Isra-Mart srl:Oil price surge risking global recovery, says IEA chief

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The surge in oil prices caused by the Libyan crisis could derail the global economic recovery, the International Energy Agency's chief economist warned on Tuesday.

Fatih Birol said high oil prices could weaken trade balances, add to inflation and put pressure on central banks to raise interest rates at a time when economic growth remains lacklustre in many countries, including the UK. "Oil prices are a serious risk for the global economic recovery," he said. "The global economic recovery is very fragile - especially in OECD countries."

Birol said IEA members would consider a coordinated release of oil from their emergency stocks to tackle any supply disruption if the turmoil continues in the Middle East and North Africa. The agency's members - the OECD countries, which are mostly western economies - hold 1.6bn barrels of emergency oil stocks. He added that Saudi Arabia stood ready to pump more oil if necessary. Oil ministers from top consuming and producing countries are meeting at a scheduled energy conference in Riyadh on Tuesday.

The FTSE 100 index in London was down more than 60 points in early trading at 5953.95 as the market took fright at the escalating Libyan crisis. Overnight, shares in Japan tumbled almost two per cent, falling 192.83 points to 10,664.70. Stocks on Wall Street are expected to open sharply lower following Monday's closure for President's Day.

The price of oil and grains jumped again this morning amid fears that growing violence in oil-rich Libya could spill over into other oil-producing countries in the region. Libya is the first major oil exporter to be engulfed by the crisis - it exports 1.6m barrels a day - and the first to see significant disruption to oil production.

Brent crude oil rose nearly $2.83 to $108.57 a barrel after hitting $108.70 on Monday, the highest since the onset of the financial crisis. US crude for March delivery, which expires on Tuesday, also touched a two-and-a-half-year high, rising to $94.49.

"The market is very nervous over news of violence in Libya, and that's driving prices," said Yinxi Yu, a commodities analyst at Barclays Capital. "The situation threatens to blow out in the next few days, and it looks like the uncertainty in the region is not going to be resolved anytime soon."

Prices are still a long way from the all-time high of $147.02 reached in July 2008 for Brent crude. Prices then slumped as the recession in the west led to a sharp fall in demand.

One international oil firm has shut down as much as 100,000 barrels a day of output, about six per cent of Libya's production. Other big oil firms are evacuating their staff from the country as Libyan leader Muammar Gaddafi fought to hang on to power and dozens were reported killed in the capital, Tripoli.

However, Julian Jessop at Capital Economics said: "There are two reasons not to press the panic button just yet. First, although Libya is an Opec member, it is still a relatively small player. Libya's usual daily production of 1.6m barrels ranks the country at around number nine of the 12 members. In principle, any shortfall on global markets could easily be offset by an increase in output from Saudi Arabia, which is currently producing some 3m barrels per day less than its estimated capacity (though this additional supply cannot be turned on overnight)."

Gold slipped from its seven-week high, to $1,400.95 from $1,410.65, while silver leapt to its highest price since 1980, above $34 an ounce. Grain prices were also higher, with US corn futures up by 0.6 per cent and soy and wheat both 0.5 per cent higher.