The two defining forces of world business in 2007 – the credit crunch in the United States and the assertion of petrodollar power from the Gulf – coincided in the early hours of the morning yesterday at the headquarters of Citigroup in New York: America’s largest bank announced that it had secured $7.5 billion (£3.6 billion) in fresh funding from the Abu Dhabi Investment Authority (ADIA).

The fact that America’s largest bank has found itself forced to go cap-in-hand to the most powerful investment fund in the United Arab Emirates is itself a statement about the shift in the balance of economic power this year. Just as the spigot of cash has been turned off on Wall Street as a result of the sub-prime mortgage crisis, the Arab world has found itself awash with money thanks to oil at nearly $100 a barrel. The biggest bank in the world’s most dynamic economy has, therefore, had to scramble to borrow money at a punitive rate from a secretive state-owned investment fund in the United Arab Emirates.

The willingness of the ADIA to arrange a $7.5 billion funding within less than a week is a measure not only of the financial strength of the Gulf funds but also their newfound readiness to project their economic power around the world.

But the eagerness of Citigroup to secure a capital infusion from Abu Dhabi says even more about the weakness of the American bank. The details of the deal suggest that Citigroup is in trouble. The Gulf is buying convertible bonds, providing a loan that in the next four years turns into just less than a 5 per cent shareholding. The key fact is that Citigroup has agreed to borrow from ADIA at an interest rate of 11 per cent. This is an extraordinarily high rate for a bank such as Citigroup to have to pay. A company borrowing from the junk-bond market would typically pay 9 per cent. A company issuing convertibles would expect to pay a lower interest rate than on a straight bond. Looked at simply, it appears that Citigroup was so desperate for funds that it did not mind the price. Indeed, the cost of the money it is borrowing is higher than the return it could get from lending it.

Citigroup, under the interim stewardship of Sir Win Bischoff, has clearly concluded that it is prepared to pay a premium to shore up battered confidence in the bank.

Earlier this month, Chuck Prince, the chief executive, resigned as it emerged that Citigroup could be exposed to $11 billion more in losses and would probably have to lose more than the 17,000 jobs already going. The stock slipped below $30 this week, its lowest level in five years. And investors have been increasingly concerned about the underlying strength of the bank: Citigroup’s “Tier 1” capital levels, which are widely used to measure the capital adequacy ratio of banks, have fallen below 7.5 per cent.

The problems in the US housing market are expected to inflict pain on the big Wall Street banks for at least another two quarters. Citigroup, like Merrill Lynch, is particularly exposed to hedge fund activity in the collateralised debt market and on its accompanying ABX index. The bank is leaderless: Robert Rubin, the acting chairman, is looking for a successor to Mr Prince as chief executive. And the fundamental question of Citigroup’s universal banking model – its aim to serve both individual and institutional customers in every conceivable kind of financial product – is increasingly up for debate.

But one argument was resolved yesterday: it has been a better year for the falcon than the bald eagle.

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