IEA chief warns of oil price dangers

Fatih Birol claims surge could damage economic recovery

Fatih Birol, chief economist for the International Energy Agency, has warned that rising oil prices due to the conflicts in Libya could threaten the global economic recovery.

Birol said the surge in oil prices could lead to growing inflation, damage trade, and put pressure on banks to raise interest rates.

The comments follow a 66 point drop in the FTSE 100 index as the markets reacted to the escalating crisis in Libya. The US and Japan have seen similar drops.

"Oil prices are a serious risk for the global economic recovery," said Birol. "The global economic recovery is very fragile - especially in OECD countries."

Birol announced that the IEA was considering dipping into emergency oil stocks if the supply crisis were to worsen. He also suggested Saudi Arabia could increase production to meet demand.

Analysts are watching events in the Middle East closely, with Libya being the first major oil exporter to be the subject of the recent wave of anti-government protests.

Oil firms have been evacuating staff and shutting down production as the protests against Muammar Gaddafi escalate.

The price of Brent crude oil has subsequently risen to $108.57 a barrel, the highest since the global financial crisis took hold.