Hurricane Raises Fears of Global Energy Crisis

Hundreds were feared dead and thousands left homeless on Wednesday in the wake of Hurricane Katrina, which has paralyzed the Gulf of Mexico's oil industry and sparked fears of an energy crisis.

As the scale of the human tragedy unfolded, there were growing worries that the economic impact could be felt around the globe. Some analysts were cutting their US growth forecasts, saying that soaring petrol prices would hurt consumer spending.

"US [petrol] prices are now in the process of the most dramatic spike ever seen," said Kevin Norrish, an analyst at Barclays Capital. "It is now appropriate to talk of a major energy crisis after Hurricane Katrina pushed US energy markets beyond the edge."

With nine refineries on the Gulf Coast closed, US wholesale petrol prices shot to a record $2.65 per gallon, up 34 per cent since the storm, and supplies ran short in some parts of the country. Chevron and other retailers have started rationing, bringing back memories in older Americans of the 1970s oil embargo.

Fears that oil prices could spiral out of control prompted the US government to say it would tap its emergency reserve, causing prices to dip momentarily below $70 a barrel. But relief was short-lived, with many seeing the statement as a mere gesture.

The US Environmental Protection Agency also temporarily waived petrol emission restrictions in states affected by the shortage, clearing the way for supplies to be imported from other states or countries.

Governments have begun to worry that a looming US shortage could affect their economies. Europe could see strong competition for petrol and diesel supplies as US wholesalers compete for limited refinery products. Wholesale petrol prices in Europe rose by 10 per cent overnight.

"If the assessment of the damage shows a severe crisis in the petrol sector, the crisis will not be limited to the US it will be a global one," said Claude Mandil, executive director of the International Energy Agency.

The industry was on Wednesday scrambling to determine how long it will take to reopen its installations. Even after repairs, oil companies could face problems getting personnel living in stricken areas to work. "Repairs will be delayed by blocked roads, standing water, floods and the lack of electricity," said Philip Verleger, an energy economist. "However, the greatest problem may be the loss of manpower." He said it could take months for repairs to be completed.

New Orleans has been rendered uninhabitable for weeks and tens of thousands were on Wednesday on the move. National guardsmen patrolled to halt looting, and shelters were evacuated, including more than 12,000 from the Superdome. Analysts said losses could climb to $25bn.

Some analysts have lowered their growth predictions for the US economy. "If refineries are out of commission for an unspecified period of time, it will shock the entire system and I expect firms will hold back their production," said Michael Englund, chief economist with Action Economics, which cut its US third quarter growth forecast from 4.6 per cent to 3.8 per cent.

However, a White House official said that although the affected regions would suffer, the broader US economy should see only a "modest" impact from the hurricane.

Soaring petrol prices are taking a toll on the popularity of George W. Bush, according to a poll released by the Washington Post on Wedesday. Even before Hurricane Katrina, two-thirds of those surveyed said petrol prices were causing financial hardship to their families.