COLUMN - Dubai will pay for Abu Dhabi aid: Alexander Smith

-- Alexander Smith is a Reuters columnist. The opinions expressed are his own --

By Alexander Smith

LONDON (Reuters) - Abu Dhabi is not going to crow publicly over Dubai's troubles. But it will use the opportunity to assert control over its upstart neighbour. The price for Abu Dhabi's help could be prize assets like airline Emirates. Dubai has little choice but to do what it is told.

Dubai is unable to service the $80 billion debt it has amassed during its meteoric rise to wannabe global financial hub. Oil-rich Abu Dhabi holds the political and financial trump cards. Not only is it the capital of the United Arab Emirates, its ruler is head of the UAE's seven desert states -- squeezed between Saudi Arabia and Oman.

Dubai's success threatened the balance of power between the two emirates. Abu Dhabi has developed quickly, but not at the speed of Dubai, where until a year ago new skyscrapers popped out of the desert every few days.

A property market crash and the end of free-flowing credit have taken their toll. Abu Dhabi has already lent Dubai at least $10 billion and another $5 billion indirectly via two of its banks. That won't be the end of it. Dubai has nowhere else to turn, particularly now it has alienated the international capital markets by admitting it can't meet the debts of flagship holding company Dubai World. Abu Dhabi can afford to bail out Dubai, but it has not been immune to losses itself and won't be signing blank cheques.

Abu Dhabi won't want to see its neighbour sink -- after all they belong to the same country. But it will feel Dubai needs to be taught a lesson.

One particularly painful punishment would be to force Dubai to hand over control of its prized Emirates Airline through a merger with Abu Dhabi carrier Etihad Airways. Global ports operator DP World is another asset Abu Dhabi should think about laying its hands on. Indeed, ownership of such assets may already have changed hands without anyone other than the royal families knowing about it.

Other changes will be more subtle. Dubai has attracted overseas financial services companies with tax breaks and the relative freedom to do business in the way they are used to in Western countries. Curbing some of the excesses which have accompanied this influx of people and money will also be on the agenda.