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Oil and gold jump on fears for stability of Middle East

Turmoil in the Middle East and North Africa pushed oil and gold prices higher yesterday, as BP announced that it was considering evacuating staff from Libya.

Further fears that oil production and supply through the Suez Canal and the Gulf will be disrupted by the revolutionary fervour gripping the region pushed the benchmark Brent crude decisively back over the $100 a barrel mark, to around $104.9, its highest since the oil spike of 2008.

Attention is focused on Libya, the first major oil producer to be directly involved, which accounts for 2 per cent of global oil supplies. Bahrain is responsible for only a small volume of oil exports, but the majority of the world's oil reserves are in a region threatened with unprecedented uncertainty and unstable at the best of times.

With demand from China barely faltering, analysts believe that the oil price could exceed the $147 record set two years ago. That, in turn, would lead to higher inflation world-wide, and efforts by central banks to restrain it would drive interest rates and mortgage bills higher.

Gold, a traditional safe haven in troubled times – and especially favoured in Asian cultures such as the Middle East, India and China – has also renewed its assaults on recent peaks seen in December. It is back over the $1,400 an ounce level, and a survey by PricewaterhouseCoopers of mining firms suggests that any price up to $3,000 an ounce is possible. This would easily exceed the previous real-terms record of $2,423.80 in January 1980.

At that time too it was unrest in the region that provoked the rush to gold – the fall of the shah and the Islamic revolution in Iran.

Meanwhile investors' "risk appetite" for equities seems to have dimmed; the FTSE 100 index in London was down 1 per cent in afternoon trading. The US markets were closed on Presidents' Day, but electronic futures trading indicated a small slippage in equity values.

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Shares in the Italian oil firm ENI, a major player in Libya, have fallen 5 per cent in recent days.