As tension mounts in the Middle East the chances of a 1970s-like oil crisis grow as production is stretched to breaking point.

While Dr Ana Armstrong of Distinction Asset Management offered this as an ‘extreme’ case scenario, she is increasingly concerned by developments in the Middle East after being more sanguine over previous uprisings in Egypt and Tunisia.

She said: ‘Our views have now changed as events in Libya unfold. The current regime in Libya has had a much more violent reaction to protestors than its neighbours and we are concerned the crisis may worsen. An extreme scenario could see a repeat of the seventies oil crises which saw oil prices spike, global economic growth dampened and stagflation hit the UK.’

Armstrong made her comments amid rumours Opec is considering holding an extraordinary meeting to discuss oil production as oil prices soared to $107 a barrel as unrest in Libya escalated.

However, Mark Lacey, co-manager of the Investec Global Energy fund, who has positioned for a long term oil price of $100, does not think the price of oil is at the unacceptable level.

But he warns there is a chance oil could spike to $150 as supply pressures grow.

The last time oil hit this level was in 2008 but then there was an altogether different market dynamic at work. Lacey points out back then the economy was in better nick and we did not have the same kind of supply concerns that we have today. He said: ‘Back then demand outstripped supply as energy consumption went up above 6% but the banking crisis which followed meant oil prices had to come back down.’

Lacey says the potential mix of supply problems this time around are much greater than 2008. ‘We are concerned about the unrest in Libya and Bahrain. We are also worried about Saudi Arabia which had good relationship with (former Egypt president) Mubarak and Obama wound up the Saudis by saying he supported the Egyptian demonstrators.’

He added: ‘Shell and BP have pulled out of Libya and while this does not have implications for the current oil price it has implications for the future price. Also back in 2008 the Gulf of Mexico was fully operational and future exploration continues to be halted there.’

Armstrong also believes fresh production problems could have a significant impact on the oil price. ‘Major oil companies have begun to remove staff and disrupt production from various Middle Eastern countries. Even if oil supply is not significantly disrupted, we expect a risk premium will remain in prices for an extended period.’

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