Dubai, an oasis in the Persian Gulf, has woken up to a debt crisis of its state-owned investment flagship Dubai World, a firm known for its slogan -- "The Sun Never Sets on Dubai World."

The state-owned conglomerate in the United Arab Emirates Wednesday asked for a delay in repaying some of the 60 billion U.S. dollars it owes to creditors, causing panic and concerns across the world.

Has the sun set on Dubai World? Will the crisis hamper the world economic recovery and spill over to the global financial sector? Or will it trigger another economic meltdown?

Risks: small or big?

Amid fears that Dubai World could delay its massive debt payments and shock waves around the world's already brittle stock markets, the world leaders played down the troubles and showed their confidence in global economy.

Although Britain comes in forefront with many of its commercial banks exposed to the Gulf emirate's financial problems, its Prime Minister Gordon Brown was more ready to call it a setback, which he said was "not on the scale of previous problems we have dealt with."

"The world financial system is stronger now and able to deal with the problems that arise," he added.

French Prime Minister Francois Fillon said the Gulf had the resources to ensure the world would not sink into a second round of turmoil.

Their words were echoed by Sheikh Ahmed Bin Saeed al Amktoum, chairman of Dubai's Supreme Fiscal Committee, who said that "the government is spearheading the restructuring of this commercial operation in the full knowledge of how the market would react."

However, some analysts voiced their concerns over Dubai's stance to downplay its financial predicament, saying that a lack of details on the crisis would raise concern over the problem.

Likewise, many heavyweight investment institutions also cast doubts on the current default by warning that the Dubai debt might be over 80 billion U.S. dollars. Some observers even dubbed this scenario "financial crisis 2."

Following the Dubai World's announcement, Standard & Poor's downgraded its ratings of several Dubai government-related entities.

A Saudi economist said "it is a very serious and severe problem that is likely to shake up the Gulf financial system as a whole."

Dubai vision: gains or losses? 

In "My Vision," a book written by Sheikh Mohammad bin Rashed al-Maktoum, the Dubai ruler depicted his dream that Dubai, always seeking for innovation, would become a world economic center.

But the debt crisis would almost wreck his dream.

With a rapid development drive, Dubai, a tiny emirate, has in recent years transformed itself into a regional financial and tourist center.

Unlike its oil-rich neighbors, Dubai adopted a different path of development, where the skyrocketing buildings and the masses of foreign workers it employs serve as witnesses.

Instead of naming it the beginning of a new financial turmoil, a U.S. consulting company said in its report the latest crisis was an overdue burst of assets bubbles.

Nevertheless, many believed Dubai's growth mode was still recommendable as it had made a good use of its geological advantages and successfully spurred up its economy.

Some held that such problems were inevitable in Dubai's economic transformation. Kit Juckes, chief economist of the London-based currency trading group ECU, called it a "one-off bubble" since "nowhere else has there been so much extravagant construction."

Markets: correction or erosion?

As consequence of the debt woes, crude oil prices experienced the deepest slump on Friday since January. Meanwhile, property prices in Dubai almost downed by half. Wall Street retreated amid a global sell-off as investors fled risk assets.

Some saw that the market was overheated this year and the debt crisis was just a trigger for market correction.

Mohamed El-Erian, chief executive officer of the U.S. Pacific Investment Management Co., said Friday that the troubles in Dubai served as a catalyst for "overdue correction" in stocks and other risk investment market that has been depending on liquidity injection.

"While many have acknowledged in the last few weeks the growing wedge between market valuations and economic and corporate realities, few have been willing to take their equity exposure down," El-Erian said.

In tackling the global financial crisis, countries across the world were keeping low interest rates and substantial liquidity in their financial sectors. Nonetheless, property bubbles were simmering behind these seemingly well-performed markets.

The view was supported by Templeton fund manager Mark Mobius, who predicted that the Dubai crisis might trigger a 20-percent stock contraction on emerging markets.

As real estate market accounts for a large part of Dubai's economy, some observers warned that the crisis could bear large on its economic well-being.

Richard Bove, a veteran banking analyst at the U.S. Rochdale Securities, said that Dubai would probably sell its good real estate at a low price and cause a chain reaction in the whole market.

Figures form the London-based Deutsche Bank showed that house prices, both commercial and residential, have halved since August last year.

Despite Dubai World's pledge to mitigate the risks for its investors, the losses in its real estate and stock market would make it hard to have the promise delivered.

Analysts from the Bank of America cautioned that if the Dubai crisis spread to other emerging markets, the world economic recovery could see a major setback.