DUBAI, United Arab Emirates : On the surface, this glittering Arabian boomtown seems immune to the financial crisis plaguing the global economy.
The skyline still bristles with cranes — an estimated 20 percent of the world's total — and the papers are full of ads promoting spectacular new building projects. On Sept. 24, tourists from around the world flocked to the opening of Atlantis, a gargantuan, pink, $1.5 billion resort hotel built on an artificial, palm-shaped island. There was no shortage of people willing to pay as much as $25,000 a night for a room, to gaze at the sharks and rays in a vast glass-lined aquarium in the lobby and to dine at marquee restaurants like Nobu and Brasserie Rostang.
But as recession looms in the West, cracks are appearing in the oil-fueled boom that has made Dubai, with its futuristic skyscrapers on the turquoise waters of the Gulf, a global byword for unfettered growth.
Banks are reining in lending, casting a pall over corporate finance and building plans. Oil prices have been dropping. Stock markets across the region have been falling since June. After insisting for days that the oil-rich Gulf region was fully "insulated" from financial troubles abroad, the Emirates' Central Bank made about $13.6 billion available on Sept. 22 to ease credit problems, in an echo of bailout measures in the United States. Already, some bankers are saying it is not enough.
Some of Dubai's more extravagant building projects — the ever-bigger malls, islands and indoor ski slopes — are likely to be dropped if they do not already have financing lined up, bankers say. The credit crisis could also reduce demand from buyers, who will have a harder time getting mortgages.
The shrinkage will be more severe if the financial crisis worsens in the West. Property prices and rents, which have remained steady until now, are widely expected to start dropping soon.
At the same time, investor confidence has been harmed by a long string of high-level corporate scandals, jeopardizing Dubai's long-term ambition of becoming a regional financial capital.
"Plenty of people are worried," said Gilbert Bazi, 25, a real estate broker from Lebanon who moved here a year ago. "They are waiting to see if what happened in the United States will happen here."
When he first arrived, Bazi said, making money was almost absurdly easy. "Iranians, Russians, Europeans — everybody was buying," he said. "I didn't have to call people; they were calling me."
Now, Bazi stalks the lobbies of hotels, trying to find clients.
"The market is sleeping," he said.
In fairness, Dubai still looks rosy when set against the financial turmoil elsewhere. Although it lacks the oil wealth of its sister emirate Abu Dhabi, Dubai has huge budget and current account surpluses, and the government of the Emirates federation is able and willing — like its Gulf neighbors — to inject an almost unlimited amount of money into the system to ease credit problems.
The governments of Saudi Arabia and Qatar have reaped so much profit from oil and gas in recent years that they are more worried about how to spend it than about managing any downturn. But the Gulf's governments face real economic challenges, albeit ones that are profoundly different from those in the West.
Until recently, credit in Dubai was growing by 49 percent a year, according to the Emirates' Central Bank — a rate almost double that of bank deposits' growth. That unnerved some bankers here, who felt it could lead to a collapse.
"In the U.S., the challenge is about keeping the banks going," said Marios Maratheftis, chief economist for Standard Chartered Bank. "Here, the economy has been overheated, a correction is needed, and it's about making sure the slowdown happens in a smooth, orderly manner."
If that sounds like an easy problem to have, consider the manic vicissitudes of Dubai's real estate market. Speculators often got bank loans to put down 10 percent on a property that had not yet been built, only to flip it for a huge profit to another buyer, who would do the same thing, and on and on. That was easy to do when housing prices here were surging so fast that some properties multiplied tenfold in value in just a few years.
But the Dubai authorities began getting nervous about this and imposed new regulations this summer to limit speculation.
Many analysts say the slowdown in Dubai's economy, assuming it does not worsen to a slump, will make the city's growth more sustainable and healthy by reducing its dependence on loans and speculation.
Similarly, the authorities hope that recent arrests in corporate scandals will root out the culture of corruption that plagues so many Arab countries. Some of those arrested have been Emiratis with connections to the ruling family, in a gesture clearly intended to send the message that no one is exempt.
As Dubai's frenzied growth slows, whether there is a hard or soft landing will depend in great part on the banks, the link between the region's declining stock markets and its still-thriving property sector.
"Banks will have to start lending to end-users," said Robert McKinnon, a real estate analyst and head of equity research at Al Mal Capital here, referring to people who actually plan on occupying properties as opposed to trading them for profit. "There are some questions about how the banks will handle that transition."
At worst, if the global economy worsened and some Dubai banks failed, there would be a firm crutch to lean on. In the early 1980s, after several Dubai banks stumbled, the government rescued them and relaunched them as the Emirates Bank International. In the early 1990s, two more banks were rescued. At that time, of course, Dubai was far smaller. The repercussions of such a government bailout today would be far more damaging to Dubai's image as the epicenter of Gulf development.
The government cushion appears to be part of the reason most local people do not seem anxious right now.
"We don't worry about it," said Hassan al-Hassani, 26, a civil engineer and an Emirati citizen, who was drinking coffee late Wednesday night with relatives and friends at a faux-Bedouin-style tent, set up among Dubai's hypermodern skyscrapers in honor of the Muslim holy month of Ramadan. "Maybe it's good for things to calm down."
A few yards away, guests admired a miniature model of a new residential and commercial Dubai development called the City of Arabia, which includes what will be — if it is really built — the biggest mall in the world.
"Sometimes we wonder, will people really come to live in these places?" Hassani asked. But he quickly brushed off the thought with a smile, reminding his listener that native Emiratis — unlike the foreigners, who make up a majority of Dubai's 1.3 million residents — have a different perspective.
"Remember, 30 years ago almost nobody had phones here," he said. "There was maybe one tall building. My family only had one car."
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