THE ECONOMIC fallout from soaring oil prices may be more severe than many expect, the Bank for International Settlements said yesterday as the cost of crude leapt to record levels above $60 a barrel.

As financial markets worldwide were jolted by the further jump in oil prices, the BIS, known as the central bankers’ central bank, sounded a warning over potential repercussions for global growth.

“Oil prices may well remain high for a prolonged period of time . . . Further rises — if they materialise — may have more severe consequences than currently anticipated,” the Basle-based bank said in its authoritative annual report.

The surging cost of oil was one of a series of risks — including the global imbalances emphasised by the vast US current account deficit and the threat of a collapse in overheated housing markets — that the BIS said left still robust global prospects looking more vulnerable.

Its warning on oil came as benchmark US crude prices set new highs of $60.95 a barrel, with futures markets anticipating prices above $60 for every month until August next year.

London Brent crude, meanwhile, also hit a record price of $59.38 a barrel. The latest jump in oil prices sent shares lower across Europe, while the dollar slipped against the euro and eurozone government bond prices reached record highs as investors looked for safe havens. The BIS said that the jump in oil prices at a time when low interest rates had led to abundant cheap credit resembled the conditions that led to 1970s “stagflation” — rising inflation with little or no growth, or recession.

While this threat left central banks with a dilemma over how to respond to dearer oil, the BIS said that they were “unlikely to make the same mistakes so that history can repeat itself”.

Reduced dependence on oil in developed economies; limits on companies’ pricing power from greater competition and globalisation and tamer jobs markets also reduced the inflationary dangers from oil, the BIS report argued.

But with the US Federal Reserve expected to raise interest rates again this week, it said that the Fed may need to act more aggressively in future, with a “steeper rise” in rates than markets expect. World growth this year is still forecast by the BIS to be a respectable 3.9 per cent, down from 4.8 per cent last year.

But it highlighted risks that could derail this and called for policymakers to tackle global imbalances.

“Everyone needs to commit to some unpleasant compromises now, in order to avoid even more unpleasant alternatives in the future,” the bank said.

The US current account deficit meant that a further slide in the dollar was “almost inevitable”, while the BIS sounded a warning that the deficit could yet lead to “a disorderly decline of the dollar, associated turmoil in other financial markets, and even recession”.