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Question: I have completely drained Balthazar's Lair, but the shops are still all flooded.
Answer: You'll need to have the Herd Leader agree to an Alliance before the shops will be available. To do this; you first need to bring back Overdune Snapfinger as a witness to the Lake of Fire. Then you will receive the Alvarian Merchant Council quest to enlist the aid of three out of five factions within Jadame. If you have already drained the Lair, just complete the other steps before talking to the Herd Leader again.
Side question: I told Overdune to go on ahead and I would meet him back in Alvar or wherever, but after traveling there, he's not at any of the adventurer's in and I can't take him to the Merchant council.
I am having a similar problem to yours but first I will try to answer your inquiry here.
You cannot complete this quest (to my knowledge) unless you take him into your party when you are in Ironsands before heading to Alvar. I am going from memory here so I may be wrong but I think this is one of those old quest bugs.
Now my issue is that I drained Balthazar's Lair and then spoke to the leader (Thanys? I get these names mixed up) who offered to join me so I said okay but since I had a full party he went to the Adventurers Inn. Now I do not seem able to get any quests or ability to form an alliance with the minotaurs.