Alistair Darling's Pre-Budget Report on Monday contained at least one item that raised not a flicker of attention at Westminster but which will have been keenly noticed far away in the Gulf: he has decided that Islamic bonds will not form part of the Government's borrowing programme in the near future.

The scrapping of Britain's first sukuk (a loan instrument that complies with Islamic strictures on the immorality of interest) will be seen as a slap in the face, a cold shoulder at a time when Islamic financial institutions are being buffeted by a catastrophe of real estate, the seeds of which were planted in America and Europe.

Dubai is not bust, but government debt of $80 billion (£52 billion) casts as big a shadow over the economy as Burj Dubai, the nearly kilometre-high skyscraper under construction in the city-state. As with the tower, no one quite knows how high the debt will go and, in a carefully staged announcement on Monday, nervous property investors were told that the Government of the United Arab Emirates would stand behind Dubai's obligations. Meanwhile, a deal was done to bail out two struggling mortgage banks that dominate the city-state's overheated property market. Amlak Finance and Tamweel, an Islamic lender, were folded into a shadowy government institution out of which emerged a new entity, Emirates Development Bank.

These tiny statelets were supposed to be rich, floating on a magic carpet of hydrocarbons. The oil is still there, but everyone is learning that the Gulf's economies are as connected to the global financial system as are financial markets elsewhere. From Moscow to Shanghai, via Dubai and Bombay, the tall towers of new money are tottering. Markets are falling in nations awash with petrodollars. Russia's Government is being forced to drain coffers filled with oil earnings to prop up the shaky finances of favoured oligarchs. In an attempt to prop up its sagging stock market, the Saudi Arabian monetary agency reduced its interest rate from 4 per cent to 3 per cent on Sunday, the third cut since October, and sober Abu Dhabi has come to the rescue of skittish Dubai, like an elder brother forced to settle the credit card debts of a reckless sister.

Dubai's problem echoes the one that afflicted Northern Rock: a sudden withdrawal of liquidity from the banking market, compounded by novelty and the bizarre world of the Gulf's new property markets. Vacancy rates are low and there is still rental demand, but the problem is that the investment market has evaporated, according to Colliers International, the real estate consultant. Investors who bought from developers hoping to make a quick turn by selling on the property are now stuck with a flat they do not want. “The music has stopped, finance isn't available and the developer is asking for his money,” Ian Albert, of Colliers, said.

No one is lending. Lloyds TSB has cut the maximum loan-to-value ratio on mortgage terms to 50 per cent, effectively getting out of the market. Emirates NBD caused an uproar in Dubai recently when an internal e-mail revealed that the bank had barred lending to expatriate staff of foreign property companies, apparently fearing job cuts. The expatriate community is causing an unusual insolvency problem for Dubai. Local courts have never had to deal with a rash of embarrassing foreclosures, potentially harming the state's image of fun, frolics and finance. Even more problematic, the banks are unsure how to deal with bad debts owed by footloose expatriates. One Dubai banker said: “If I default on my mortgage and I decide to go back to Pakistan, what is HSBC going to do about it?”

There was something distinctly sub-prime about the Las Vegas-style launch of Dubai's Atlantis hotel last week, an explosion of fireworks even as the Emirates Government was rescuing the biggest mortgage lenders. Yet it would be wrong for Britons to feel smug about the financial quicksand in the Gulf. British money and expertise have been pumped into these emerging markets, which employ many Britons, but the main reason to worry is because of the oil and gas that ultimately underpins their wealth. We need that oil and gas and we need more of it and a financial meltdown does not help.

Opec's daily revenues from selling crude have fallen 53 per cent over three months. The benchmark Brent crude price is now two thirds below its July peak, but the Opec basket price is even lower, close to $40 a barrel, one third below what analysts at the Centre for Global Energy Studies believe is the comfort zone for Saudi Arabia. It is hardly surprising, therefore, that Dubai is looking a bit sickly. The state is a very minor oil producer, but it is dependent on its role as a financial and trading hub for the Gulf.

With $200 billion of reserves, the Saudis can survive low oil prices for some time without cutting investment. Other states have little room for manoeuvre; Kuwait's Finance Minister recently gave warning that government spending might be cut. In Russia, the downturn has already started, with oil exports shrinking because of lack of investment. Lukoil, one of the biggest exporters, said recently that it would halve its investment if oil fell to $45 a barrel. The Urals crude price is almost there.

The financial crash has dragged the oil price down with it, but it will not stay there long. Without a continuing injection of cash at ever-increasing pressure, these wells will run dry. There is no question that Saudi Arabia will soon take more drastic steps to reduce its daily exports to shore up the oil price, but the more alarming prospect is next year, when the financial drought begins to shrink the reservoirs of crude.

The mandarins in the Treasury may have bigger priorities at the moment than puzzling over Islamic bond issues, but in the longer term the financial health of the Gulf is critical to our future. The only good news for the Chancellor is the collapse in the oil price, but he should know that such good news is really very bad news, indeed.

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