Dubai’s debt woes are becoming an albatross around the neck of oil-rich Abu Dhabi, which has committed the equivalent of almost 60% of this year’s oil income to bail out its ailing neighbor, according to Zawya Dow Jones calculations.

Abu Dhabi, the largest of the seven emirates that make up the United
Arab Emirates and producer of almost all the country’s crude oil, will
earn an estimated $43 billion this year from crude exports.

The figure–which excludes oil products and liquefied natural gas
exports–is based on an average price of about $62 a barrel for the
year so far and exports averaging 1.9 million barrels a day, according
to Zawya Dow Jones estimates.

With Abu Dhabi’s direct and indirect support to Dubai so far in 2009 at
$25 billion, this is equivalent to nearly 60% of the emirate’s oil
income. The U.A.E., an Organization of Petroleum Exporting Countries
member, holds almost 8% of the world’s crude reserves.

“It’s a huge chunk in terms of their oil income but I look at it from a
sovereign wealth fund,” said Kamel Al Harami, a Kuwait-based
independent oil analyst. The Abu Dhabi Investment Authority, the
emirate’s sovereign wealth fund, is estimated to have assets of about
$500 billion. But these funds are difficult to tap.

Dubai’s debt problems may become a bigger challenge for the oil-rich
emirate, which has ambitious plans to spend at least $100 billion in
coming years on diversifying its economy by investing in key sectors
such as chemicals, steel, aluminum, aviation and tourism.

Dubai rocked world markets in late November when it requested a freeze
on $26 billion of debt payments by Dubai World in order to restructure
the conglomerate. The emirate’s total debt is estimated at $80 billion,
with some estimates putting it well above $100 billion.

If further debt payment problems emerge in Dubai, Abu Dhabi may have to
step in once again to inject additional funds, which may put a brake on
some of its plans.

“We continue to see risk of further debt problems emerging in the
coming months and quarters, particularly from Dubai Holding and
Istithmar,” investment bank EFG-Hermes said in a note.

On Monday, Dubai announced that it had received a $10 billion bailout
from Abu Dhabi to pay part of the debt of government-owned conglomerate
Dubai World and its struggling property unit Nakheel.

Today’s $10 billion cash injection by Abu Dhabi comes after the emirate
agreed earlier this year to provide as much as $20 billion in two
tranches via the central bank, which it effectively controls. Of this,
$10 billion has been paid out and two–majority Abu Dhabi
government-owned–banks bought $5 billion in Dubai bonds in late
November.

Oil is the main source of foreign export earnings for Abu Dhabi and the
growing need to support Dubai financially could weigh on economic
growth in the U.A.E.

Source: WSJ

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