Fears grow of a new oil crisis as price hits record $41.50 a barrel

Fears of a repeat of the oil crises that brought the world economy to its knees in the 1970s heightened yesterday after the price of crude vaulted to an all-time record.

Fears of a repeat of the oil crises that brought the world economy to its knees in the 1970s heightened yesterday after the price of crude vaulted to an all-time record.

The price of a barrel of oil hit $41.56 (£24) in New York ­ the highest level in the 21-year history of the modern oil market ­ as traders scrambled to secure supplies of the "black gold" before sinking back to close at $41.38. The escalating crisis in the Middle East has triggered fears that oil supplies could be hit by a terrorist attack, while the economic recovery has driven demand for oil to record levels.

Analysts said if there had been any truth in the conspiracy theory that the Iraq war had been launched to secure oil supplies, then the plan had clearly backfired. Surging oil prices slash economic growth by piling extra costs on business and taking more money out of consumers' pockets.

Richard Batley, an economist at Schroders bank in London, said: "Every period of [recession] in the United States since the time of the first 'oil shock' in 1971 has followed a rapid appreciation in the oil price."

Other forecasters are even gloomier. Andrew Oswald, a professor of economics at Warwick University and a long-standing pessimist on oil prices, said: "Oil prices at $50 would tip the world into a recession." It would not, however, be as severe that of the 1990s, when oil prices were much higher in real terms than they were today, he said.

Adjusting for inflation, prices are about half those seen during the oil price shock that followed the 1979 Iranian Revolution. Adjusted to 2002 prices, crude averaged $78 a barrel in 1980, BP, the oil giant, has calculated.

The recent rise in the crude price has led to sharp hikes in petrol prices in Britain, which are running close to 85p a litre, the price that sparked the fuel protests in September 2000 that brought much of the country to a standstill.

The average price of petrol hit 81.3p a litre while diesel reached 82.3p last week, according to the AA Motoring Trust, which has heard of prices exceeding£1 in parts of the country. Petrol retailers say that if oil prices stay high they will be forced to raise pump prices by as much as 7p a litre, taking the price to 90p, just short of the 91.8p that 2000's 85p a litre would cost now.

The Department of Trade and Industry (DTI) yesterday hosted a regular exercise with oil companies, consumer groups and the emergency services to mock up a "downstream fuel disruption", a shortage of petrol at UK forecourts. A DTI spokeswoman stressed that the exercise had been planned months in advance. "The idea that this is an emergency summit is completely misleading," she said.

Several of the key figures in the 2000 protests have warned that hauliers are again angry enough to take direct action unless the Government moves to bring down petrol and diesel prices. They are demanding that the Treasury delay an inflation-linked 1.9p hike in the duty on fuel, planned for 1 September.

Industry experts said there was little hope of a fall in oil prices over the summer as America's traditional "driving season" would add to already high demand. Julian Lee, an economist at the Centre for Global Energy Studies, said: "What is happening is that demand has suddenly taken off thanks to strong growth [in] both the US and China, and that's putting the entire industry under a degree of pressure. I think that prices will stay pretty high at around the levels we are seeing now through the summer."

The International Energy Agency says demand for oil has risen more than 5 per cent over the past year, of which more than a third has come from the red-hot Chinese economy.

Mr Lee said one factor that would bring the price down would be a substantial increase in production by the Organisation of Petroleum Exporting Countries, the cartel better known as Opec.

But Abdullah bin Hamad al-Attiyah, Qatar's Oil minister, said yesterday that markets had enough supply and prices were being driven up by tension in the Middle East and speculation that US supplies might run short. He said: "The rise in oil prices has nothing to do with supply and demand. It has to do with political and psychological reasons. There is no shortage."