Greenspan plays down oil burden

Greenspan is trying to calm market jitters

Soaring oil costs do not yet present a serious threat to the US economy, says Federal Reserve chief Alan Greenspan.

The veteran central banker's attempt to calm nerves about energy prices came as crude oil futures set a new record of $55 a barrel in New York.

But Mr Greenspan noted that after the 1979 Iranian revolution, oil leapt to $80 a barrel in today's money.

The effect of 2004's 70% surge are "likely to prove far less consequential", Mr Greenspan said.

But, he warned, further rises could pose a significant risk, in terms of both growth and inflation.

In September, Mr Greenspan suggested that the high cost of energy was a major factor in the "soft patch" the US economy hit earlier this year, following strong growth in late 2003 and early 2004.

In late trading in New York, light sweet crude for delivery in November reached $55, before slipping back to $54.93 in late trading. In London, Brent crude was down 16 cents to $49.93.

'Uncertainties'

In a prepared speech to the National Italian American Federation in Washington DC, Mr Greenspan was at pains to play down the current furore over energy costs.

US oil refineries are working at full speed to keep up with demand

Security fears, output disruptions, threats to Russian oil giant Yukos from the state in the shape of massive tax bills, and above all soaring demand have seen prices in both London and New York set records day after day.

But Mr Greenspan said that in the long term both the market and the introduction of new technology would smooth the world's future transition from oil to other energy sources.

"Improving technology is already reducing the energy intensity of industrial countries," he said.

"Presumably, recent oil price increases will accelerate the displacement of energy-intensive production facilities."

That said, however, he predicted that the US and the rest of the world would have to "live with the uncertainties of the oil markets for some time to come".