American crude oil prices fell to the 72-74 dollar range as soon as the news of the debt crisis in Dubai spread; this range which is below the 75-82 dollar range around which the prices have hovered in the past few weeks. The primary cause behind this decline in prices was perhaps the psychological factor, as speculative funds temporarily moved away from oil and gold, until the full circumstances surrounding the crisis in Dubai are identified.

Last week, however, the prices witnessed a correction that restored them back to their previous levels (around 78-79 dollars), while investors returned to trading in commodities, in particular gold, which reached record prices. This is because despite the important role that the emirate plays in terms of finance and development in the Middle East, its influence in the global oil industry remains limited.

As is the case in many other crises, the psychological factor thus became the most important challenge to the global oil markets. Nonetheless, the markets were able to correct themselves quickly a few days later. It should be mentioned here that the emirate of Dubai produces around 80 thousand barrels of crude oil per day at present, a production rate that is noticeably declining each year. In fact, most of the UAE’s crude output of about 2.4 million barrels per day comes from the emirate of Abu Dhabi (90 percent). Despite Dubai’s modest current production rate, however, the emirate’s importance in terms of the oil market stems from the model it has adopted when it established the Dubai Crude as a primary benchmark for the crudes exported to the Asian markets, in addition to setting up the Dubai Mercantile Exchange (DME) for trading in crudes. The government owns a share in the DME, which was able to trade in about one billion barrels of crude oil since its inception in June 2007.

The Dubai economic model attempted to demonstrate the possibility of building a post-petroleum service-based Arab economy, despite the major and pivotal role played by oil money in fuelling this model. Furthermore, the latter managed to open the doors for certain investments that were hitherto inaccessible on the regional level, or even completely unavailable. The Dubai model thus succeeded in attracting billions of dollars, not just from the Middle East, but also from Europe, Russia and South Asia, owing to the laissez-faire regulatory and legislative measures Dubai has adopted. However, it has now become clear that the sheer volume of these investments exceeded the emirate’s ability to administer them, at the onset of the global financial crisis (Dubai’s economy is an integral part of the globalized economy, most of which was built at light speed, in particular back in the time when oil prices were high, and through a high level of debt; subsequently, it was affected by the global financial crisis much like many other economies).

The key to resolving this matter remains, however, in the solutions that will be adopted to address the crisis and the speed at which these will be implemented, in addition to the lessons that will be drawn. For instance, it was clear that a public relations mentality governed the coverage of Dubai’s economic news, rather than the transparency usually found in the world of globalization of which Dubai is inseparable, and which generates trust; this problem is thus one of the issues that must be addressed.

On the other hand, oil prices rose by about 86 percent this year, compared to the low level they have reached early this year, when prices dropped to about 30 dollars, before soaring back to about 80 dollars. This increase in prices is attributed to two main factors: the significant growth of China’s oil demand, and OPEC’s decision to cut production levels by approximately 2.6 billion barrels from the levels of last year.

Nonetheless, we now believe that oil prices would not have been able to attain a reasonable price range, had it not been for the important measures that were taken, such as the reduction of oil supplies in conjunction with the decline in demand that took place due to the global financial crisis. Therefore, OPEC’s methodology and strategic approach in today’s globalized economy are a clear indication that it is possible to avoid such crises, or reduce their damages in case they were dealt with quickly, and radically. Furthermore, this reduction [of production] was not a measure that came out of nowhere, but was rather based on years of experience in finding the most effective solutions in times of economic crises.

Finally, it is expected that oil prices will remain at their current levels, and are even likely to rise despite the crisis in Dubai, especially if the growth of oil demand in China continued at the high rates that we have come to witness, and if OPEC maintained production levels at their current rates in its upcoming meeting in Angola this month (the available information indicates that the ministers are inclined to indeed agree on this). In spite of the negative economic impacts on the region that will arise because of Dubai’s crisis, the repercussions will thus be very limited when it comes to the global oil markets.

*. Mr. Khadduri is an energy expert