash in oil wealth — sent a total of $25 billion to Dubai last year to help the former boomtown fend off creditors after the global recession brought growth to a standstill. The white knight rescue further reinforced Abu Dhabi’s image as a hub of serious power and ambitions — a place that forged deals for satellite branches of the Louvre and Guggenheim while Dubai plotted fantasy cities in the desert.

But Monday’s fireworks-and-laser extravaganza to open the more than half-mile (nearly 830-meter) tower offered the first hints that the bailout money to Dubai may come with strings attached. Abu Dhabi’s more conservative rulers now hold the leverage to exert more control over Dubai’s economic policies, its free-spirited social rules and its international dealings.

“It is the most public acknowledgment thus far of Dubai’s political subordination to Abu Dhabi in the wake of the … debt crisis last month,” said Hani Sabra, Middle East expert with the New York-based consultancy Eurasia Group.

Abu Dhabi literally stole the thunder from Dubai during the booming opening for the tower. It was long referred to as the Burj Dubai — Arabic for the Dubai Tower. But the name was secretly switched and unveiled to the public as the Burj Khalifa — after the emir of Abu Dhabi and UAE president Sheik Khalifa bin Zayed Al Nahyan.

“It’s a golden opportunity for Abu Dhabi to increase political control over Dubai and the whole federation,” said Christopher Davidson, an expert on Gulf affairs at Britain’s Durham University.

As the capital of the United Arab Emirates — a collection of seven semiautonomous emirates and the world’s third largest oil exporter — Abu Dhabi has long tried to become the undisputed center of gravity for the country.

Dubai has put up the most resistance to any outside supervision or control.

But Abu Dhabi’s cash injection may change the way Dubai is doing business with the West and — more important — could affect the sheikdom’s massive trade with Iran. Dubai has served as a transshipment and banking hub for Iranian merchants, enabling the government in Tehran to try to circumvent U.S. sanctions.

Abu Dhabi’s rulers — like many other Arab leaders — are much more suspicious toward Persian Iran and its efforts to expand influence in the region.

And Abu Dhabi has remained more faithful to Gulf’s traditional values — unlike Dubai, which has sped up its development and loosened many of Gulf’s strict Islamic codes to become one of the world’s most multinational cities.

Abu Dhabi, however, has begun to look outward.

It’s raised its profile internationally by hosting high-profile events such as the finale of the 2009 Formula 1 racing season and by using its estimated $1 trillion sovereign wealth fund on global shopping sprees.

Abu Dhabi’s various investment arms have in the past years purchased landmarks such as New York’s Chrysler Building, acquired significant stakes in companies like Mercedes-Benz and explored new frontiers by pouring money into commercial space travel startup Virgin Galactic.

“The investment plan is strategically thought out and whether the money is spent abroad or at home, its returns are always channeled into the development of Abu Dhabi,” said Mohammed Shakeel, a Dubai-based analyst for the Economist Intelligence Unit.

Abu Dhabi also has commissioned world’s renowned architects to design a cultural and educational hub, hosting regional branches of Guggenheim and Louvre museums and top U.S. schools like the New York University.

“Abu Dhabi does not want to be about oil and petrochemicals, but also about art and education,” said Jean-Francois Seznec, a Gulf specialist at Georgetown University in Washington.

With almost no oil left, Dubai several years ago believed it had to act fast if it wanted to attracted foreign investment and become a tourist destination.

The ruler, Sheik Mohammed bin Rashid Al Maktoum, plowed ahead with dozens of megaprojects such as the palm-shaped island pushing into the Gulf as well as some dazzling follies such as a now-stalled city in the desert with imitations of the Eiffel Tower and Egypt’s Pyramids.

Abu Dhabi, with its huge oil revenue, took it slow.

“They could afford to be more cautious and develop slowly because they are not worried they will be left behind,” said Shakeel of the Economist Intelligence Unit.

Abu Dhabi’s plans also have the benefit of a direct pipeline to one powerful ruling family. Dubai’s Sheik Mohammed has to share wealth with the emirate’s influential merchant families to rule.

The new relationship between the two sheikdoms is based on Dubai’s subordination to Abu Dhabi, analysts say. “Abu Dhabi views political dominance of the UAE as an important goal, and sees its current pre-eminence in the federation as permanent. Dubai’s leadership, however, still views Abu Dhabi’s dominance as matter of short term expedience,” Sabra of Eurasia Group said.

With virtually no pressure to democratize and with no urgency to diversify its economy, Abu Dhabi is pressing ahead with developments while Dubai is suffering from a fiscal hangover.

Unlike Dubai, Abu Dhabi is going forward quietly, with no sign that decision on policy and economy will be anything but a family affair among its ruling clan.

“Abu Dhabi does not broadcast its potential and ambitions to anybody,” said Shakeel, adding that those who hoped Dubai’s debt fiasco will push Gulf’s other oil economies to be less secretive when acquiring prized assets abroad will have to wait for sometime.