Will Dubai fall-out hit the emir’s great passion?

Dubai's government has decided not to underwrite Dubai World, the development firm with $50bn in debts, saying that its creditors - the majority of debt is held by British banks - were responsible for their own lending decisions.

At the same time, Dubai World said it had begun "constructive" talks to restructure $26bn of debt, including the property firm Nakheel behind the now-infamous palm-shaped island and ski slope.

In making the announcement, the Dubai government is signalling to holders of the debt that they have "almost no legal legs to stand on" to recover the value of their investments in the event of a default.

"We now have to look at each Dubai entity on its own merits and cash flows," one banker told the Financial Times. "The mood is really crummy, and it's not just Dubai government risk. We have to be worried about healthy corporates with exposure to companies like Nakheel too."

The aftershocks of the Dubai crisis are now being felt across the region: this morning the main stock markets in Dubai and Abu Dhabi were both down a further six per cent after Monday's record falls. Yesterday, the Egyptian stock exchange fell almost eight per cent. Now the pessimistic mood is beginning to reach the turf of Newmarket, Deauville and Kentucky.

Sheikh Mohammed bin Rashid Al Maktoum, the emir of Dubai, and his brothers, Hamdan, Ahmed and Maktoum, are by far the largest players in the bloodstock business and their empire, which includes the Godolphin, Darley and Shadwell studs, has poured incalculable sums into horse racing, dominating both salesrooms and winners' enclosures for three decades.

Sheikh Mohammed's Godolphin racing empire is the predominant force in British racing. He has more than 4,000 horses (700 in training), 7,000 acres of paddocks and 5,000 acres of farmland at Newmarket, with similar operations in Ireland, the US and now Australia.

"It is impossible to underestimate his influence on British racing. He has transformed the landscape of the sport," Jon Ryan, director of communications at the British Horseracing Authority, told the Wall Street Journal. "To own and breed on the scale that he does is a pretty extraordinary commitment and now an integral part of racing in this country."

Now there are fears that without the Maktoums' support, the business could collapse. But Sheikh Mohammed's bloodstock adviser John Ferguson has insisted the Dubai ruler's spending on horse racing and breeding would be unaffected by the financial crisis facing Dubai. "His Highness Sheikh Mohammed's involvement with horses has no relation to the Dubai corporate restructuring."

There have been no signs of budget cuts. In the summer, Sheikh Mohammed paid $2.8m for Storm Cat, half-brother to Aragorn. Yet at an important stud sale in Kentucky, the Maktoums sent no representative.

But while the bloodstock industry may be deeply dependent on the Maktoums, racing itself is not and anyway the brothers are unlikely to simply relinquish their passion. In March, Sheik Mohammed will unveil the new £1.5bn Meydan course in Dubai with the World Cup meeting. He will be hoping that Dubai World's turmoil will have blown over by then.