Gas woes to sting Europe Economists concerned at impact of skyrocketing oil prices, gas shortages By Staff Writer M. Corey Goldman September 12, 2000: 11:04 a.m. ET

LONDON (CNNfn) - With protests over high gasoline prices threatening to bring traffic to a standstill throughout the United Kingdom, economists are pondering the economic impact that skyrocketing fuel prices will have on the economies of Europe and the rest of the world

Many economists are already re-jigging their forecasts for global economic growth for the remainder of this year and 2001 as oil prices around 10-year highs trickle down into the economies of the United Kingdom and countries in the 11-member euro zone, of which the U.K. is not a member.

And it's not just about the gasoline that individuals need to get to and from work each day. Shipments of food, clothing, medical supplies - virtually everything that needs to get from A to B on at least two wheels - is likely to go up in price, forcing producers to pass on their rising transportation costs to consumers and prompting buyers to think twice about forking out more for goods.

"High oil prices and high petrol prices will definitely act as a pressure on consumer spending in Europe," said Mike Moran, an international economist with Standard Chartered Bank. "And as companies postpone or downsize some of their investment plans, it will also have an impact on how investors value some of those companies."

Running out of gas

Gas stations across Britain were close to running dry Tuesday, as protestors blocked tanker deliveries to highlight the rising cost of fuel, which they argue is more a reflection of high government taxes than high crude oil prices. As much as three-quarters of the price of each liter of gasoline in Britain goes to the government. Tax rates are the highest in Europe.

Motorists waited hours in lines to fill their tanks, with many getting the short shrift as gasoline stations ran out of fuel. "Great Petrol Revolt 2000," screamed the front page of national tabloid newspaper, The Sun, flanked by pictures of frustrated motorists. "Troops on standby in petrol war."

Indeed, Prime Minister Tony Blair rushed back to London to host an emergency meeting to decide how to keep fuel flowing. His government obtained the formality of Queen Elizabeth's permission to invoke emergency powers if needed - such as calling in its armed forces to lift blockades and ensure that gasoline deliveries get through to stations.

While the immediate impact wasn't immediately clear in London, where the streets were still clogged with cars, double-decker buses and mopeds, the long-term economic impact of rising gasoline prices and an outright gas shortage on consumers and companies will be significant, economists say.

"It's relatively limited at the moment, but if this does not resolve itself quickly there could be a very undesirable effect," said Adam Cole, an economist with HSBC Securities. "Inflation is going to be higher than it would otherwise, against an otherwise healthy economic picture."

Widespread impact on business

"The longer this continues, the larger the economic impact will be, which is not a situation we want to see," said Sheila Murray, a spokeswoman with the Confederation of British Industry, the largest group representing British employers. "We're calling for a cut in fuel duty on diesel, which would offset rising petrol prices and help out business very much."

At the heart of rising gasoline prices are higher prices for crude oil, which continued their upward climb Tuesday. Traders all but ignored a weekend decision by the Organization of Petroleum Exporting Countries (OPEC) to boost oil production by an additional 800,000 barrels per day - a move meant to bring prices below the $28 mark. Brent oil futures for October delivery slipped 7 cents to $33.55 in early afternoon London trade.

Crude prices hit a 10-year high last week, with Brent rising as high as $34.60, sparking international pressure on OPEC to pump more oil. It did just that, and also promised it would review its latest pact at an extraordinary meeting Nov. 12. The increase in output was the third time since April that OPEC has pledged to boost production to try to damp rising prices.

Dearer crude prices have fed through to higher prices at the fuel pumps. Gas has climbed to as much as 80 pence a liter in the U.K., or roughly $4.50 a U.S. gallon - more than double what U.S. motorists and truckers pay to fill their tanks. Truckers, farmers, taxi drivers and fishermen in France and Italy have also railed against their governments to protest the high taxes they levy on gasoline.

More trouble for the euro

For the battered euro, the hype surrounding gasoline shortages in the U.K. and skyrocketing oil prices globally is certainly no help, Standard Chartered's Moran said. The euro touched another all-time low Monday, slipping to 85.70 U.S. cents in London trading before recovering slightly. It recently traded at 86.16 cents.

Already the euro has suffered a credibility problem as investors questioned the European Central Bank's hands-off approach to the currency's value in financial markets, economists say.

More problems loom for the euro: Denmark's electorate is just weeks away from voting in a referendum on whether to join adopt the fledgling euro - and there's a realistic chance they will vote No.

With growth forecasts for Europe looking dimmer and dimmer amid rising oil and gas prices, ever fewer investors will be looking to purchase shares of companies whose stock trades in euros, Moran said.

"Keep in mind: the effect of rising oil prices is not just a European phenomenon - it's affecting everyone," said Moran. "It's really about how the market views who will weather all this better, and my money is on the U.S."

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-- Martin Thompson (mthom1927@aol.com), September 12, 2000