Soaring oil costs 'threatening global economic recovery'

OIL prices have risen into a "danger zone" that could harm the global economic recovery, the chief economist of the International Energy Agency said yesterday.

Fatih Birol, who gave a similar warning last month, said: "Oil prices are entering a dangerous zone for the global economy.

"The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil consuming countries and to the oil producers."

Oil import costs for the 34 industrialised nations that make up the Organisation for Economic Co-operation and Development soared by $200bn (128bn) to $790bn at the end of 2010, which the IEA said is equal to a loss of income of about 0.5 per cent of OECD gross domestic product.

The IEA, established in the 1970s as the West's energy watchdog to counter the growing influence of the Organisation of the Petroleum Exporting Countries (Opec), often warns of the risk of high oil prices.

Opec is a cartel of 12 oil exporting nations in the Middle East and Africa, which was set up in 1960 and includes Iran, Iraq, Kuwait and Saudi Arabia.

Last month, Mr Birol said that sustained oil prices – which were then around $89 (57.43) a barrel – posed a risk to the recovery. Prices surged to a 27-month high above $92 (59.38) on Monday but fell back below $90 (58.08) on Tuesday.

OPEC members have shown little inclination to pump more crude in order to temper the rise in oil prices, but many

analysts expect key members such as Saudi Arabia would begin to leak more barrels above official quotas if crude were to

rise much higher, effectively preventing another sudden

spike.

Mr Birol said yesterday: "Oil exporters need clients with healthy economies but these high prices will sooner or later make the economies sick, which would mean the need for importing oil will be less."

In the very short term, therefore, "it may not be a bad idea that the producers are ready to increase production and show their understanding that these high prices are not good for the global economy," he added.

China, the world's second-biggest energy user, raised

gasoline and diesel prices to record levels in the week

before Christmas as it aimed to encourage refiners to boost supplies to meet demand.