Dubai: Surging oil prices that have been fluctuating in the danger zone between $115 (Dh422) and $120 per barrel over the past few days, combined with rising food and commodities prices, could push inflation and affect the global economic recovery.

Brent crude for April settlement increased 17 cents to $115.59 a barrel on the London-based ICE Futures Europe exchange. Record-breaking gold leapt as high as $1,438.30 per ounce on the London Bullion Market.

Spreading unrest in Libya may have shut in as much as 850,000 to 1 million barrels a day of the country's output, according to the International Energy Agency. Oil price could surge closer to the record high level of $147 if major oil producers stick to their production quotas and fail to reduce the gap left by the crisis in Libya.

Dominique Strauss-Kahn, head of the International Monetary Fund (IMF), said the economic recovery may be affected if oil prices remain high.

"If the oil price remains high for a long time it may affect the recovery, but if it's something that lasts for a couple of weeks the world will be able to handle the situation," Strauss-Kahn said in a speech yesterday.

An increase in Iraqi production also has the potential to radically shift the global outlook for global oil markets and the world economy.

Iraq could steady scene

A 2.5 to 3.5 million bpd increase in Iraq's oil production could counterbalance all of Opec's output quota cuts since 2008.

"If Iraq is able to achieve even half of the production increases officially targeted it could potentially reach 5-6 million bpd of production within the next ten years, benefitting both Iraq and the global economy," Badr Jafar, executive director of the Crescent Group of Companies, explained.

Srinath Manda, programme manager, transportation and logistics practice, Middle East, North Africa and South Asia, Frost & Sullivan, told Gulf News, "The ongoing protests against governments in the Middle Eastern region are likely to have multi-fold negative impact on the transportation and logistics sector in the region and across the world.

"While the disruptions in output in key oil producing nations such as Libya and Oman would first affect the crude oil freight service providers immediately, the subsequent price rise and shortage of fuel supplies in the consuming markets would lead to steep inflation and destabilisation of economies and thereby seriously affect the transportation and logistics service providers too."

GCC's burden

An oil price hike is a double-edged sword for the GCC states. Although inflationary pressures remain a concern, for every dollar increase in oil price, the collective GDP of the GCC states increases by $1 billion, according to estimates.

The IMF reckons MENAP oil exporters' fiscal and external balances will improve markedly in response to rising oil prices — up from $76 in 2010 and $79 in 2011 and oil production levels.

"The combined external current account surplus of these countries is expected to increase to $120 billion in 2010 and $150 billion in 2011 from $70 billion in 2009," IMF said in a recent report.

In the GCC alone, the improvement is estimated at about $50 billion from 2009 to 2011. Oil GDP growth—projected at 3½-4½ per cent in 2010 and 2011—is likely to stay below pre-crisis levels.

Fuel is estimated to account for almost half of the operating cost for a transportation service provider. "Considering that the crude oil price has risen by above one-third of its value between end of December 2010 and early March 2011, assuming even if half the proportion of this rise is passed on to retail markets, it would result in a significant level of burden on the economy," Manda said.

Saj Ahmad, UK-based aviation analyst with FBE Aerospace, said, "We'll see air fares rise, fuel surcharges and baggage fees all steadily rise."