The 14-times major winner had made a dreadful start, dropping strokes at three of the first four holes before making another bogey at the fifth.
Six holes later tournament referee Andy McFee informed Woods he might have to sign for a triple-bogey seven rather than a bogey five.
Woods had struck a wayward shot into a desert bush at the fifth and, after consulting playing partner Martin Kaymer, the pair agreed he should be allowed a free drop because it had become imbedded.
The regulations, however, only allow for a free drop in such circumstances if the ball has finished anywhere but in sand and Woods was therefore handed his penalty at the end of the round.
"It's tough because I didn't get off to a good start but I fought and got it back," the 37-year-old American told reporters after eventually posting a three-over-par 75 for a three-over tally of 147.
"I was right there and I felt if I was even-par overall I had a chance going into the weekend, being only eight back of the leader (Britain's Justin Rose). Evidently it wasn't enough."
Woods had produced a scorching run of five birdies in nine holes from the eighth, including three in a row to the 16th, but his valiant effort proved in vain.
Kaymer said he and Woods, playing alongside world number one Rory McIlroy who also missed the cut, were unaware of the distinction in the rule between grass and sand.
"The referee came up to us on the 11th hole and said the sand area was not like normal grass so he was apparently not allowed a free drop," said the German after shooting a 69 for 140, four under.
"I didn't know about it and he obviously didn't know about it otherwise he wouldn't have done it. It's an unfortunate thing."
McFee said he spoke to Woods at the 11th because he was aware of his position score-wise.
"Once we had established what had gone on...I had a conversation with Tiger," he explained. "I wanted him to know there was a possibility a penalty had occurred.
"I thought he might want to have a look at the exact spot, take me there and say 'well, that's where it was'.
"In the end Tiger wanted to discuss it in the recording area rather than the golf course," added McFee. "There we had further discussions and he was happy to accept it.
"He said, 'If you think that area is not entitled to a free drop, that's good enough for me'. It was just one of those situations where he and Martin got the rule wrong."
McFee said he was alerted to the incident at the fifth hole by one of his referees.
"Spectators out on the course spoke to a referee," he explained. "They were curious why the drop was given.
"I don't think they realised the issue they were starting. The referee went to the area...and then called me. I went to look at it and for sure there is no question the ball was imbedded in sand," added McFee.
"We've had a number of rulings here in Abu Dhabi and in Dubai where players have asked for relief and been denied. It happens all the time."
Woods said his general play was not up to scratch in the first two rounds at the fiendishly difficult Abu Dhabi Golf Club.
"I didn't hit it particularly well," he added. "I putted great but I just didn't hit it very good - I was struggling with that.
"I have some work to do and next week I'm playing at Torrey Pines (at the Farmers Insurance Open in California) so I'm going to go back and get ready." (Editing by Justin Palmer)