IEA economist says expensive oil here to stay

BERLIN Wed Mar 2, 2011 7:09am EST

BERLIN (Reuters) - High oil prices are a threat to the global economic recovery and present a challenge the world will have to face over the long term, the International Energy Agency's chief economist said on Wednesday.

"The age of cheap oil is over, though policy action could bring lower international prices than would otherwise be the case," Fatih Birol said at a conference in Berlin.

Flagging specific concerns for Europe, Birol said that if prices held at current levels, Europe's oil costs would be higher than in 2008, a record year for prices.

"Europe is the weakest link in the chain of economic recovery ... ," he said.

"In Europe, 75 percent of the gas prices are linked to oil prices. In a few months gas prices are going to increase."

Oil prices have surged in recent weeks on unrest in the Middle East and North Africa, producing regions that Birol said are among the few places that could increase production in coming years.

"In the current context, I see risks that those investments may be deferred for some years as a result of cost increases and ... increasing risks for domestic and international investors," he told Reuters.

(Reporting by Rene Wagner, writing by Brian Rohan, John Stonestreet)

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