Foreboding from Opec official

The UAE's Opec governor has warned of dark days ahead for the global economy and urged oil producers to prepare for a slump in demand.

A trader reacts at the Hong Kong Stock Exchange where stocks took another battering, amid renewed fears over Greece. Vincent Yu / AP Photo

The UAE's Opec governor has warned of dark days ahead for the global economy and urged oil producers to prepare for a potential slump in demand.

Ali Al Yabhouni's comments yesterday came as Greece revealed its deficit was larger than originally stated and European politicians grappled with the debt crisis.

Road to Ruin? Catch up with Rory Jones' exclusive reports from the heart of Europe

Greeks seek fortune with paymaster of Europe Greek immigrants in Berlin seek a better life. Read article

Road to ruin or recovery? Europe's nightmare journey Europe is on a nightmare journey from one financial crisis to another. Read article

Global markets tumbled after the news that Greece was not reaching deficit-reduction targets as European and IMF officials try to save it from a debt default. Greece will not be able to make payments on its debts, which total more than 150 per cent of its GDP, if it does not receive another €8 billion (Dh39.06bn) in aid this month.

European stock markets fell by more than 2 per cent yesterday. Regional markets also fell and Dubai shares hit a seven-year low.

Brent crude, the European benchmark, fell as low as US$101.12 yesterday. It has traded above $100 for most of this year, reaching $126 in April as the Libyan civil war brought oil production there to a standstill.

European markets, politics and debt are seen by many people as critical for oil prices, which hinge on demand from wealthy consumers.

Investors in Europe were sitting on the sidelines during the most recent bout of trouble, partly because of political risk, said Win Neuger, the chief executive of the US company Pinebridge Investments, which has almost $80 billion (Dh293.83bn) of assets under management.

While leaders have preached unity in recent days, divergent economic and political priorities in the 17-country euro zone have made the future more uncertain.

"You might have confidence that a single government would react in a certain way to this crisis and you'd have a higher confidence that a government would at least push the problem down the line a bit and enable a separation between the insolvent and the illiquid," he said.

"Right now we're in a situation where the insolvent could drive the illiquid into crisis."

By giving aid to Greece, however, he said, the EU, the European Central Bank and the IMF bought time to recapitalise banks and address its debts - hopefully without causing financial chaos.

"We've pushed it down a little bit, and that buys time for the banks to shore up their capital, to take action in various countries to improve their financial position and their illiquidity position, and at some point it enables you then to allow the defaults of the insolvent, because I think ultimately that's what will happen," he said.

Mr Al Yabhouni brushed off the thought that high crude prices could have contributed to today's bleak situation.

"The current sovereign [debt] crisis in the euro zone that threatens the world economy, added to fears of a double dip recession, are clearly unrelated to events in global energy markets," Mr Al Yabhouni said.

"No one complains of supply tightness, and stock levels throughout the world remain at comfortable levels."

Exports to China and India, nations driving global growth in energy demand, have fallen recently, said Mr Yabhouni.

"It will take time to judge whether this is due to seasonal factors or whether there is a structural reason for the fall," he said.

The UAE, the world's fourth-biggest oil exporter, would not need to change its long-term strategy if there were a drop in oil demand, he said. Abu Dhabi is targeting an increase in capacity from 2.8 million barrels per day (bpd) to 3.5 million bpd in the coming eight years.