Oil: A world on the brink of full-blown crisis, over a commodity drying up day by day

FOR some, it is a matter of life and death as the cost of food and heating slips out of reach. For others, it is simply the rising cost of travelling to work or running a business.

But governments around the world can be in no doubt about the anger felt by millions struggling to cope with the knock-on effect of record oil prices.

Gordon Brown yesterday faced protests from his own MPs, as well as hundreds of angry hauliers, about the rising price of food and fuel. In Scotland, fishermen are threatening to blockade Grangemouth, the country's largest container port, in a dramatic escalation of their protest over increases in the cost of diesel.

The problem has forced up ferry fares for islanders and prompted a bus firm in the Borders to pull out of a £1 million deal to provide public services, because it was no longer viable.

In many countries, the global energy crisis has brought lower disposable incomes and more expensive shopping bills. In the snow-covered streets of central Asia, crippling rises in the price of coal, flour and meat are hitting much harder – forcing the poorest families to pick through rubbish tips in order to survive.

With temperatures as low as -30C, the Mongolian capital, Ulan Bator – the world's coldest – has more than 800 families waiting to join a sponsorship programme run by the Christina Noble Children's Foundation (CNCF).

"The poor in Mongolia face a double whammy," the charity's local manager, Eamonn Thornton, said. "If you have a limited income, the choice in winter you face is: do I buy food and freeze, or buy fuel and starve?"

In Indonesia this week, angry students hurled Molotov cocktails at police after the government increased the cost of fuel by nearly 30 per cent. Ministers said they had no choice but to lower subsidies on fuel in order to avoid an economic meltdown – a decision that sparked riots in a country where millions are already feeling the brunt of the rising cost of food.

While experts are undecided on whether this marks a return to the dark days of the 1970s, most agree on one thing: oil prices will continue to rise.

"Fundamentally, there is very little the UK government can do, given that the problem is so global," David Hunter, an energy analyst at McKinnon & Clarke, said. "It has been suggested that the current spot price of crude oil will continue to rise from $135 a barrel to as much as $200. Even if that doesn't happen, we can bet on massive rises in our domestic fuel bills this summer, because the price of gas and electricity is so closely linked to the cost of oil.

"The nervousness over supplies will play havoc with prices that are already at an all-time high due to exorbitant world commodity prices."

He went on: "The government's inability to make long-term energy security decisions over the last decade is coming home to roost. Since the 'dash for gas' in the 1990s, the lack of political will to make tough decisions has left Britain short of power."

Adding to the headache for ministers, steep rises in the cost of public transport come at a time when motorists are being encouraged to abandon their cars in order to meet environmental targets on emissions.

Around the UK, the most vulnerable consumers are being hardest hit.

Councillors yesterday agreed to impose fuel surcharges of 25p per passenger fare on lifeline Orkney Ferries services, while bus passengers face increases after Munro's of Jedburgh quit its public contracts, saying it could no longer afford to provide services. The fuel protests hit hardest in the south of England, where scores of hauliers headed for the centre of London and the steps of Downing Street.

Travelling from many parts of the country, they lined a specially closed section of the A40. Many left their cabs for a rally at Marble Arch before a delegation handed in a letter to No 10, urging the Prime Minister to save the haulage industry by reducing the duty on diesel.

Meanwhile, Ban Ki-moon, the secretary-general of the United Nations, has warned that rises in the cost of living threaten to spark off "social unrest on an unprecedented scale".

The riots in Indonesia, which saw more than 100 protesters arrested as students burned tyres in the streets and threw home-made fire-bombs, were just one sign of how the impact of fuel price rises are spreading.

In France, localised fuel shortages yesterday were prompted by recent blockades of oil terminals by disgruntled fishermen outraged at the price of diesel, while in Germany, households were told to expect gas bill rises of 25 per cent as demand for energy increases.

There were also fears among German car makers, such as Volkswagen, Daimler, BMW and Porsche, that high fuel prices may hit sales of their cars in the United States, which is still the largest importer of German goods.

Even in the oil-rich Middle East, many countries are experiencing double-digit inflation because wealthy governments there are spending their way out of the twin problem of plummeting wages, most of which are paid in weakening US dollars, and a heavy reliance on imported food.

In the US, where three airlines have filed for bankruptcy in as many months and others have cut flights to save fuel, both contenders for the Democratic presidential nomination, Barack Obama and Hillary Clinton, have pledged to renegotiate the North Atlantic Free Trade Agreement in order to protect the weak dollar. Mr Obama even called for trade tariffs on China.

Christine Lagarde, the French finance minister, said: "You know that the world has changed when the British nationalise a bank at huge cost, when investment banks ask us to bring about more regulation… and when the IMF encourages countries to spend more money."

Hauliers issue seven-day ultimatum to Brown – cut fuel duty by 25p or we'll cripple ports and refineries

CABINET ministers last night hinted Gordon Brown was preparing to perform a new U-turn on tax in the face of mounting pressure from his own MPs and hauliers.

Amid angry protests by lorry drivers in London and Wales, the Prime Minister faced calls to reverse plans to raise road tax on the worst-polluting cars from next April, and halt the planned 2p rise on petrol tax due in October.

John Hutton, the Business Secretary, hinted at a U-turn, by comparing how he expected Alistair Darling, the Chancellor, to act on road taxes and how he dealt with the 10p tax row. "The Chancellor is listening to what people are saying about vehicle excise duty, as he has done on a number of occasions recently about tax rises," Mr Hutton said.

Jack Straw, the Justice Secretary, hinted at the possible timing, saying: "If there are going to be decisions about this, they could be announced in the autumn (Pre-Budget] statement."

Mike Greene, the leader of hauliers' protests in Wales, said Mr Brown had seven days to cut fuel duty by between 20p and 25p a litre, or they would blockade refineries and ports.

Peter Carroll, one of the hauliers to deliver a petition calling for a fuel duty rebate to Downing Street, said: "If we don't get a rebate, an industry could be wiped out."

Opposition politicians have warned of a "summer of discontent" if the government presses ahead with both tax hikes.

About 18 million motorists are expected to be hit by the additional road tax of up to £245 a year, which is due to come into effect next April. Although the government claims the move is necessary on environmental grounds, even Greenpeace has dismissed it as counter-productive, as it applies to cars bought in the past.

John Sauven, Greenpeace's executive director, said the policy "gives green taxes a bad name" and high taxes should not be used to penalise people for choices made in the past.

More than 30 Labour MPs have so far have signed a Commons motion urging a rethink on road tax rises, and Mr Darling is due to meet a delegation of MPs next week.

Meanwhile, the SNP is set to bring forward an amendment to the Finance Bill which calls for a fuel duty regulator, where higher oil prices would trigger lower fuel duties, which make up 60 per cent of prices at the pump.

Stewart Hosie, the SNP's Treasury spokesman at Westminster, said: "Gordon Brown faces a summer of discontent unless he abandons his unfair plans to increase road tax further."

George Osborne, the shadow Chancellor, urged the government to perform a U-turn on the issue, claiming poorer families with older cars would be hardest hit.

Q AND A

Why are oil prices rising?

Oil prices fluctuate according to supply and demand, and increasing demand from the developing economies of China and India has pushed prices to record highs. International tensions, such as relations between the US and Iran or problems in Nigeria, also cause prices to rise. Crude oil currently offers a more attractive investment than many bonds and shares, especially at a time of a weak US dollar, further increasing demand.

How does the price of oil compare to previous years?

Last week, oil hit $135 a barrel – compared to $65 a year ago. Yesterday, the price dropped below $130 a barrel.

What does this mean for petrol prices?

The AA estimates each $5 leap in the price of oil adds 2.5p to the cost of a litre of petrol – currently around 114p a litre. Diesel costs around 126p a litre. Higher fuel costs also affect food and energy bills as they add to the costs of transportation or firing generators.

What is OPEC and what does the Prime Minister want it to do?

Opec is the oil producers' consortium and represents Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, Indonesia, the United Arab Emirates, Algeria, Nigeria, Ecuador and Angola. It controls 40 per cent of production. Gordon Brown wants Opec to force members to up production in the hope greater supplies will cut costs. But Opec says all but three members – Saudi Arabia, Kuwait and the UAE – are operating at capacity.

How do speculators affect the oil market?

Opec blames the high cost on speculators. It claims there is no shortage of oil, though production is thought to be near its peak and supplies may only last another 40 years. Speculators are able to buy or sell vast holdings of oil and make money by betting on the change in price. The scale of the reserves they are trading is large enough to influence prices.

What about North Sea oil?

It has also been hit by the rise in demand and prices have varied accordingly. In 1982, North Sea oil cost £18.85 a barrel. This fell to £10.94 in 1992 and, last year, the price stood at £36.23. This year's soaring prices – and the jump in petrol prices – is good news in one respect for the government, as it gets extra duties from oil production and VAT – estimated by the Scottish Chambers of Commerce to be a £505 million windfall since the start of April.

Grangemouth faces seaborne blockade
THE FISHERMEN

SCOTTISH fishermen are threatening to blockade Grangemouth, the country's largest container port, as part of a dramatic escalation of their protest action against soaring fuel prices, The Scotsman can reveal.

Leaders of a nationwide action group, formed to highlight the industry's desperate plight, have begun planning a series of co-ordinated days of action at ports and harbours around Britain's coast.

Discussions are also being held with fishing industry leaders in Ireland, France, Belgium and Spain to begin a campaign of concerted action throughout Europe.

The British campaign is being led by the Mallaig and North-West Fishermen's Association, which called industry leaders from across Britain to a secret summit meeting in Inverness on Monday.

John MacAlister, the association's chairman, said yesterday: "The mood is one of anger and desperation. Once again, little is being done to help our industry in our time of need.

"We have met politicians at EU, UK and Scottish level and, while they offered sympathy, they could offer little in the way of industry-sustaining, short-term support.

"The time for speaking is over and we now need action. There is now talk of blockades," Mr MacAlister said.

Routes too costly to run
THE BUSES

A SCOTTISH bus company is giving up more than £1 million of contracts on rural routes because of the soaring cost of diesel.

Munro's of Jedburgh says it is no longer viable to operate the services because of the inflated fuel prices.

It has given three months' notice to Scottish Borders Council that it no longer wishes to fulfil the contracts in its current format.

The company intends to re-tender for the journeys between Edinburgh and Kelso and Jedburgh and also the Galashiels to Berwick route, but will take into account the fuel costs in its bid.

Berwickshire and Roxburghshire Tory MSP John Lamont said the situation was of real concern and called on the Westminster government to assist bus operators in rural areas.

Most expensive diesel
THE PUMPS

FUEL prices have been steadily increasing since passing the £1 barrier.

The average price of a litre of unleaded now stands at 114p, while diesel costs 126p.

But huge variations are found across the country.

Latest figures from PetrolPrices.com found the cheapest litre of unleaded selling for 108.9p in Mansfield, while the most expensive was 126.9p in Newport, Isle of Wight.

Scotland was offering the cheapest and most expensive litres of diesel in the UK, 115.9p in Banff and 140.9p on Mull.