EU expresses concern over rising price of oil

THE EUROPEAN Commission has expressed concern about the mounting price of oil due to turmoil in the Arab world as Russian prime minister Vladimir Putin insisted his country had nothing to gain from elevated energy prices.

Amid anxiety that the Libyan uprising is curtailing oil shipments from the third-largest African producer, the price of a barrel of Brent approached $120 yesterday before settling 2.9 per cent higher at $114.45 at the close of business in London last night.

The rising price of Brent crude, up 19 per cent in the past month, came as reports circulated that rebels against Muammar Gadafy had seized control of major oil terminals to the east of the capital.

With the European Central Bank (ECB) already concerned about an inflation risk to the nascent recovery of the euro zone economy, the spokesman for EU economics commissioner Olli Rehn said pressure on oil prices was a “very sensitive” issue.

Energy prices were on the rise even before the surge of unrest in North Africa, the Middle East and the Gulf. This has already led analysts to forecast that the ECB will increase its core interest rate later this year from the historic low of 1 per cent that has prevailed for 22 months.

“No doubt that rising energy prices can have a negative impact on inflation and the political situation in the country you are mentioning has an effect, so we are monitoring this very closely,” said Mr Rehn’s spokesman.

Other inflation components remain stable, he said, so this was not a “major cause” for concern.

However, Mr Putin spoke in drastic terms about the potential for significant upward pressure on oil prices. After talks in Brussels with European Commission chief José Manuel Barroso, he said Russia saw “numerous threats and risks” over oil prices.

“Some Europeans predict that the price of oil barrel could rise up to $220, now it’s $118 already. For us it will be a very serious test,” he said. “There is nothing good about it . . . We are not interested in the growth of oil prices and prices of energy resources. Everything is interconnected.

“We understand that the rates of economic growth will negatively impact on the Russian economy, therefore we will do everything possible together our European partners to prevent such a negative development.”

Mr Putin clashed with Mr Barroso over proposed new EU rules on energy infrastructure, saying the new regime would bring about a confiscation of assets and drive prices up.

Moscow is unhappy with proposals to decouple the ownership of energy pipelines from ownership of the oil and gas that flows through them. However, Mr Barroso said Brussels merely wanted non-European companies to apply the same rules as EU organisations.

“We are talking in practice about the confiscation of property,” Mr Putin said. “The third energy package, it is quite clear, will harm the activities of our energy companies.”