Gordon Brown today said fears over a major debt default in Dubai were a "setback" but insisted they would not knock the global recovery off course.
His comments come after two days of turmoil in global stock markets sparked by investment giant Dubai World, which is asking creditors for a delay in paying back its 60 billion US dollar (£36.8 billion) debts.
The default risk has added to nerves surrounding UK banks, which have a £50 billion-plus loan exposure to the United Arab Emirates, of which Dubai is a part.
Dubai World's extensive interests include ports around the world and the UK following its 2006 acquisition of P&O, as well as Scotland's Turnberry golf resort.
Mr Brown said he had spoken to people in Dubai within the last few days, who had assured him that massive planned investments in British ports would go ahead.
Speaking at the Commonwealth summit in Trinidad, Mr Brown said: "While it is a setback, I think we will find this is not on the scale of the previous problems we have dealt with."
The Prime Minister has also spoken to international banking regulator, Mario Draghi, who is the chairman of the Financial Stability Board, about the problems in Dubai, and both are satisfied the situation was "containable and localised".
Downing Street said the Government, Financial Services Authority and the Bank of England were "continuing to closely monitor the situation".
The developer under the spotlight has an investment portfolio extending across 100 different cities - prompting its boast that the "The Sun Never Sets on Dubai World".
The company also owns Nakheel, which is behind Dubai's lavish Palm man-made islands developments and works with British companies such as Balfour Beatty.
The ultimate owner of the business and Dubai's ruler, Sheikh Mohammed Bin Rashid Al-Maktoum, has already turned to its oil-rich neighbour Abu Dhabi for a handout once this year - heightening concerns over whether Abu Dhabi would put its hand in its pocket again.
London shares tumbled 3% on Thursday, wiping almost £44 billion off the FTSE 100 Index in its worst session since March.
The London market shed further ground today before stemming the losses and moving into positive territory later, although US markets - closed yesterday for the Thanksgiving holiday - fell 2% on opening.
But oil prices sank to 74 dollars a barrel before stabilising as economic recovery hopes took a blow.
IG Index's head of sales trading Tim Hughes said: "After the initial volatility, shares in London have stabilised for now.
"With US markets only open for half a day today - and no doubt many over there deciding to make a long weekend of Thanksgiving - we are going to have to wait until early next week to see if stock markets view this as a little local difficulty, or something more serious."
Deutsche Bank analyst Jason Napier said UK banks had "manageable" exposure to the UAE although he added that HSBC and Standard Chartered could have a bigger risk.
He said: "We expect hard data on borrower exposure will remain scarce, given banks' reticence to comment on counterparties, (but) it is right to say that the exposure to Dubai is only a portion of the UAE amount, and the exposure to corporate, and the affected borrowers, are a further subset of the book."
Lloyds chairman Sir Win Bischoff told shareholders at yesterday's general meeting that its exposure to Dubai was "modest" and not material.
Barclays declined to comment, although analysts suggested the bank had a total exposure of around £3 billion to Dubai. HSBC was unavailable for comment.Reuse content