Talks of a possible debt default by a major Middle Eastern company have agitated global markets, and Middle East-related exchange traded funds (ETFs) have also responded with significant contractions. But is it all just a temporary blip?

Global markets were taken aback by news that Dubai World, the city’s largest corporation, asked creditors for a six-month stay on$60 billion in repayment, reports Geoffrey Rogow for The Wall Street Journal. This uncharacteristic turn led to a swift drop in worldwide stock markets, including a 3% drop in SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF) and a 9% drop in Market Vectors Gulf States (NYSEArca: MES). (Dubai worries weigh on stocks).

The WisdomTree Middle East Dividend ETF (NASDAQ: GULF) has 31.8% allocated to Qatar and 18.9% allocated to UAE. The ETF has dropped more than 13% during the last two trading days.

If a helping hand comes to aid Dubai World, a rally may shortly follow. Though, investors should be cautious  and ready to employ an exit strategy, since there is still too much uncertainty. Note that both GAF and MES are currently trading at a rather low level of shares per day on average, which could impede investment liquidity.

Overall, this is just a bump in the road. This debt is about a third of what the United States gave to AIG in bailout money, so Dubai is “too big to fail.” The ramifications would be huge, which is why many believe the United Arab Emirates will step in with some loans to smooth things over.

Dubai World and MGM Mirage (NYSE: MGM) are planning to increase borrowings for the new CityCenter Resort to retrieve cash by mid-2010, writes Beth Jinks for Bloomberg. CityCenter is protected against defaults by its owners, and future borrowings would be based on the project’s credit rating and projected cash flow, says MGM Chairman and Chief Executive Jim Murren.

If Dubai World were to sell its interest in the $8.5 billion CityCenter project, MGM Mirage has the right of refusal to buy out its partner.

For more information on the Middle East, visit our Middle East category.

Max Chen contributed to this article.

Tags: Emerging Markets, GAF, Global ETFs, GULF, MES, Middle East