Nick Hood was shocked by Dubai's complacency. Now its chickens are coming home to roost, he says.

News of Dubai’s descent from the heights of financial stardom to the ignominy of potential sovereign default provoked a vivid sense of déjà vu, and a losing battle against the urge to shout 'I told you so' from the top of the Burj Dubai Tower.

Almost exactly a year ago, this inveterate traveller had left the UAE’s new miracle financial centre deeply frustrated after a week of meetings with local professionals, whose heads were buried so deep in the sands of denial that any meaningful conversation was impossible.

The sense of unease and unreality started on day one of the trip, with the startling realization that while Dubai might be home to 20% of the world’s construction cranes, very few of them were moving.  Having spent six years working in the construction sector in a previous career incarnation, a mothballed site was an obvious phenomenon and the area immediately surrounding the Dubai International Financial Centre was dotted with dozens of inactive sites.

But ex-pat lawyers were quick to boast they were still buying apartments off-plan, rejecting suggestions that property prices might just be a touch overheated. They should perhaps have shared lunch with a hard-bitten Scottish quantity surveyor I met, who said that his entire workload was suddenly concentrated on helping contractor clients mitigate the damages of withdrawing from unviable projects. Three months later his firm pulled out of Dubai after fifteen years, convinced that financial meltdown was imminent.  They were nine months premature, but not wrong.

Tourism is another antidote to Dubai’s chronic lack of oil revenues.  Questions about the impact of the global recession on visitor numbers - expected to climb to 30m a year - were swept aside. Of course the South Asian market would be exempt from consumer caution, and the unparalleled bling of the Burj al-Arab or the Atlantis with its $20m launch party would still pull the nouveau riche in, ready to play bad golf on brand new courses carved out of the desert.  

And somehow the financial services market would avoid price corrections or corporate governance scandals, unlike the rest of the world. Even if the financial tide did go out, there would be no Arab financiers swimming without their bathing trucks. Within a few months, this surreal complacency was shattered by the high profile defaults of the Saudi’s Saad Group and Investment Dar, a Kuwait fund which owns half of Aston Martin.

So what now for the Gulf’s financial wild child - or more particularly its global investment arm, Dubai World, owner of Turnberry and 20% of Cirque Du Soleil?  No doubt oil-rich neighbour Abu Dhabi will eventually provide some rescue funding, having made a point to its reckless cousins.  But it seems unlikely that things will ever be the same for Dubai, whose sovereign debt is now rated as more risky than Iceland’s.

My last meeting a year ago in Dubai was the only truly worthwhile encounter in a deeply shocking visit. A British lawyer, a grizzled veteran of 25 years in the Gulf, smiled as he shook my hand.  How interesting, he said, to find an insolvency practitioner doing field research in Dubai - and how timely. Busy times lay ahead, was his final prophetic comment.