Oil could hit $220 per barrel on the fear of the Libya and Algeria, cautions Nomura

Barclays Capital said 1 m barrels of Libyan output is "locked in", with the other 0.6 m at risk. While Saudi Arabia may respond by raising the output, it takes time and its oil is not a substitute for "Sweet Crude the Libya".

The crisis escalating triggered falls more on the global stock exchanges. Wall Street was down 1pc in trade at the beginning and the FTSE 100 1. 2pc. The Dow Jones index has shed more than 300 points during the three days of 12,075.

Nomura said a closure in Libya and Algeria would reduce global 2.9 m b/d supply and reduce the ability of spare OPEC b/2.1 m d, comparable to levels at the beginning of the Gulf war and worse than during the 2008 spike when prices hit $147.

Two price shocks preceded by - or triggered - a recession in Europe and the United States. Fatih Birol, Chief Economist, International Energy Agency said the last rising already become prices a "serious risk" for the fragile economies of OECD block.

Some analysts fear the underlying image is worse than officially recognized doubting Saudi claims of alternative ample capacity. Wikileaks cable cited comments by geologist of Saudi Aramco oil giant that Kingdom reserves had been exaggerated by 40pc. A second cable cited U.S. diplomats asking if the Saudis "more empowered to make prices downwards for an extended period."

Report from Nomura, who consider the scenario catastrophic to a real crisis in the Gulf, said recent oil price shocks have shown a pattern of three floors, with a final blow-off price in the final phase. The current crisis is the first step.

Soaring oil prices create a dilemma for banks, nasty because they inflationary if caused by the robust global growth, but the deflationist if caused by a tightening of supply which acts as a tax on consumption of nations. Big oil exporters tend to save additional revenues for first price spikes, so the initial effect is draining global demand.

The current image contains elements of both, with an extra touch of liquidity created by the US Federal Reserve leaking into the global system and play havoc with commodity prices.

Secretary of the Treasury Tim Geithner told us Wednesday that the global economy is relatively stong to "manage" the oil shock, insisting on the fact that central banks "have extensive experience in the management of these things."

The European Central Bank (ECB) responded to skyrocketing oil in July 2008 by raising rates even if the Germany and the Italy were in recession at that time there. Nout Wellink, the Governor of Dutch of the ECB, said that this was an error policy.

Circumstances are different this time still also dark. ECB chief Jean-Claude Trichet scored last month that the Bank will be "look at" the hump of prices in the short term, but the ECB rhetoric has since then harden. Fed doves will probably give more weight to the deflationary risks.

Jeremy Leggett, a leader of the task force industry UK peak oil and energy security, says the crisis Mid-East "shows the extreme fragility of the world system." People don't realize the proximity we a potential jump if that agitation reached critical mass in OPEC countries enough. "Governments must develop contingency plans and get cracking on proactive steps while we still have time", he says.

Charles Robertson in the Capital of the Renaissance, said concern actual harass investors is what happens in oil-rich Province Saudi Arabia Eastern home of Kingdom restless minority Shi'ite. The Saudis produced with FP6 11 of world production, but a more significant share of exports.

It does y potential serious tensions and not only among the Shiites. High unemployment and the youth bulge means disorders could be anywhere in the country. If Saudi Arabia or Iran is gobbled up, we have a serious problem. »

On Wednesday, the Saudi King Abdullah has unveiled $restriction of social aid for his people.

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Oil prices keep rising on the Libya and Bahrain uprisings

Shia protest at Bahrain (see above), and there is concern that it could spill over to the minority of Shi'ite in the Eastern province of Saudi oil producers.  Photo: REUTERS

At least three oil companies stop output in the third largest producer of Africa, pump 1.6 million barrels per day (BPD) or almost 2pc global supply resulted in violent clashes in Libya.

Disturbance mark the first reduction in the supply of oil resulting from a wave of protests that swept Middle East and North Africa oil producers.

Investors fear for the potential impact on the flow of oil from first exporter Saudi Arabia if she suffers from similar problems.

In addition, International Energy Agency (IEA) Executive Director Nobuo Tanaka said that the price of oil over $100 per barrel for the rest of the year could tip the economy back in a repeat of the economic crisis of 2008.

"We are very concerned about the situation, it is a risk for the stable supply of petroleum," he said yesterday at the International Energy Forum in Riyadh.

US crude rose high sheath $ per barrel, the highest level since October 2008. Business morning in London, the April contract had trimmed gains to trade at $95.93, up to 2 5pc on the end of last night.

Brent crude, which is trade even more elevated the U.S. price jumped $ 1.26 $107.04 per barrel. Monday, Brent hit a 2 and half year high of $108.70.

"Even if the Libya stops completely, there is not a question of supply." "But brut (U.S.) could go to $100, taking into account the potential of this contagion to spread to Saudi Arabia," said Jonathan Barratt, CEO of Sydney freight Brokerage Services.

To date, events in Saudi have been low key. But Shia majority in neighbouring Bahrain are to protest against the Government of Sunni and fears it could spill over to the minority Shi'ite living in oil producers is the Saudi province.

"The importance of the Bahrain is perhaps being currently weakened." While not a major producer of oil, impact of Bahrain on the oil market is reflected through its importance in Saudi Arabia, "said Barclays Capital Helima Croft and Amrita Sen analysts in a research note.

Supplies of natural gas also felt the impact of the Libya disorders as a pipeline carrying Libyan gas in Italy has been closed.

Brent crude has increased by almost 5pc 12 so far this year. U.S. crude is just below the year 5MC but it is more than $50 below its 2008 high of $147.27.

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Rise of markets despite the Libya and the Japan

Index Nikkei 225 Index of the Japan reference have increased more than 3pc on opening transactions, to 9,518.81 as the country that it has made progress in the stabilization of the reactor at the Fukushima Daiichi nuclear power.

The FTSE 100 index increased 1. 3pc - 71 points at 5,789.65 - despite the launch of operation dawn Odyssey against in Libya Saturday.

The day after in America, the Dow Jones Industrial Average closed 178.01 points or 1. 5pc to 12,036.53 after that traders simply geopolitical fears and instead congratulates $39bn (£ 23. 9bn) OPA of the AT & T for T-Mobile USA, which is the property of Deutsche Telekom. Success, the agreement would be the biggest deal in the world this year and plu German of a decade.

Telecoms, banks and miners led a gathering of the market in the world. The Japan markets had been closed for a holiday Monday, but the MSCI index of Asian stocks outside the Japan increased 1. 4pc in the news of successes at the Fukushima nuclear engineering.

The yen also weakened to 81.13 against the dollar following intervention by the Group of seven nations.

Calm on equity markets was not shopkeepers in petroleum reflected. Future Brent Crude rose $1.33 to $115.26 Monday with experts warning that the Allied Libya shares were likely to push prices even higher.

Francisco Blanch, head of research of the products at BofA Merrill Lynch in New York, believe that the price rally to provide as high as $ 140 per barrel on global concerns. Mr. Blanch said Bloomberg that Brent could hit this level in the three to four months. "We are going missing Libyan oil for some time", he said.

Commerzbank said: "a return at the beginning of the Libya for the world oil market is little probable, which should support prices long-term".

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Global markets bouncing on the truce of Libya, the G7 intervention

Mask wearing people watch a screen displaying shares in Tokyo, which rose after that the G7 intervened to sell the yen. Photo: REUTERS

The FTSE 100 has finished the day up 0. set to 5718.13, but dropped 1. 9pc during the week. Germany the DAX edged up to 0 1pc and France CAC rose 0 FP6 with the falling yen as central banks sold the Japanese currency in the co-ordinated G7 first since 2000.

In New York, the Dow Jones rose 0 9pc closed trade in Europe and the price of oil has a strong. Brent crude, which rose above $117 per barrel earlier in the day after the United Nations, supported military action in Libya, withdraw below $114 as the Government announced an immediate halt to military operations in the country.

The United Nations Security Council adopted a resolution late Thursday approving "all necessary measures" to impose a no-fly in Libya area, protect civilian areas and pressure leader Libyan, Colonel Gaddafi to accept a cease-fire. He said he was looking to verify compliance with the resolution.

The market is "dance with the geopolitical developments which, for the moment, is sounding better than what they have in the last week," said Patrick O'Hare to Briefing.com.

The Nikkei 225, which dropped to 10 2pc this week after tumbling 16pc, in the first two days taking the comfort of the coordinated action by the G7 to big 2 FP7 countries. The increase was mirrored across stock markets in Asia.

Yoshihiko Noda, Japanese Finance Minister, said that the country had agreed with the central banks of United States, Britain and the Canada and the European Central Bank to intervene jointly in the foreign exchange market.

The Japanese currency weakened against the dollar to about 81.20 yen, that extends from a rebound to a record low of 76.25 yen struck on Thursday.

The France and the Bank of England Bank confirmed that they had sold yen Friday. The Bundesbank said they would participate but did not say if they had acted.

Some traders remain skeptical about the impact of the intervention. Speculators, such as hedge funds were keen to test the authorities resolve by buying in the rise in the yen sell-off, with the market still anticipate repatriation flows to the Japan after week last earthquake and subsequent nuclear crisis in support of the Japanese currency.

Mr. Noda told reporters that the size of the intervention will be revealed in two months. Analysts estimated that intervention could be as high as 750bn yen. Market Tokyo estimates prior to the Bank of the intervention Japan to 2 billion yen (£ 16bn) in the day, similar to its end of a day of intervention in September.

"Intervention must be concerted and aggressive... and even then, I am skeptical, said one trader in London."

The intervention surprised - most financial markets had anticipated to the Japan to act alone - underlines the threat that nations see now of Japan, of the world's third largest economy.

"They felt the need to do something together," said Masafumi Yamamoto, an analyst with Barclays Capital in Tokyo currency. "The disaster itself clearly had a very negative impact on the economy, but the movement of the yen has do worse."

The strength of the yen since the earthquake struck a week ago seems counter-intuitive, but Mr. Yamamoto of Barclays said that the Japanese currency has historically served as a haven for investors during a crisiseven one of the country.

He added that some speculators have been buying yen in the hope that Japanese insurance companies would have to liquidate foreign investment in order to yen home to help pay for the repair of the country.

To calm investors, insurance companies and most important of Japan, which are the major owners of America's debt, published yesterday strong denials that they were preparing a predatory pricing of US Treasury obligations.

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Oil shock fears as Libya erupts

 US oil contracts jumped more than $7 a barrel on Tuesday morning to over $93. Photo: REUTERS

"This is potentially worse for oil than the Iran crisis in 1979," said Paul Horsnell, head of oil research at Barclays Capital. "That was a revolution in one country, here there are so many countries at once. The world has only 4.5m barrels-per-day (bpd) of spare capacity, which is not comfortable."

US oil contracts jumped more than $9 a barrel in a matter of hours on Tuesday to touch $98, chasing Brent crude at a 30-month high of $109 as the whole global oil system is drawn into the vortex.

While Egypt is a minor oil player, Libya's Sirte Basin holds Africa's largest reserves and supplies 1.4m bpd in exports, mostly to Italy, Germany and Spain.

BP, Statoil, Total and ENI have begun evacuating families and non-essential staff from Libya. BP chief Bob Dudley told Sky News that the company has only limited exploration in Libya but "remains committed to doing business" there.

Germans oil explorer Wintershall said it was winding down its Libyan operations, but Italy's ENI has most to lose from its pipeline to Libya. ENI's stock tumbled 5pc in Milan on Monday, leading a 3.6pc fall in the MIB index.

Global oil inventories are higher than before the 2008 price spike, and OPEC can raise output if needed. It has refused to act so far despite pleas from the International Energy Agency (IEA) that the supply picture is already "alarming".

A Saudi official said global oil ministers meeting tomorrow in Riyadh will examine market "volatility", but dashed hopes of OPEC action, saying world markets are "sufficiently supplied".

Though Libya's oil fields are big enough to influence global supply, producing 2.3pc of world output, investors have broader concerns. The lighting speed of events in a country that was stable just days ago has caused markets to doubt assurances about Saudi Arabia and the Gulf states. The Gulf region ships a third of global oil output.

Credit default swaps on Saudi Arabia's debt jumped to 140 basis points on Monday, while Bahrain rose to 305 despite an olive branch from the Sunni royal family to Shi'ite protestors. The island's Grand Prix in March has been cancelled.

Fitch Ratings downgraded Libya on Monday on political risk although the 6m-strong country has foreign assets of $139bn (£85.7bn) or 190pc of GDP, no foreign debt, and a better balance sheet than Saudi Arabia.

Michael Lewis, commodities chief at Deutsche Bank, said oil markets are bracing for trouble. December "call options" with a strike price of $120 on US crude have doubled suddenly, indicating fears of a nasty escalation. "Libya raises the stakes," he said.

Mr Lewis said oil prices tend to cause economic damage at a $95 to $100 for US crude. As a rule of thumb, a sustained $10 rise in price lops 0.5pc off US growth over two years, and worse if it reaches a self-feeding tipping point. "It's like a $50bn tax," he said.

Mr Horsnell said the global energy crunch is haunting us again after a brief respite during the financial crisis. "In just two years, the world has grown so fast as to consume additional volume equal to the output of Iraq and Kuwait combined," he said.

While oil is likely to keep flowing from Mid-East states whatever the political colour of the regimes, it is less clear that global oil companies will continue to explore or invest in regions where nobody knows the rules of the game. "It matters a lot what the investment climate is for long-term fixed capital projects," he said.

The IEA has called for $30 trillion of investment in energy projects over the next 20 years to keep global growth on track and meet explosive demand from China. The task may soon be harder.

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The Libya uplift sends shares plummet as oil price leaps

The Libya is the first oil exporters leading to be affected by the political crisis in the Middle East. Photo: AFP

Sharp falls in Asian markets during night sparked a sell-off in London and Europe, while Brent crude reaches most of $108 a barrel on concerns exports of crude oil Libya more than 1 m barrels per day may be affected foreign oil companies to evacuate the country staff.

In London, the FTSE 100 index sank as 1. 5pc and CAC 40 France fell nearly $ 2pc moves towards the exit on the high price of oil concern of investors and political turmoil will limit economic growth and hurt corporate earnings.

Better than expected UK, the figures offered loan support limited to UK blue chips, despite news of a surplus of. 7bn £ 3 for public finances of Britain in January, thanks to a bumper haul tax.

UK Government bonds were supported by the new and investors seek refuge with the yield on ten-year gilts down five points from base to 3 68pc.

Michael Hewson, CMC Markets told traders market analyst fears the Libya and broader problems in the Middle East could send global markets in prolonged slump.

"Given that we saw massive gains of the stock market in recent months, investors have been nervous about a possible fix for some time," he said.

"Tensions in the Middle East with the implosion of the Libya and concerns that disorders may extend to Saudi Arabia could provide such a catalyst for a correction as we are approaching some support keys on main indices levels."

The Libya is 18th largest producer of oil in the world, pumping approximately 1.8 million barrels per day, or a little under 2pc of daily production. OPEC countries also depends on the largest oil reserves throughout Africa.

The country is the first oil exporters leading to be affected by political unrest, but traders were also considering events in Iran, the second largest producer in OPEC.

Airlines were among stocks hardest hit in London, under pressure from concerns over the impact of soaring fuel costs.

Europe receives more gross exports of Libya - mainly 85pc jet fuel – with 8 5pc password to the United Kingdom.

However, the Director of the International Energy Agency, Nobuo Tanaka, moved to reassure markets that provides oil are secure.

Speaking at a meeting in Riyadh, Saudi Arabia, he said OPEC nations provided that the cartel can use spare capacity to increase production to meet any shortfall of the Libya or Bahrain.

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Oil shock fears as Libya erupts

 US oil contracts jumped more than $7 a barrel on Tuesday morning to over $93. Photo: REUTERS

"This is potentially worse for oil than the Iran crisis in 1979," said Paul Horsnell, head of oil research at Barclays Capital. "That was a revolution in one country, here there are so many countries at once. The world has only 4.5m barrels-per-day (bpd) of spare capacity, which is not comfortable."

US oil contracts jumped more than $9 a barrel in a matter of hours on Tuesday to touch $98, chasing Brent crude at a 30-month high of $109 as the whole global oil system is drawn into the vortex.

While Egypt is a minor oil player, Libya's Sirte Basin holds Africa's largest reserves and supplies 1.4m bpd in exports, mostly to Italy, Germany and Spain.

BP, Statoil, Total and ENI have begun evacuating families and non-essential staff from Libya. BP chief Bob Dudley told Sky News that the company has only limited exploration in Libya but "remains committed to doing business" there.

Germans oil explorer Wintershall said it was winding down its Libyan operations, but Italy's ENI has most to lose from its pipeline to Libya. ENI's stock tumbled 5pc in Milan on Monday, leading a 3.6pc fall in the MIB index.

Global oil inventories are higher than before the 2008 price spike, and OPEC can raise output if needed. It has refused to act so far despite pleas from the International Energy Agency (IEA) that the supply picture is already "alarming".

A Saudi official said global oil ministers meeting tomorrow in Riyadh will examine market "volatility", but dashed hopes of OPEC action, saying world markets are "sufficiently supplied".

Though Libya's oil fields are big enough to influence global supply, producing 2.3pc of world output, investors have broader concerns. The lighting speed of events in a country that was stable just days ago has caused markets to doubt assurances about Saudi Arabia and the Gulf states. The Gulf region ships a third of global oil output.

Credit default swaps on Saudi Arabia's debt jumped to 140 basis points on Monday, while Bahrain rose to 305 despite an olive branch from the Sunni royal family to Shi'ite protestors. The island's Grand Prix in March has been cancelled.

Fitch Ratings downgraded Libya on Monday on political risk although the 6m-strong country has foreign assets of $139bn (£85.7bn) or 190pc of GDP, no foreign debt, and a better balance sheet than Saudi Arabia.

Michael Lewis, commodities chief at Deutsche Bank, said oil markets are bracing for trouble. December "call options" with a strike price of $120 on US crude have doubled suddenly, indicating fears of a nasty escalation. "Libya raises the stakes," he said.

Mr Lewis said oil prices tend to cause economic damage at a $95 to $100 for US crude. As a rule of thumb, a sustained $10 rise in price lops 0.5pc off US growth over two years, and worse if it reaches a self-feeding tipping point. "It's like a $50bn tax," he said.

Mr Horsnell said the global energy crunch is haunting us again after a brief respite during the financial crisis. "In just two years, the world has grown so fast as to consume additional volume equal to the output of Iraq and Kuwait combined," he said.

While oil is likely to keep flowing from Mid-East states whatever the political colour of the regimes, it is less clear that global oil companies will continue to explore or invest in regions where nobody knows the rules of the game. "It matters a lot what the investment climate is for long-term fixed capital projects," he said.

The IEA has called for $30 trillion of investment in energy projects over the next 20 years to keep global growth on track and meet explosive demand from China. The task may soon be harder.

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Oil could hit $220 a barrel on Libya and Algeria fears, warns Nomura

Barclays Capital said 1m b/d of Libyan output is "shut in", with the other 0.6m at risk. While Saudi Arabia can step in by raising output, this takes time and its oil is not a substitute for Libya's "sweet crude".

The escalating crisis set off further falls on global bourses. Wall Street was down 1pc in early trading and the FTSE 100 fell 1.2pc. The Dow has shed more than 300 points over the past three days to 12,075.

Nomura said a shut-down in both Libya and Algeria would cut global supply by 2.9m b/d and reduce OPEC spare capacity to 2.1m b/d, comparable with levels at the onset of the Gulf War and worse than during the 2008 spike, when prices hit $147.

Both price shocks preceeded – or triggered – a recession in Europe and the US. Fatih Birol, chief economist for the International Energy Agency, said the latest price rise had already become a "serious risk" for the fragile economies of the OECD bloc.

Some analysts fear the underlying picture is worse that officially recognised, doubting Saudi claims of ample spare capacity. A Wikileaks cable cited comments by a geologist for the Saudi oil giant Aramco that the kingdom's reserves had been overstated by 40pc. A second cable cited US diplomats asking whether the Saudis "any longer have the power to drive prices down for a prolonged period".

Nomura's report, which does not examine the catastrophic scenario of a full-blown Gulf crisis, said past oil shocks have shown a three-stage pattern, with a final blow-off in prices in the final phase. The current crisis is at stage one.

Surging oil prices create a nasty dilemma for central banks since they are inflationary if caused by robust global growth, but deflationary if caused by a supply crunch that acts as a tax on consuming nations. The big oil exporters tend to save extra revenues from price spikes at first, so the initial effect is to drain global demand.

The current picture contains elements of both, with an added twist of liquidity created by the US Federal Reserve that is leaking into the global system and playing havoc with commodity pricing.

US Treasury Secretary Tim Geithner said on Wednesday that the world economy is stong enough to "handle" the oil shock, insisting that central banks "have a lot of experience in managing these things".

The European Central Bank (ECB) responded to the oil spike in July 2008 by raising rates even though Germany and Italy were in recession by then. Nout Wellink, the ECB's Dutch governor, said this had been a policy error.

Circumstances are different this time yet also murky. ECB chief Jean-Claude Trichet signalled last month that the bank will "look through" the short-term price hump, but ECB rhetoric has since turned more hawkish. Fed doves will undoubtedly give more weight to the deflationary risks.

Jeremy Leggett, a leader of the UK industry task force on peak oil and energy security, said the Mid-East crisis "shows the extreme fragility of the global system. People don't realise how close we are to a potential precipice if this unrest reaches critical mass in enough OPEC countries. Governments need to draw up emergency plans and get cracking on proactive measures while we still have time," he said.

Charles Robertson at Renaissance Capital said the real concern nagging investors is what will happen in Saudi Arabia's oil-rich Eastern Province, the home of the kingdom's restless Shi'ite minority. The Saudis produce 11.6pc of world output, but a much higher share of exports.

"There is potential for serious tension, and not just among the Shia. High unemployment and the youth bulge means unrest could be country-wide. If Saudi Arabia or Iran are engulfed, we have a serious problem."

On Wednesday Saudi King Abdullah unveiled $11bn of welfare projects for his people.

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Oil shock fears as Libya erupts

"This is potentially worse for oil than the Iran crisis in 1979," said Paul Horsnell, head of oil research at Barclays Capital. "That was a revolution in one country, here there are so many countries at once. The world has only 4.5m barrels-per-day (bpd) of spare capacity, which is not comfortable."

US oil contracts jumped $6 a barrel on Monday to over $95, chasing Brent crude, which traded as high as $108, as the global oil system is drawn into the vortex. While Egypt is a minor oil player, Libya's Sirte Basin holds Africa's largest reserves and supplies 1.4m bpd in exports, mostly to Italy, Germany and Spain.

BP, Statoil, Total and ENI have begun evacuating families and non-essential staff from Libya. BP chief Bob Dudley told Sky News that the company has only limited exploration in Libya but "remains committed to doing business" there.

Germans oil explorer Wintershall said it was winding down its Libyan operations, but Italy's ENI has most to lose from its pipeline to Libya. ENI's stock tumbled 5pc in Milan, leading a 3.6pc fall in the MIB index.

Global oil inventories are higher than before the 2008 price spike, and OPEC can raise output if needed. It has refused to act so far despite pleas from the International Energy Agency (IEA) that the supply picture is already "alarming".

A Saudi official said global oil ministers meeting tomorrow in Riyadh will examine market "volatility", but dashed hopes of OPEC action, saying world markets are "sufficiently supplied".

Though Libya's oil fields are big enough to influence global supply, producing 2.3pc of world output, investors have broader concerns. The lighting speed of events in a country that was stable just days ago has caused markets to doubt assurances about Saudi Arabia and the Gulf states. The Gulf region ships a third of global oil output.

Credit default swaps on Saudi Arabia's debt jumped to 140 basis points on Monday, while Bahrain rose to 305 despite an olive branch from the Sunni royal family to Shi'ite protestors. The island's Grand Prix in March has been cancelled.

Fitch Ratings downgraded Libya on Monday on political risk although the 6m-strong country has foreign assets of $139bn (£85.7bn) or 190pc of GDP, no foreign debt, and a better balance sheet than Saudi Arabia.

Michael Lewis, commodities chief at Deutsche Bank, said oil markets are bracing for trouble. December "call options" with a strike price of $120 on US crude have doubled suddenly, indicating fears of a nasty escalation. "Libya raises the stakes," he said.

Mr Lewis said oil prices tend to cause economic damage at a $95 to $100 for US crude. As a rule of thumb, a sustained $10 rise in price lops 0.5pc off US growth over two years, and worse if it reaches a self-feeding tipping point. "It's like a $50bn tax," he said.

Mr Horsnell said the global energy crunch is haunting us again after a brief respite during the financial crisis. "In just two years, the world has grown so fast as to consume additional volume equal to the output of Iraq and Kuwait combined," he said.

While oil is likely to keep flowing from Mid-East states whatever the political colour of the regimes, it is less clear that global oil companies will continue to explore or invest in regions where nobody knows the rules of the game. "It matters a lot what the investment climate is for long-term fixed capital projects," he said.

The IEA has called for $30 trillion of investment in energy projects over the next 20 years to keep global growth on track and meet explosive demand from China. The task may soon be harder.

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Oil could hit $220 a barrel on Libya and Algeria fears, warns Nomura

Barclays Capital said 1m b/d of Libyan output is "shut in", with the other 0.6m at risk. While Saudi Arabia can step in by raising output, this takes time and its oil is not a substitute for Libya's "sweet crude".

The escalating crisis set off further falls on global bourses. Wall Street was down 1pc in early trading and the FTSE 100 fell 1.2pc. The Dow has shed more than 300 points over the past three days to 12,075.

Nomura said a shut-down in both Libya and Algeria would cut global supply by 2.9m b/d and reduce OPEC spare capacity to 2.1m b/d, comparable with levels at the onset of the Gulf War and worse than during the 2008 spike, when prices hit $147.

Both price shocks preceeded – or triggered – a recession in Europe and the US. Fatih Birol, chief economist for the International Energy Agency, said the latest price rise had already become a "serious risk" for the fragile economies of the OECD bloc.

Some analysts fear the underlying picture is worse that officially recognised, doubting Saudi claims of ample spare capacity. A Wikileaks cable cited comments by a geologist for the Saudi oil giant Aramco that the kingdom's reserves had been overstated by 40pc. A second cable cited US diplomats asking whether the Saudis "any longer have the power to drive prices down for a prolonged period".

Nomura's report, which does not examine the catastrophic scenario of a full-blown Gulf crisis, said past oil shocks have shown a three-stage pattern, with a final blow-off in prices in the final phase. The current crisis is at stage one.

Surging oil prices create a nasty dilemma for central banks since they are inflationary if caused by robust global growth, but deflationary if caused by a supply crunch that acts as a tax on consuming nations. The big oil exporters tend to save extra revenues from price spikes at first, so the initial effect is to drain global demand.

The current picture contains elements of both, with an added twist of liquidity created by the US Federal Reserve that is leaking into the global system and playing havoc with commodity pricing.

US Treasury Secretary Tim Geithner said on Wednesday that the world economy is stong enough to "handle" the oil shock, insisting that central banks "have a lot of experience in managing these things".

The European Central Bank (ECB) responded to the oil spike in July 2008 by raising rates even though Germany and Italy were in recession by then. Nout Wellink, the ECB's Dutch governor, said this had been a policy error.

Circumstances are different this time yet also murky. ECB chief Jean-Claude Trichet signalled last month that the bank will "look through" the short-term price hump, but ECB rhetoric has since turned more hawkish. Fed doves will undoubtedly give more weight to the deflationary risks.

Jeremy Leggett, a leader of the UK industry task force on peak oil and energy security, said the Mid-East crisis "shows the extreme fragility of the global system. People don't realise how close we are to a potential precipice if this unrest reaches critical mass in enough OPEC countries. Governments need to draw up emergency plans and get cracking on proactive measures while we still have time," he said.

Charles Robertson at Renaissance Capital said the real concern nagging investors is what will happen in Saudi Arabia's oil-rich Eastern Province, the home of the kingdom's restless Shi'ite minority. The Saudis produce 11.6pc of world output, but a much higher share of exports.

"There is potential for serious tension, and not just among the Shia. High unemployment and the youth bulge means unrest could be country-wide. If Saudi Arabia or Iran are engulfed, we have a serious problem."

On Wednesday Saudi King Abdullah unveiled $11bn of welfare projects for his people.

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World markets steady on the truce of Libya, the G7 intervention

Mask wearing people watch a screen displaying shares in Tokyo, which rose after that the G7 intervened to sell the yen. Photo: REUTERS

The FTSE 100 has finished the day up 0. set to 5718.13, but dropped 1. 9pc during the week. Germany the DAX edged up to 0 1pc and France CAC rose 0 FP6 with the falling yen as central banks sold the Japanese currency in the co-ordinated G7 first since 2000.

In New York, the Dow Jones rose 0 9pc closed trade in Europe and the price of oil has a strong. Brent crude, which rose above $117 per barrel earlier in the day after the United Nations, supported military action in Libya, withdraw below $114 as the Government announced an immediate halt to military operations in the country.

The United Nations Security Council adopted a resolution late Thursday approving "all necessary measures" to impose a no-fly in Libya area, protect civilian areas and pressure leader Libyan, Colonel Gaddafi to accept a cease-fire. He said he was looking to verify compliance with the resolution.

The market is "dance with the geopolitical developments which, for the moment, is sounding better than what they have in the last week," said Patrick O'Hare to Briefing.com.

The Nikkei 225, which dropped to 10 2pc this week after tumbling 16pc, in the first two days taking the comfort of the coordinated action by the G7 to big 2 FP7 countries. The increase was mirrored across stock markets in Asia.

Yoshihiko Noda, Japanese Finance Minister, said that the country had agreed with the central banks of United States, Britain and the Canada and the European Central Bank to intervene jointly in the foreign exchange market.

The Japanese currency weakened against the dollar to about 81.20 yen, that extends from a rebound to a record low of 76.25 yen struck on Thursday.

The France and the Bank of England Bank confirmed that they had sold yen Friday. The Bundesbank said they would participate but did not say if they had acted.

Some traders remain skeptical about the impact of the intervention. Speculators, such as hedge funds were keen to test the authorities resolve by buying in the rise in the yen sell-off, with the market still anticipate repatriation flows to the Japan after week last earthquake and subsequent nuclear crisis in support of the Japanese currency.

Mr. Noda told reporters that the size of the intervention will be revealed in two months. Analysts estimated that intervention could be as high as 750bn yen. Market Tokyo estimates prior to the Bank of the intervention Japan to 2 billion yen (£ 16bn) in the day, similar to its end of a day of intervention in September.

"Intervention must be concerted and aggressive... and even then, I am skeptical, said one trader in London."

The intervention surprised - most financial markets had anticipated to the Japan to act alone - underlines the threat that nations see now of Japan, of the world's third largest economy.

"They felt the need to do something together," said Masafumi Yamamoto, an analyst with Barclays Capital in Tokyo currency. "The disaster itself clearly had a very negative impact on the economy, but the movement of the yen has do worse."

The strength of the yen since the earthquake struck a week ago seems counter-intuitive, but Mr. Yamamoto of Barclays said that the Japanese currency has historically served as a haven for investors during a crisiseven one of the country.

He added that some speculators have been buying yen in the hope that Japanese insurance companies would have to liquidate foreign investment in order to yen home to help pay for the repair of the country.

To calm investors, insurance companies and most important of Japan, which are the major owners of America's debt, published yesterday strong denials that they were preparing a predatory pricing of US Treasury obligations.

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