PARIS/NEW YORK: The International Energy Agency (IEA) warned Tuesday of a "marked slowdown" in the global economy unless oil prices fall from current high levels as post-recession demand picks up. "If prices remain at current levels or rise further, by September 2011, if not before, the global economy may feature a marked slowdown," the IEA said in its monthly oil report. This effect would be exacerbated by expected fiscal tightening if inflationary pressures become entrenched, said the IEA which advises the industrialized world. While admitting that estimating the impact is "notoriously difficult," the IEA suggested that a 10 percent increase in the price of oil could cut global growth by between 0.2 and 0.7 percentage points after one year, and possibly by twice as much in the second year. Turning to the violent unrest in OPEC member Libya, the Paris-based agency said oil production, and certainly exports, had practically ground to a halt there. "What is becoming clearer is that the country's oil exports of some 1.3 million barrels per day will remain off the market for a considerable time due to both war inflicted damage and international sanctions," the IEA said. The IEA report was completed with the full scale of the devastation wreaked by the earthquakes and tsunami in Japan yet to be measured. With its nuclear capacity wrecked by explosions at reactors in the wake of the natural disasters, the IEA predicted that Japan will need a combination of extra oil and gas to make up the shortfall. However, the IEA admitted that "there is no way of knowing yet how Japanese oil demand will evolve short-term". Founded in 1974 at the height of the oil crisis, the IEA requires its members, which include most of the world's industrialized nations, to stockpile oil corresponding to at least 90 days' worth of their net imports. Nonetheless the markets were spooked. Oil prices fell sharply Tuesday on deepening fears about Japan's economy after its nuclear crisis worsened following a devastating earthquake and tsunami. Wall Street analysts expect that Japan will eventually increase imports of oil, coal and natural gas. Royal Dutch Shell PLC said Tuesday that it will send liquefied natural gas and fuel oil to Japan to help meet power shortages. Japan produces about 28 percent of its energy from coal-fired power plants, but can also run some generators on LNG and even crude oil. Fifty-four nuclear reactors provide about 25 percent of the country's power. Benchmark West Texas Intermediate crude for April delivery dropped $4.01, or 4 percent, to settle at $97.18 per barrel on the New York Mercantile Exchange. In London, Brent crude fell $5.15, or 4.5 percent, to settle at $108.52 per barrel on the ICE Futures exchange. Oil, which is priced in dollars, tends to fall as the dollar rises and makes crude barrels more expensive for anyone holding foreign currency. Oil prices are still higher than they were in mid-February when uprisings in Libya shut down that country's oil production and sent benchmark crude from about $85 a barrel to more than $105 a barrel last week, its highest level since September 2008. Libya produced only about 2 percent of the world's crude.
