VIENNA. 3 July 2003 — The head of the West’s energy watchdog, the International Energy Agency, said yesterday that current high oil prices were partly to blame for sluggish world economic growth.

Claude Mandil said the recovery of Iraq’s oil industry after the US invasion had been much slower than anyone expected and the country was still pumping about a third of its pre-war levels. “The prices are too high for everybody, too high for the world economy, and that is one of the reasons the economy is sluggish and not recovering very well,” Mandil told reporters after a news conference in Vienna. Benchmark Brent crude oil has averaged $26.45 per barrel since the beginning of 2000, when OPEC set a $25 target for its own oil. This is a 44 percent increase on the previous decade, when Brent averaged $18.37.

Mandil said high oil prices also paradoxically damaged the long-term interests of OPEC, because the 11-member group would lose market share to rival exporters in its attempt to keep prices up. “It is not good for consuming countries and in the long term it is not good for OPEC countries either because with such a price they are losing market share.”

“The level of prices allows for a lot of production coming from non-OPEC countries, even if it is oil that is more costly,” Mandil said. “I think OPEC should be cautious to try to maintain its market share and find the market price that corresponds to that,” he added.

Western economists estimate the marginal cost of world oil production is around $15 per barrel, almost half current prices. OPEC countries needs the extra $10 per barrel to fund their government finances.

Oil prices rose yesterday after the US government reported an unexpected fall in oil stock levels, though profit-taking later sent the market lower again.

The price of reference Brent North Sea crude oil for August delivery was trading at $28.12 per barrel in late-day deals in London, down 19 cents from the previous closing price.

New York’s benchmark light sweet crude August contract gained 10 cents to $30.50 in early deals.