The Dubai authorities cannot have imagined the consequences of their decision to postpone interest payments on their bonds. The reaction was immediate and global, revealing a jittery mood in the markets. Just as evidence was gathering that a global markets recovery from the worst crisis in living memory was under way, giving markets a growing confidence, the Dubai debt crisis broke.

The real estate problems in the UAE and the Gulf region are well known. The Arab Gulf’s six-year oil boom ended last year, when oil prices fell from a record $147 a barrel down to $32, just as the credit crunch swept the global markets. Banks in the region struggled with mountains of property debt, especially in Dubai, but also in Saudi Arabia, where in June two prominent conglomerates, Saad Group and Ahmad Hamad Algosaibi & Bros, had $20 billion in sukuk bonds priced to default.

Despite this, the...