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 Thursday, 2 January, 2003, 17:30 GMT
Petrol prices 'could rise 20%'
Petrol pump
Forecourt prices reflect Iraq war fears
UK petrol prices could soar by up to a fifth if war breaks out in Iraq, according to new research.

Accountancy firm Tenon said crude oil prices would more than double to about $60 (38) a barrel in the event of war, forcing UK petrol retailers to raise the price of unleaded petrol by about 20% to 90p a litre, or 4 a gallon.

The company said its calculations were based on a "realistic worst case scenario".

"Our report shows that an increase in oil prices as a result of a war with Iraq could result in substantial increases to the price of petrol at the pump," said Tenon chief economist Maurice Fitzpatrick.

Middle East pressure

Mr Fitzpatrick estimates that pump prices rise by about 3.9p a litre for every $10 increase in the price of a barrel of oil.

The warning comes days after supermarket chain Safeway and petrol giant BP put up their prices in response to strengthening crude oil prices.

Safeway raised the price of unleaded fuel by 2p to 74.9p a litre on Tuesday, while BP put up its price by one penny to an average of 74.8p.

Both firms were reacting to a recent jump in oil prices caused by concerns that a US-led offensive against Iraq could disrupt supplies from the middle east, the world's biggest oil-exporting region.

Production cuts in Venezuela, where a month-long strike has paralysed the oil industry, have also helped to drive crude prices higher.

Economic fallout

Higher oil prices spell trouble for oil-dependent industrialised economies, adding to most companies' operating costs and cutting into corporate profit margins.

Higher fuel bills can also stoke up inflationary pressures, making it more difficult for central banks to maintain low interest rates.

An increase in British pump prices is likely to exacerbate consumer resentment over high fuel bills.

British petrol prices are already among the highest in Europe because of hefty fuel duties.

Two years ago, blockades by angry truck drivers protesting against fuel duties disrupted petrol deliveries across the country, causing massive disruption.

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