OPEC, the oil producers' cartel, has moved to reassure world markets that it can make up the shortfall being caused by the strike in Venezuela. At a meeting in Vienna yesterday, OPEC ministers agreed to supply a further 1.5 million barrels daily to world markets and Saudi Arabia, the world's biggest producer, said it was able to increase production even further, if this was required.
The decision to increase output to 24.5 million barrels a day is welcome. It will help to hold down prices in the days ahead and, more importantly, shows a commitment to market stability by OPEC's members facing into what could be a difficult period for the oil market.
The strike in Venezuela, which has deprived world markets of upwards of two million barrels of oil a day, is not the only reason for nervousness. The threat of war in Iraq has also been weighing on the markets, sending the price of oil to over $30 a barrel.
If Iraqi oil were to stop flowing while the Venezuelan strike was still going on, then the shortfall on world markets could touch five million barrels a day. Naturally any disruption to the supplies from the other big Middle East producers could worsen the situation.
A sustained rise in prices would damage international growth prospects, although the euro zone has so far been largely protected from higher prices as the rising price of crude oil has been largely offset by the increase in the value of the euro against the dollar. Oil prices will remain volatile until is it clear whether there is to be a war in Iraq. If the US does lead an attack, then much will depend on the course of the war.
Such are the uncertainties now surrounding the Iraqi situation - and the impossibility of predicting the outcome of a military strike - that the market remains nervous of a difficult few months ahead. The danger now is that a sustained price increase could seriously damage international growth prospects.
All producers - not only those in OPEC - must be prepared to step in to do what they can to restore supplies as needed. And the industrialised countries must also be ready to use their strategic oil reserves, if this is required, to stop a sharp price rise. The threat of higher energy prices, meanwhile, makes it all the more urgent that the Government brings forward a credible strategy to bring down the rate of inflation.
The threat to oil supplies also highlights the need for the industrialised countries to be much more active in energy conservation and in developing alternative - and more environmentally-friendly - energy sources.
It is surely ironic that the fall-out from war in Iraq is more likely to focus policy attention on this than is the compelling evidence of environmental damage through global warming and the other negative side-effects of current energy-use patterns.