Mark Twain once quipped that reports of his death had been an exaggeration, and the same could be said of the apparent downfall of the oil-rich economies of the Persian Gulf, led by the region's erstwhile poster child, Dubai. As the global economy crashed last year, the UAE's largest city became a symbol of the folly of the global credit binge. Many dismissed the emerging city-state as a failed experiment after it was revealed that its government had racked up $80bn in external debt — 148% of GDP.

Not so fast. To be sure, Dubai is still suffering from a massive hangover, even while it gears up for the December opening of the Burj Dubai, the world's tallest man-made structure, but, reports of the emirate's imminent bankruptcy notwithstanding, the Burj still stands like a javelin planted in the sand and has yet to be dismantled and sold as scrap metal. When Dubai announced a $20bn (€14bn) bond issue in February, it became clear when the UAE central bank bought the first $10bn tranche in its entirety that this was a bailout by another name – one funded largely by its richer sister emirate, Abu Dhabi, which has been far more cautious in investing its wealth. If buyers prove wary, the central bank may buy the second half, too.

And yet there's still enough cash in the Gulf to bail out Dubai several times over. In fact, there are signs that the region as a whole may emerge from the global turmoil in unexpectedly good shape, thanks in part to the wealth accumulated since oil prices began rising in 2002. Rather than spending it on the impractical schemes of the 1970s – Saudi Arabia's failed experiment in irrigating the desert comes to mind, as does the Riyadh's King Khaled International Airport, an entire terminal of which remains unused decades after it was built – the Gulf states parked the cash in foreign assets. They also invested in viable non-oil industries at home, like petrochemicals, industrial fertiliser, aluminium and financial services.

The Institute for International Finance estimates that the six countries of the Gulf Cooperation Council (GCC) – Bahrain, Oman, Qatar, the UAE, Saudi Arabia and Kuwait – raked in an annual average of $327bn in hydrocarbon revenue from 2002 to 2006, double the average of the previous five years. That's not even taking into account the bumper oil years of 2007 and 2008. "This time, GCC countries were wiser and more prudent in managing the boom," says Mohammed Zaher, a senior economist at National Bank of Kuwait (NBK). As for local investments, the $2.1tn (€1.47tn) of projects now currently in the pipeline – and these include schools and roads, not just fanciful islands – will likely lead to higher productivity, he adds.

There's a tendency to compare the Gulf's woes to previous emerging market crashes like the Asian crisis of the 1990s. That's misplaced, says Turker Hamzaoglu, an emerging markets analyst with Bank of America Merrill Lynch in London. "It's a bit misleading to look at what happened during the Asian crisis or other emerging markets experiences, because most of those booms were driven by capital inflows," he says. "In the GCC's case, it was driven by oil windfalls." The Dubai property crash is merely one instance of an ongoing "unwinding of excesses," he adds. "In five years when we turn back and look at the collapse in Dubai, we're going to say it put the GCC on a sustainable path."

If this all sounds too rosy, consider that a sustained period of moderately high oil prices may keep the boom going, albeit at a less feverish level. "If you just consider that the oil price is about $60 [€42] per barrel – we're calling $64 [€45] for this year and $82 [€58] for next year – this is definitely going to be supportive of fiscal balances, because the budget breakeven we calculate for these countries is around $65," says Hamzaoglu.

Attention-grabbing statistics tend to mislead. Take the 30%–50% fall in Dubai's property prices starting in the fourth quarter of 2008. That seems like a massive wipeout until you consider that prices rose as much as 80% in the 12 months prior to that. As for oil prices, by mid-2009 they were hovering around $70 (€49), less than half their July 2008 peak of $147 a barrel but still "a fair price" in the view of the sheikhs who run the show. One bad year – and really, it wasn't that bad – is hardly enough to wipe out the advances the Gulf economies made during the 2000s, says Zaher.

Speaking in August, Zaher said: "The oil price today is about $70, or between $60 and $70 over the last month. When have oil prices been in this range? Never before, actually. Not in the '90s or early 2000s or even during the 1980s. It was never in this range, and now we're talking about $60–$70. Is this bad for these countries? I don't think so."

Few can now deny that the UAE, and Dubai especially, enjoyed a trial separation, if not an outright divorce, from reality. Rampant real estate speculation drove the binge of 2007 and 2008, a period of negative real interest rates. Due to high inflation and a currency pegged to the US dollar (and a monetary policy that therefore had to mimic the expansionary policy of the US Federal Reserve), it was actually cheaper for residents to borrow and buy immediately than to save their hard-earned dirhams. Those days are over. In layman's terms: Dubai, once overcrowded and prohibitively expensive, is verging on livable again. The Burj Dubai will even overlook a new metro system set to open in September – a first for the region.

Even if oil prices roll back to the lows of around $35 (€25) seen at the beginning of the year, chances are the Gulf will weather the storm, thanks to the economic advances made during the boom, the massive accumulation of cash, and prudency in managing the surplus, according to a June report from NBK. A region-wide $1tn current account surplus over the period 2003–2008 leaves governments with an overflowing war chest that they can easily use to stimulate domestic demand.

That's not to say that nothing will change. To start, Gulf countries burned by falling asset prices abroad – and Kuwait reportedly lost some $9bn in the crash – are likely to look more inward. "I think we will witness a shift, really soon, to more inward investment from investing abroad," says Ibrahim Saif, a resident scholar at the Carnegie Middle East Center. Saif also argued in a recent paper that the boom years had delayed the urgency of much-needed economic reforms such as reducing the Gulf's problematic addiction to immigrant labour. The economic crisis will lead to renewed interest in revisiting that issue along with concerns over corporate governance and lack of transparency, he says.

The problem with domestic investment is lack of absorptive capacity. On a macro-economic level, too much money isn't always a good thing, as Dubai learned. "Not all these economies can absorb those sums of money," says Zaher. "Saudi Arabia is the biggest, so maybe they can, but with Dubai, for example, what we hear about nowadays is an oversupply." Perhaps that's one reason wealthy Gulf Arab families and conglomerates continue to shop abroad. Manchester United manager Sir Alex Ferguson and journalist Sir David Frost, for instance, have received backing from Gulf investors in a new venture that seeks to become "the Manchester United of the real estate world" by sweeping up bargains, especially in the depressed European market.

Gulf companies are also likely to target the petrochemical sector, an area where it has a comparative advantage due to access to cheap hydrocarbon feedstock. Expect more plays like the February purchase of Canada's troubled Nova Chemicals by Abu Dhabi's International Petroleum Investment Co (IPIC), a deal worth $2.3bn.

Perspective, it seems, has long been in short supply when people talk about the Gulf. Not long ago, the international media became short of breath discussing the Gulf's most visible achievements: artificial island chains, the Burj, an indoor ski slope, a planned theme park bigger than Manhattan, and Saudi Arabia's plan to build a slew of new "economic cities" in the desert. These reports usually failed to mention the staggering amount of leverage such ventures often entail, especially for a small emirate with limited oil wealth like Dubai. The same media has now discovered the "dark side" to the Gulf boom, including the plight of migrant workers and problems with corporate governance, even while this dark side has long been plain to see for anyone who cared to look. However, none of this diminishes the economic gains made in recent years.

There might be more bad news to come. Gulf banks may still have toxic assets on their books, to start. Talk in Gulf investment circles now centres on opaque dealings and multibillion-dollar fraud allegations in a dispute between two of Saudi Arabia's largest family businesses, the Saad Group and Ahmad Hamad Algosaibi & Bros. Standard & Poor's estimates that 30 Gulf Arab banks have a combined exposure to the groups of $9.6bn (€6.75bn), almost the size of the Dubai bailout so far. Clearly, there are still some excesses to be unwound.

On the other hand, anticipated GDP for the entire region is still likely to exceed its 2007 level this year, according to NBK. Residents of gas-rich Qatar, meanwhile, still enjoy the second highest GDP per capita in the world at $81,860 (€57,325), and the country is likely to knock Luxembourg off the top spot next year, according to the International Monetary Fund. That the Gulf remains a global economic heavyweight is as unmistakable as the giant steel spike that now pierces the Dubai skyline.