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What Is Dubai?

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Dubai is the location of the Burj Dubai.

The Burj Dubai, the world's tallest building, is in Dubai. (Photo:Mike Hewitt/Getty Images)

Question: What Is Dubai?

Answer: Dubai is the second-largest of the seven city-states in the United Arab Emirates. Abu Dhabi is the largest, with proven oil reserves of 92 billion barrels. Since Dubai only has oil reserves of 4 billion barrels, it focused on developing itself as a major world financial center and tourism destination.

Until the recession, all went well. In 2004, the Dubai government began building the Burj Dubai, now known as the Burj Khalifa. It is the world's tallest building. It also backed Dubai World, famous for its real estate developments: man-made islands built to look like the world map and a palm tree. On March 23, 2011, Dubai World negotiated restructuring on $25 billion in debt with its 80 creditors. Dubai World stunned the world on November 25, 2009, when it asked its creditors to delay interest payments on $60 billion in debt.

Most of Dubai's business investments is in hard-to-sell real estate. The global recession made these assets difficult to lease, thus putting Dubai World in a cash-flow crunch. Dubai's government debts ran up to $120 billion.

Creditors were worried that Dubai would go bankrupt, joining Iceland. The news came at the time of great concern about many European Union countries, especially Portugal, Ireland, Greece and Spain.

The Dubai crisis shifted the balance of power in the Middle East a bit. According to the New York Times, "Analysts say Abu Dhabi has long been unhappy with Dubai’s independent, free-spending ways — and its strong trade links with Iran, which sits just across the Persian Gulf but is considered an enemy by most Sunni Arab states. The debt crisis could be a way for Abu Dhabi to demand greater control over Dubai, and perhaps over all the members of the emirates federation." (Article updated March 24, 2011)

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