Furthermore, creditors know there is no sovereign guarantee to fall back on. Nor, thanks to quirky debtor protection in Dubai, can they slap attachment orders on other state-owned assets, or trigger cross-defaults. In fact, creditors have almost no legal legs to stand on to maximise recovery values, RBC Capital Markets notes.

What creditors do not yet know, however, is whether the United Arab Emirates is capable of a co-ordinated response to Dubai's debt woes. Nor is there any certainty that oil-rich Abu Dhabi will come to the upstart emirate's rescue, even if it puts its house in order by selling assets to pay its bills. Given the emirate's oversupplied residential property market, Dubai World's chances of selling Nakheel's assets appear limited, perhaps forcing the sale of more liquid government investments such as its 2 per cent stake in Standard Chartered.

For all Sheikh Mohammed bin Rashid al-Maktoum's lofty disdain of global investors, Dubai's ruler cannot afford to let his government ride roughshod over lenders. After all, the emirate may have to roll over about $12.5bn of debt next year and repay more than double that in 2011, Barclays Capital estimates. Investors, meanwhile, can reassure themselves of one thing: though the pain may be sharp and deep, it will largely be contained. The relative calm that has returned to markets beyond the Gulf suggests as much.