Oil prices have hit new record highs, threatening further price rises for motorists and dampening prospects for economic growth. Cliff Taylor & Barry O'Halloran report.
The price of a barrel of oil approached $50 for the first time yesterday following further unrest in Iraq. With confusion surrounding the situation in Najaf, the price of US crude oil hit $49.40 a barrel, before easing in late trading to just below $48.
The markets are being driven by events in Iraq, where last night the interim government and renegade Shia militias appeared to be looking for a way out of the siege at the Imam Ali shrine without a further escalation of violence in one of the country's holiest sites.
As each side sought to emerge with the advantage, a day of rumour and counter-rumour stoked the hostility between the government of Iyad Allawi, the interim prime minister, and Moqtada al-Sadr, the Iraqi cleric.
Earlier, Baghdad said its security forces had taken control of the complex, but witnesses reported that civilians and unarmed members of Mr al-Sadr's militia were mingling freely in the shrine and that no Iraqi policemen were to be seen.
The confusion unsettled oil markets, where prices for crude yesterday hit record highs. US oil benchmark crude flirted with $50 a barrel before falling back on hopes that further violence might be avoided in Najaf. In London, Brent rose to a record high of $45.15.
The markets fear a complete stop to Iraqi oil exports. This week Mr al-Sadr's Mahdi army attacked the headquarters of the Southern Oil Company in Basra and has threatened further sabotage of Iraq's oil industry. By yesterday the country was exporting 960,000 barrels a day, down from 1.8 million in March and April, according to shipping sources.
Last night market analysts were unsure as to whether oil prices would break through the $50 a barrel level next week. However barring a swift fall-back in crude prices, motorists look set to be facing further increases in the price of petrol and diesel as a result of this week's record-breaking hikes in the prices of crude oil.
The Automobile Association's monthly price survey of motor fuel prices shows that drivers are already paying 14 cent a litre or 64 cents a gallon more for petrol and diesel than they were a year ago.
The average cost of petrol is 99.5 cent a litre or €4.52 a gallon, compared with 85.3 cent and €3.88 in August 2003.
Mr Frank Bergin of Irish Shell acknowledged yesterday that there was a risk prices in the forecourts would increase again, adding that international prices were key to determining retail prices.
Fears are also growing about the impact on international economic growth. The current record highs in oil prices are unjustified and a cause for concern, European Monetary Affairs Commissioner, Mr Joaquin Almunia, said yesterday.
He said he would not be surprised if EU finance ministers discussed the topic at an informal gathering on September 10th and 11th even as Italy said it might propose cuts in excise duties on oil at that meeting if international oil prices stayed high. "The fundamentals of the market for oil are not justifying these prices," Mr Almunia said. "It is not a positive thing to have an increase in oil prices."
Italy, the euro zone's third biggest economy, is worried enough to consider suggesting action to EU finance ministers. Mr Gianluigi Magri, undersecretary of the Italian Treasury, said: "I think that at Ecofin on September 11th, if things remain the way they are today, we should make a proposal on taxes for our country."
Mr Magri said the proposal would be along the lines put forward by the Italian industry ministry, Mr Antonio Marzano, who has called for excise duties to be cut when global prices were high and increased when they were low.
Irish business and hauliers have called on the Government to examine similar measures here to lower the cost to business of higher oil prices. However so far the Government has shown no inclination to follow this route and indeed has promised to increase taxes on fuel through the introduction of a new carbon tax next January.