NEW YORK — Oil futures shot back above $107 a barrel Thursday after the bombing of an Iraqi oil pipeline diverted investors' attention away from a stabilizing U.S. dollar.

Retail gas prices, meanwhile, inched up overnight while diesel prices slipped.

The bombing of a key Iraqi oil pipeline Thursday morning appeared to cut oil exports from the southern oil city of Basra, despite oil officials' statements to the contrary. Dow Jones Newswires reported that exports from southern Iraqi terminals have been reduced to about 1.2 million barrels a day from a normal rate of 1.56 million barrels a day.

"We're going to be getting less oil because of the explosion," said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm.

For traders, the big factor is that Iraqi oil supplies were cut by a deliberate act of terrorism, Cordier said. That raises the prospect of more attacks, and less oil.

Light, sweet crude for May delivery rose $1.68 to settle at $107.58 a barrel on the New York Mercantile Exchange after earlier rising as high as $108.22. Crude futures, also aided earlier in the week by a flagging U.S. dollar, are up 6.6 percent since Monday.

The news from Iraq added to supply concerns stoked Wednesday when the government reported that domestic crude oil inventories were mostly unchanged last week, while fuel supplies fell more than expected.

The supply issues temporarily drew investors' attention from the dollar, which rose slightly against the euro, reversing a trend that sent oil futures surging nearly $5 on Wednesday. A stronger dollar makes hard assets such as energy commodities less attractive as a hedge against inflation than when the greenback is falling. Exacerbating the impact of foreign exchange moves, oil futures are priced in dollars, making them more expensive to investors overseas when the greenback rises.

Despite Thursday's strength, analysts expect the dollar to soon resume its decline against foreign currencies. The Federal Reserve is expected to cut interest rates several more times this year, and lower rates tend to weaken the dollar.

"I think crude oil is easily going to be testing $120 (in coming weeks)," Cordier said. Crude futures rose to a trading record of $111.80 early last week before retreating.

At the pump, meanwhile, gas prices rose 0.6 cent Thursday to a national average of $3.267 a gallon, according to AAA and the Oil Price Information Service. Diesel prices slid 0.5 cent to a national average of $4.022 a gallon.

Both fuels have followed oil's recent surge higher, and remain near recent records. High gas prices are pressuring consumers already buckling under the effects of high food prices, falling home values and tight credit markets.

The Energy Department expects gas prices to peak near $3.50 this spring as suppliers stock up in advance of peak summer driving season. Many analysts think prices will rise even higher than that.

In other Nymex trading Thursday, April heating oil futures rose by 10.45 cents to settle at $3.1483 a gallon, while April gasoline futures slid by 2.66 cents to settle at $2.7163 a gallon.

April natural gas futures rose by 0.6 cent to settle at $9.578 per 1,000 cubic feet. The Energy Department, in its weekly inventory report, said natural gas supplies fell last week by 36 billion cubic feet, less than analysts surveyed by Dow Jones Newswires had expected.

In London, Brent crude gained $1.01 to settle at $105 a barrel on the ICE Futures exchange.

Associated Press writers George Jahn in Vienna and Gillian Wong in Singapore contributed to this report.

The Zubair-1 pipeline attacked earlier today is used to transport crude oil from fields in Southern Iraq to the country's two main export terminals in the Gulf at al-Umaiya and Basra.

The attack is expected to cut oil exports from the Basra region - which were around 1.54 million barrels per day in February - by roughly one third until the pipeline can be repaired.

The incident helped lift global crude prices close to highs of nearly $107 per barrel in London trading this morning.

Iraq's total average production for February was 2.4 million barrels per day - roughly 80 per cent of which was accounted for by fields in the the Basra region.

Basra’s Rumaila South and North oil fields together produce around 1.3 million barrels per day. Several smaller fields in the region including Suba, Luhais, West Qurna and Zubair, account for most of the rest of the region’s output.

Iraq’s Southern Oil Company (SOC) operates the fields and has its headquarters in Basra. One of Iraq's three big oil refineries, the Shuaiba refinery, is also in Basra. It has a capacity of 160,000 barrels a day but is currently functioning below capacity.

Iraq’s fragile economy relies heavily on oil exports to help fund reconstruction efforts.

Oil demand by China rose 6.2 percent in February, picking up the pace from a sluggish January as state-owned companies increased imports to ensure plentiful domestic supplies before the Olympics, according to data released Monday.

The increase exceeded the 3.3 percent rise in January and the 3.5 percent rate for all of 2007. Political pressure has been intensifying for the government-controlled Sinopec and PetroChina to keep their retail outlets well stocked, despite losing money by refining imported crude at prices above $100 a barrel.

"The government's policy since the last quarter of 2007 has been playing a big role to ensure supply," said Yan Kefeng of Cambridge Energy Research Associates. "Refiners were forced to slash exports and raise imports."

For a good part of the summer, refineries scaled back production to salvage their bottom lines, leading to weeks of widespread diesel rationing by autumn.

But refineries bowed to government pressure after repeated official mandates, including calls by Prime Minister Wen Jiabao to maximize output and plug shortages, plus a surprise 10 percent increase in retail prices in November.

In February, China increased its purchases of crude oil by 18.1 percent compared to a year earlier, matching a record set in April 2007 of 3.6 million barrels a day, official customs data confirmed Monday.

Net imports of six refined products - diesel, gasoline, kerosene, fuel oil, naphtha and LPG - rose 25 percent year to year, Reuters calculations showed.

For the first two months, implied demand - domestic refinery output plus net fuel imports but excluding inventory changes - rose 4.7 percent at 7.2 million barrels per day, according to Reuters calculations based on official data.

Yan said that Beijing faced a policy dilemma. In the short term, China needs to tame inflation which is near 12-year highs; in the long-term it hopes to curb energy demand by increasing resource prices to nearer global levels.

For the time being, analysts expect Beijing to tread a middle ground, instituting small fuel price increases while still giving out fat government grants like the $1.7 billion handout last week to Sinopec, meant to compensate losses at the top Asian refiner caused by record oil prices.

"Will there will be another fuel shortage? Will government be forced to raise prices like in November? I really don't know the answers," Yan said.

Until last week, Sinopec and PetroChina were rationing diesel in parts of the country while cutting supplies to independent dealers, although overall fuel inventories were comfortable, thanks to a few months of bumper diesel imports.

February diesel imports surged nearly tenfold from a year earlier to about 330,000 tons, though easing from levels seen in recent months, after Beijing offered a tax break.

Meanwhile, refiners slashed gasoline exports by 81 percent in January and February to feed the additional half-million cars being added to the roads every month.

Refiners, however, also increased sales of naphtha to the more lucrative export market in February, extending a trend that started in late 2007, customs data showed, as they stepped up efforts to cover some of their losses at home.

Coal prices fall in Australia
Coal prices for power generators at Newcastle port in Australia, a benchmark for Asia, fell to a five-week low of less than $125 a ton, because of tepid spot market demand and increased supplies from China, Reuters reported from Sydney.

Thermal coal prices fell $5.22 from a week earlier to $124.36 a ton, the globalCOAL's NEWC weekly index showed in the week ended March 21.

Prices for prompt-delivery thermal coal, which surged to a record of $150 a ton for a spot deal struck in early February, have dropped by about $25, or about 17 percent, in the past month.

The drop came as demand from most North Asian utilities eased following a buying frenzy last month.

The resumption of some exports from Australia and China, and a decline in winter heating demand with the arrival of spring, have also exerted downward pressure on prices.

After suspending exports for nearly three weeks because licenses had expired, companies like Shenhua Energy resumed limited coal exports last week after Beijing issued new export quotas.

DUBAI: Pleas from the US for Opec to pump more oil have fallen on the deaf ears of Opec ministers as oil prices stay above $100 a barrel.

But this may be about to change, even if there’s no official shift in Opec policy.

A weak dollar is putting the economies of Opec’s most powerful members, the Arabian Gulf nations, under such pressure they may be ready to sacrifice dollar income for more economic and political stability at home.

Pumping more oil to bring prices down would help strengthen the dollar and eliminate the need for Opec’s Gulf members to sever ties to the US currency.

In fact, $100 oil is turning into a curse as the dollar has slumped about 15% against the euro in the past year as oil prices have doubled.

Saudi Arabia, Opec’s most influential member and owner of the world’s largest reserves, is struggling with the rising cost of imports. Inflation hit a 27-year high of 8.7% last month.

Qatar has the Gulf’s highest inflation rate at 13.7%.

As for the UAE, Opec’s third largest oil producer after Saudi Arabia and Iran, which markets itself as the Gulf’s most liberal economy has had to introduce price caps on 14 basic foods.

Thousands of South Asian workers went on the rampage there last week, complaining about rising costs and low wages made worse by the dollar’s slide against the Indian rupee. The UAE dirham is fixed at 3.67 to the dollar.

The region’s central bankers are under pressure to abandon a dollar peg for their currencies or revalue to ease imported inflation. But most are reluctant to end a policy of fixed rates dating back to the 1970s while oil, which accounts for more than 80% of export earnings, remains priced in dollars.

They may have no choice when there’s little prospect of the US shoring up the dollar, with the Federal Reserve committed to low lending rates to soften the impact of the financial crisis on the US economy.

Lower oil prices would help the Fed keep a lid on inflation.

Analysts are divided on whether Gulf states will abandon the dollar peg, but few disagree lower oil prices would help strengthen the dollar and ease the region’s currency dilemma at least for now.

Not all of Opec’s 13-members will agree. Algerian oil minister Chekib Khalil, the organisation’s president, recently said oil prices will remain above $80 a barrel this year.

But Saudi Arabia may differ. Ali al-Naimi, the country’s respected oil minister, broke ranks in 2000 in listening to the plea from the then US Energy Secretary Bill Richardson for more oil.

So signs Saudi Arabia is satisfied with the recent rise in crude oil inventories - that has taken some speculative froth out of the oil market - suggests the world’s biggest oil producer is more sensitive to prevailing economic conditions that it looks at first sight.

And where Saudi Arabia goes, the rest of Opec has little choice but to follow.

Dow Jones Newswires

Vice President Dick Cheney met with Saudi King Abdullah today, seeking help in stabilizing volatile energy markets as well as Arab support for business development in Iraq and Afghanistan.

"They will have ample discussions about both the problems that exist in the market, how they lend themselves to various kinds of solutions, and I'm sure they will talk about a cooperative way forward to try and stabilize this market," Cheney's national security adviser John Hannah said. "They will review a broad range of diplomatic and security issues as well as where we are now in the global energy market."

Cheney's talks are part of his two-day visit with Abdullah, which includes meetings at the king's Arabian horse farm outside Riyadh.

A senior administration official said Cheney's talks will focus on longer-range solutions to tight oil supplies. They also will include Iran's nuclear ambitions, and Cheney will press Abdullah for more business investment in Iraq and Afghanistan.

Cheney's meeting with Abdullah follows a similar one two months ago with President George W. Bush in which Bush urged OPEC to increase oil production. The vice president, during a Middle East tour that has so far taken him to Iraq, Afghanistan and Oman, has seemed less intent on pushing down prices.

"High oil prices reflect primarily the reality of the marketplace," Cheney said in Iraq at the start of his trip. "There's just not a lot of excess capacity worldwide."

Price Surge

The price of oil reached a high of $111 a barrel two weeks ago and has surged 77 percent during the past year, pushing up the price of gasoline and other goods amid concerns the U.S. economy is on the verge of a recession.

Bush said before Cheney's trip that he hoped Abdullah would "listen very carefully" to U.S. concerns about oil. White House spokeswoman Dana Perino said the hope was to "see an increase in production."

Yet a senior administration official who briefed reporters traveling with Cheney said the vice president may seek nothing more than a thorough discussion of the current situation in the global energy markets.

Cheney said during his trip this week that his view is that there is a "dramatic increase" in demand for energy as well as pressure from the declining value of the dollar. Bush, announcing Cheney's trip, said high crude oil prices are "damaging" the markets of Saudi Arabia's biggest customers.

Oil-producing countries in the Middle East have not seemed convinced by Bush's view that more production is needed. Twice since Bush appealed for more oil during his January Saudi visit, the Organization of Petroleum Exporting Countries has decided not to change its production targets. OPEC supplies more than 40 percent of the world's oil.

Cheney has made several visits to Saudi Arabia as vice president and has ties to the nation dating back to his tenure as defense secretary during the Persian Gulf War in 1991.

A U.S.-based company that has controversially laid claim to nearly all of the Arctic Ocean's undersea oil said Thursday that new geological data suggests a "potentially vast" petroleum resource of 400 billion barrels.

That figure is backed by a respected Canadian researcher who recently signed on as the firm's chief scientific adviser.

Las Vegas-based Arctic Oil & Gas has raised eyebrows around the world with its roll-of-the-dice bid to lock up exclusive rights to extract oil and gas from rapidly melting areas of the central Arctic Ocean, currently beyond the territorial control of Canada, Russia and other polar nations.

The company, which counts retired B.C. senator Edward Lawson among its directors, has filed a claim with the United Nations to act as the sole "development agent" of Arctic seabed oil and gas.

The firm acknowledges that the Arctic's petroleum deposits are the "common heritage of mankind," but has argued that the polar region requires a private "lead manager" to organize a multinational consortium of oil companies to extract undersea resources responsibly and equitably.

The Canadian government has dismissed the company's "alleged claim" over Arctic oil as having "no force in law," but experts in polar issues have raised alarms about the firm's actions, saying they could disrupt efforts to create an orderly regime for exploiting resources and protecting the Arctic environment under international law, rather than a marketplace model.

In its latest statement about the polar seabed's "enormous reserve potential" for petroleum deposits, Arctic Oil & Gas cites recent scientific evidence that huge, floating mats of azolla -- a prehistoric fern believed to have covered much of the Arctic Ocean during a planetary hothouse era about 55 million years ago -- decomposed soon after the age of the dinosaurs and exist today as "vast hydrocarbon resources" trapped in layers of rock below the polar ice cap.

Bujak, a former geoscientist with the Geological Survey of Canada who now works as a private consultant in Canada and the U.K., is described in the Arctic Oil & Gas statement as confirming the "highly probable validity" of recent research pointing to rock layers "extremely rich" in "hydrocarbon precursors" throughout the Arctic basin.

Bujak, who previously worked for Petro-Canada as a petroleum geologist, co-authored a landmark 2006 study in the journal Nature that first detailed the ancient azolla explosion that shows up today in Arctic seabed core samples.

Neither Bujak nor Lawson could be reached for comment on Thursday.

Scientists have predicted that global warming could leave the entire Arctic virtually ice-free for months at a time within 20 years. That prospect has hastened a scramble among nations with a polar coast, including Canada, to try to strengthen their scientific claims under the UN Convention on the Law of the Sea to extended territorial sovereignty over the Arctic Ocean floor.

A new generation of nuclear power stations will offer "breathtaking" economic opportunities for British business on a scale not seen since North Sea oil was discovered, John Hutton will say in a speech today.

The business secretary will underline the government's determination to oversee a "significant expansion of nuclear in the UK in the coming decades" rather than simply replacing the existing, ageing fleet of reactors. "I don't want to see just a like for like replacement of nuclear capacity in the UK."

In a speech that will dismay anti-nuclear protesters, Mr Hutton will emphasise the government's aim of ex-ploiting interest from energy companies that "see new build in the UK as a gate-way to the rest of Europe".

A new fleet of reactors "could potentially create up to 100,000 jobs". He will argue that simply replacing the existing fleet of reactors would equate to three times the size of the project to build Heathrow's new Terminal 5. "The potential scale and complexity of each investment is breathtaking," he will say. "It could represent about £20bn worth of business for UK companies."

Mr Hutton will stress that politicians have a "critical two-year window" to "clear a path" by removing regulatory and other obstacles to nuclear power.

The speech demonstrates the government's decision to confront opponents of its energy policy by trying to make the case for new nuclear power in terms of its economic impact. Ministers have previously focused on the perceived benefits of nuclear in tackling climate change and improving energy security, by providing a low carbon source of electricity and reducing the reliance on imported gas.

But Mr Hutton will present the argument in terms of the jobs and wealth that could be created, drawing a direct parallel with the economic boom triggered by North Sea oil. The emphasis on jobs, delivered in a speech to Unite, Britain's biggest union, reflects min-isterial hopes of building enthusiasm for the -ambitious new nuclear -programme among Labour's traditional support base.

The UK wants to become a leader for exporting nuclear skills, as well as building a strong domestic base of jobs, the speech will suggest.

"I want Britain to be leading the world in the development and application of this new generation of low carbon power technology. It could position the UK as the gateway to a new nuclear renaissance across Europe."

Gordon Brown is expected to take the first step to encourage this "renaissance" tomorrow, by using his summit with Nicolas Sarkozy, the French president, to announce co-operation on nuclear development. Britain's last nuclear reactor for research and training will soon be shut after failing to secure enough commercial funding, it has emerged, just as government tries to encourage rapid growth in the industry, writes Ed Crooks . Imperial College London said its Consort reactor at Silwood Park in Berkshire was more than 40 years old and unsuited for modern nuclear research. But its closure highlights Britain's shortage of nuclear research facilities.

John Hutton's latest reflections on nuclear power demonstrate how rapidly British energy policy is regressing to its default mode - dig it up and burn it (Nuclear is UK's new North Sea oil - minister, March 26). At the same time as we are promised the nuclear pipe dream, we are also set to have new coal-powered power stations without carbon capture and storage. This comes at the same time as we have fought for one of the lowest renewables targets in the EU, are languishing third from bottom in current renewables provision out of 27 EU states, and are announcing yet another microgeneration review.

The message Hutton's department seems to want to promulgate in its energy policy is to reassure everybody that no serious change is needed, that we should carry on increasing our demand for energy and that climate change isn't as urgent as some people make out. One can only conclude that the Department for Business, Enterprise and Regulatory Reform is utterly unfit for purpose and should have the title Department for Fiddling While Rome Burns.

Colin Challen MP
Lab, Morley & Rothwell

The idea of reducing global warming CO2 pollutants by nuclear stations, relying on an ever-dwindling supply of finite uranium, runs diametrically counter to government commitments to embark on a programme of renewable energy resource developments.

Renewable schemes tap into infinite sources of freely available energy that can be converted into electricity at a fraction of the cost - and far more safely - than nuclear installations and with the popular support of the electorate.

This leads one to conclude that the public is once again being deceived about the true intentions behind the government's energy policies. The nuclear option conveniently maintains control of both electricity generation and its fissionable nuclear by-products, under the authority of central government, giving future ministers the power base they need to hold sway over both civilian energy needs and military policy.

The nuclear deterrent factor is carefully kept under wraps lest the public become aware that they are being asked to subsidise future generations of Trident missile war heads under the guise of civil-energy production facilities.

Julian Rose
Whitchurch-on-Thames, Reading

Given that oil is such an environmental disaster, John Hutton couldn't have come up with a more revealing metaphor. Nuclear's problems with radiation containment, waste disposal and plant decommissioning have been well-aired.

But centralised power generation, from whatever source, is massively wasteful, with high energy loss in generation and distribution. Moreover, the way we use energy is also massively wasteful. The future lies with microrenewable generation, mediated by fuel cells, set in local networks and coupled to more efficient energy use, with end-of-life reclamation and recycling. Jobs generated in this way will outnumber unsustainable ones in constructing nuclear plants that will remain as monuments to the folly of our generation.

John Stone
Thames Ditton, Surrey

This is yet another chapter in a 50-year fantasy that nuclear power will bring untold riches. The Thorp plant at Sellafield, which has never worked properly, is to be demolished at a cost of £600m. In the 1950s nuclear electricity was going to be too cheap to meter. All of these false starts miss one vital point. Uranium is a fossil fuel. There are no uranium reserves in Britain.

Mining, refining and transporting uranium generates significant environmental impacts and greenhouse gas emissions, which need 10 years of nuclear generation to balance. As a scarce commodity, uranium prices will rise to follow oil. No one knows what to do with the waste, except make weapons of mass destruction. For 10% of the tax money spent without results on nuclear power, we could have retrofitted 100% of our housing stock to a zero-carbon standard, and saved 40% of our energy consumption. Perhaps Emperor Nero might advise?

Professor Lewis Lesley
Liverpool

Tehran is trying to enrich uranium to weapons-grade levels, he says. The allegation contradicts international findings.

Vice President Dick Cheney charged in an interview released Tuesday that Iran is trying to develop weapons-grade uranium, though international inspectors and U.S. intelligence services have not found evidence of such an effort.

"Obviously, they're also heavily involved in trying to develop nuclear weapons enrichment, the enrichment of uranium to weapons-grade levels," Cheney said, according to a transcript released by the White House of an interview done Monday in Turkey with ABC's Martha Raddatz.

Iran insists its nuclear program is for peaceful energy production, but the U.S. and other Western countries fear Tehran will eventually develop nuclear weapons.

In its latest report, the International Atomic Energy Agency, the United Nations' nuclear watchdog agency, says Iran is enriching uranium at its plant in Natanz to less than 3.8%, which is the level necessary to create fuel for a civilian reactor. Weapons-grade uranium is enriched to 80% or 90%.

Cheney's comment also contradicted the assessment of U.S. intelligence agencies, which concluded in a report revealed late last year that Iran had halted its efforts to develop nuclear weapons in 2003.

The vice president's statement was the second time in a week that a White House official has made an allegation regarding Iran's nuclear program and its intentions that did not square with publicly known facts.

President Bush said last week that Iran's leaders had "declared" they were seeking nuclear weapons. Iran has always denied the charge, and the White House later backpedaled, calling the president's remarks "shorthand."

Cheney made the remarks at the end of a 10-day tour of Middle East countries to discuss high oil prices, the U.S. military presence in Iraq and Afghanistan and the Arab-Israeli conflict. But the subject of Iran was never far from his agenda.

In addition to Israel and the Palestinian territories, his route took him to Oman, Saudi Arabia, Afghanistan, Iraq and Turkey, in effect encircling the country that has become the greatest U.S. rival in the region. And at almost every stop, he brought up the subject of Iran and its role in disrupting U.S. efforts in the region.

Before the first stop of his visit to Oman, a Cheney aide told Agence France-Presse news service that Iran "has got to be very high" on the agenda for the talks.

"The Omanis . . . are concerned by the escalating tensions between much of the world community and Iran and by Iran's activities, particularly in the nuclear field," the news agency quoted the aide as saying.

In Saudi Arabia, Cheney also brought up the Iran issue. According to the Jidda-based English-language Arab News, the Saudis oppose any war with Iran. Saudi King Abdullah also raised the issue of Israel's undeclared nuclear program, saying that the Middle East should be free of nuclear weapons and other weapons of mass destruction.

In Jerusalem on Monday, Cheney accused Iran and Syria of "doing everything they can to torpedo the peace process," a reference to the teetering talks between Israel and the Palestinians.

WASHINGTON: Bahrain and the US yesterday agreed to co-operate on civil nuclear power in a deal held out as a model for nations to meet their energy needs, cut greenhouse gas emissions and prevent the spread of sensitive atomic technology. Bahrain said it would not seek nuclear fuel cycle technologies and would buy fuel on the international market.

"This stands in direct contrast to Iran's nuclear activities," the US State Department said announcing the agreement signed by US Secretary of State Condoleezza Rice and Foreign Minister Shaikh Khalid bin Ahmed Al Khalifa.

The White House described the agreement as "a tangible expression of the US' desire to co-operate with states in the Middle East, and elsewhere, that want to develop peaceful nuclear power in a manner consistent with the highest standards of safety, security and non-proliferation."

Bahrain also endorsed the Global Initiative to Combat Nuclear Terrorism, a US and Russian-backed effort to prevent militant groups from obtaining nuclear weapons.

The Foreign Minister said Bahrain took into consideration its commitments towards GCC states, its other neighbours and international security to ensure the security, non-proliferation and safe use of nuclear energy.

He said the kingdom's activities would be within the framework of its commitments towards the International Atomic Energy Agency.

Shaikh Khalid added the country would co-operate with the US under the Memorandum of Understanding in line with its commitments towards the Treaty on the Non-Proliferation of Nuclear Weapons.

US President George W Bush yesterday hosted a luncheon in honour of His Majesty King Hamad, currently visiting the US.

Agreement was reached during talks in Moscow between Egyptian President Hosni Mubarak and President Vladimir Putin.

Russia will now be able to bid to build the first of four atomic power stations Egypt plans.

The first reactor, on the Mediterranean coast, will be constructed at a cost of more than $1.5bn (£750m).

President Mubarak told reporters: "Egypt, in co-operation with its international partners and the International Atomic Energy Agency, is going to develop this sector, including through the agreement we have just signed."

Mr Mubarak was quoted by the Interfax news agency as saying the agreement had come after "difficult" negotiations.

Russian President-elect Dmitry Medvedev said he was looking forward to a "productive partnership" in nuclear energy co-operation.

Russia is already building nuclear reactors in China, India and Iran. An Iranian plant at Bushehr is reported to be close to completion.

The deal was signed at Mr Putin's Novo-Ogaryovo residence outside Moscow by the head of Russia's Rosatom nuclear energy agency, Sergei Kiriyenko, and Egyptian Energy Minister Hassan Younis.

Peace conference

Correspondents say Russian leaders have been pressing hard for nuclear power plant contracts as the Kremlin seeks to retain high-technology expertise.

The talks between Mr Putin and Mr Mubarak also covered the possibility of Moscow hosting a Middle East peace conference.

"Taking into account growing Israeli-Palestinian tensions, we believe there is a need for a mediatory role from Egypt and Russia", Mr Putin said.

But he stressed that any Moscow meeting should be a conference in its own right rather than simply a follow-on from the Middle East talks which began in Annapolis in the US last year.

Russia is a member of what is known as the "quartet" of Middle East negotiators alongside the US, the United Nations and the European Union.

Correspondents say the Kremlin is anxious to play more of a mediation role in the Middle East and regain some of the influence lost since the end of the Cold War.

Prime Minister Manmohan Singh on Monday said his government was committed to developing nuclear energy as part of a multi-pronged strategy for energy security as the country could not depend on just one or two sources to meet the growing demand for power.

"Our government is committed to further development of energy both as an environment friendly source of power and as a means of widening the energy basket available to us," he said, laying the foundation stone for the Rs 5,000 crore gas based power project at Bawana here.

The plant is to be commissioned ahead of the 2010 Commonwealth Games.

India is trying to push through a civilian deal with the US that would give it access to American nuclear fuel and equipment, but the pact is being fiercely opposed by the UPA's Left allies on the ground that it would compromise India's sovereignty.

Currently, nuclear power accounts for just three per cent of India's installed power generation capacity, while over 60 per cent of it is being met by coal.

The Prime Minister said that while some sources of energy might be cheap today, the country needs to think for future generations. "Our energy needs are bound to grow. We will be failing in the duty to our nation and to posterity, if we do not look ahead and take steps for not just today and tomorrow but for future generations," he said.

Singh said the strategy for energy security was multi-pronged. "We don't have the luxury of depending upon only one or two sources," he said.

Using plant-based materials for fuel in cars and trucks was until recently heralded as the answer to the need to reduce carbon emissions from petrol and diesel fuels.

But the alarm expressed yesterday by Professor Robert Watson, the government's highest-ranking environment scientist, that the headlong pursuit of biofuels could accelerate climate change, is the latest in a series of comments from senior figures that have shaken Whitehall.

Both Watson and the former chief scientific officer, Sir David King, have joined the chorus of those calling for a key "sustainability" clause to be introduced to ensure biofuels do not compound the problem by competing for land with staple food crops and speeding up deforestation.

Speaking on Radio 4's Today programme, Watson said: "It would obviously be insane if we had a policy to try and reduce greenhouse gas emissions through the use of biofuels that's actually leading to an increase in the greenhouse gases from biofuels."

The comments are controversial because the government has committed the UK from April 1 to ensuring that at least 2.5% of all petrol and diesel for vehicles comes from biofuels, with that figure moving up to 5% by 2010. Meanwhile, the EU is aiming for 10% of power for transport being provided by crops from 2020.

King said a distinction should be drawn between different kinds of biofuels, some of which are more carbon-friendly than others. For example, biofuels from sugar cane in Brazil have 10% of the carbon footprint of traditional fuel, while maize-based fuels in America would have 80% or 90% of the footprint. He also has worries about the displacement of food crops by biofuel crops.

"There is enough evidence now that the White House having introduced to favour biofuels in the US has created quite a massive diversion of food crop products into biofuel production and hence pushed up prices of food, particularly in developing countries," he said.

The price of food in Britain rose three times faster than the level of inflation last year and major increases in the cost of wheat and other basic commodities have been partly attributed to biofuels. Meanwhile, vital rainforest in places such as Brazil and Indonesia is being cleared more quickly than ever to make way for new plant-based fuel production.

The views from the two British scientists came as a coalition of environmental and development groups wrote a joint letter to ministers warning their biofuels policy risked doing more harm than good. In a letter to the transport secretary, Ruth Kelly, groups including Oxfam, the RSPB and Greenpeace called for her to put an end to the biofuels policy being introduced through a Renewable Transport Fuels Obligation (RTFO) until more was known about the impact of different forms of plant-based oil.

The government agreed last month that it would undertake a review of the biofuels sector to ensure "the full economic and environmental impacts of biofuels production are taken into account in the formation of UK policy beyond 2010". The study will be undertaken by the new Renewable Fuels Agency, which will report in the early summer, but Kelly made clear that, in the meantime, the RTFO would apply from the start of next month.

The review follows expressions of concern from Stavros Dimas, the EU's environment commissioner, the Royal Society and a parliamentary environmental audit committee. The last concluded that the possible risks outweighed the benefits and said both the UK and EU should scrap their targets until the green advantages of biofuels could be guaranteed.

Ministers have also been influenced by two studies highlighted recently in the US journal Science. In one, researchers calculated that converting natural ecosystems to grow corn or sugar cane to produce ethanol, or palms or soybeans for biodiesel, could release between 17 and 420 times more carbon than the annual savings from replacing fossil fuels. Stephen Polasky from the University of Minnesota, one of the authors of the report, said: "Landowners are rewarded for producing palm oil and other products but not rewarded for carbon management. This creates incentives for excessive land-clearing and can result in large increases in carbon emissions."

Any retrenchment by government over biofuels will cause resentment within big business, which was opposed to the concept but has started to invest heavily.

The value of renewable power companies has soared over recent years. BP recently announced it might sell off part of its "green" energy business, while Shell has put up for sale its Infineum joint venture with ExxonMobil, which produces biofuels. But new British businesses such as D1 Oils, which produce "second-generation" biofuels, have been laying off staff, saying the increasing opposition to these fuels is undermining the business.

Profile: Bob Watson
Professor Bob Watson came to Defra in September 2007 with a successful career in science and international policy behind him. He has held distinguished positions at the World Bank, Nasa, the White House and the Intergovernmental Panel on Climate Change (IPCC).

He has attracted both praise and criticism for his environmental convictions. He was described by vice-president Al Gore as his "hero of the planet", but when his chairmanship of the IPCC was up for renewal in 2002, it was blocked by the Bush White House.

Watson began his career as a physical chemist at Queen Mary College, London. His early scientific work was at the University of California, Berkeley, the University of Maryland and Nasa before he joined the White House office of science and technology policy in July 1993.

From 1996 until last year he held various roles at the World Bank, including chief scientist, and from 1997 to 2002 he was chairman of the IPCC.

Royal Dutch Shell is working on a process to turn sugars into a synthetic petrol, rather than ethanol, with the aim of moving to a commercial demonstration plant in two years’ time.

Europe’s biggest oil company on Wednesday announced a joint venture with Virent, a US biotech business based in Wisconsin, saying that results from early research over the past year had been better than expected in terms of costs and yields.

The initiative is the latest of Shell’s investments in a range of different technologies for “second generation” biofuels, which are more complex to produce but could avoid some of the problems of today’s main biofuels such as ethanol from corn.

However, the environmental and social gains from the Virent technology will depend on the type of sugars that are used to produce the fuel.

So far, none of Shell’s investments has proceeded to commercial production. Graeme Sweeney, the vice-president for future fuels, said not all were likely to be successful and the key decision for each venture would be at the end of the development phase, when the company would decide whether they could be commercially viable.

Jeroen van der Veer, Shell’s chief executive, has said he wanted at least one viable alternative energy business by 2015.

Virent’s process is different from standard biofuel production, which takes sugars from corn or sugar cane or other sources and ferments them to make ethanol.

It uses catalysts to convert sugars into hydrocarbons that are much closer to the standard petrol used in today’s cars.

The “biogasoline” fuel can be blended into conventional petrol up to a level of about 50 per cent without any engine modification, compared with a limit of about 10 per cent for ethanol.

It has a higher energy content than ethanol, which delivers significantly fewer miles to the gallon than petrol, and would avoid some of the handling problems of ethanol, which needs a separate distribution infrastructure from petrol.

Mr Sweeney said Shell believed the process “has the scope to be cost competitive” and would have “very good” total carbon dioxide emissions.

However, he said the fuel’s emissions performance would depend on source of the sugars used.

Sugars from plant waste, such as those Shell hopes to produce from its other biofuels ventures researching enzymes, would lead to greater reductions in emissions than sugars made from corn in the US.

Research suggesting that the environmental benefits of biofuels have been overstated, and fears that demand for crops for fuel is driving up food prices, have led to mounting concerns over policies to support biofuels in Europe and the US.

A pack of the world's biggest private equity firms is this weekend circling Infineum, a British biofuel additives producer owned by Shell and ExxonMobil that is valued at up to €2.5bn (£2bn).

Apollo Management, BC Partners, Carlyle Group, Cinven, Kohlberg Kravis Roberts and Vestar are all planning to submit offers for Infineum, which is based in Oxfordshire and employs 1,600 people globally.

The company, which is undertaking a strategic review initiated by its shareholders and handled by bankers at JP Morgan, is among the world's largest manufacturers and marketers of petroleum additives for the fuels and lubricants industry.

It is understood to have had a turnover of about $1.5bn during 2006 and Shell and ExxonMobil are thought to want to secure offers of between €2bn and €2.5bn. Infineum declined to comment on the process.

Despite the worldwide slowdown in mergers and acquisitions activity during the first quarter of 2008, the surging oil price is acting as a catalyst for deals in the energy and resources sectors.

Later this week Barclays Private Equity is expected to lead a field of prospective bidders for the technology arm of Ashtead, the plant hire group whose share price fell sharply last week amid growing fears about the health of the US construction market.

Ashtead Technology rents specialist submersible equipment to offshore oil and gas operators. NM Rothschild, the investment bank, is handling a strategic review on behalf of Ashtead, which is expected to trigger offers of about £100m. Ashtead generates about 80 per cent of its earnings from North America, and a successful sale of its technology arm would provide a welcome fillip for the company.

While the credit crunch has effectively shut the door on larger leveraged buyouts, smaller deals are still being completed. Cognetas and Englefield Capital, two private equity firms, are understood to have structured their purchase earlier this month of Morrison Utility Services by writing an equity cheque for the full £135m purchase price.

People close to the transaction said the buyers had arranged the deal in this way to provide reassurance to the seller, the privately owned Anglian Water Group, that it would not be derailed by the torrid financing markets.

Cognetas and Englefield Capital are now in talks with Bank of Ireland, Fortis and HBOS to inject tens of millions of pounds of debt into Morrison.

SINGAPORE — Indian Finance Minister P. Chidambaram on Wednesday criticised countries like the US for diverting farm products to produce biofuels, saying this had led to soaring global food prices.

While growing demand was one reason for skyrocketing food prices, the use of agricultural products to make biofuels was another cause, he told a public lecture organised by the Lee Kuan Yew School Public Policy in Singapore.

"It has been estimated that nearly 20 percent of corn grown in the United States is diverted for producing biofuels," he said in his speech to academics, students and diplomats.

"As citizens of the world, we ought to be concerned about the foolishness of growing food and diverting it into fuel."

Chidambaram slammed the "lopsided priorities of certain countries" that produce fuel at a cheaper cost to meet the transport needs of a certain section of their population even if it leads to higher food prices elsewhere.

The price of many food commodities has soared worldwide to record levels over the last year due to booming demand in fast-growing Asian countries as well as the increased use of biofuels.

Present-generation biofuels are derived from food crops such as corn, sugar cane and soybeans.

Biofuels were initially viewed as an environmentally-friendly alternative with no geopolitical risk compared with dirty fossil fuels, but they are now under attack as some unintended consequences emerge.

Speaking at a forum after his speech, the Indian finance chief said countries producing large quantities of food should sell it to the rest of the world at reasonable prices.

"But a very insular selfish approach encourages them to convert food into fuel. I think it is the most foolish thing that humanity can do," he said.

"There are non-food items that can be produced to make biofuels... To convert corn to fuel... I think it's outrageous and it must be condemned."

Chidambaram, who spoke on the challenge of sustaining economic growth amid global uncertainty, said the relentless rise in food and commodity prices have put an "enormous problem" on developing countries.

The price of oil, for example, has risen from 34 US dollars a barrel in 2004 to more than 110 US dollars a barrel recently, he said.

Urea, a fertilizer, cost only 175 dollars per metric tonne in 2004, rising to 288 dollars in April 2007 and 370 dollars as of January this year, he said, adding that the prices of metals and minerals have also risen sharply.

Palm oil cost 471 dollars per metric tonne in 2004, rising to 1,177 dollars by February 2008, he said.

He said organisations such as the Group of 20 biggest economies and the Group of Seven industrialised countries should get together and agree on a band for oil prices to either rise or fall.

"If we are serious about ending poverty, the place to start is to make food and fuel available at reasonable prices," he said.

Referring to the global financial turmoil, Chidambaram said the crisis in risky US home mortgages that triggered the turbulence was due to poor regulation and lax supervision.

"If this had happened in developing countries, we would have been lectured on the virtues of bankruptcy," he said in an apparent dig at the bailout of US financial institutions hit by the turmoil.

"Since this is happening in developed countries, no one pauses to ask whether all the old arguments are not being made to stand on their head."

If you're seeing your grocery bill go up, you're not alone.

From subsistence farmers eating rice in Ecuador to gourmets feasting on escargot in France, consumers worldwide face rising food prices in what analysts call a perfect storm of conditions.

Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India.

The world's poorest nations still harbor the greatest hunger risk. Clashes over bread in Egypt killed at least two people last week, and similar food riots broke out in Burkina Faso, Cameroon earlier this month.

But food protests now crop up even in Italy. And while the price of spaghetti has doubled in Haiti, the cost of miso is packing a hit in Japan.

"It's not likely that prices will go back to as low as we're used to," said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group for Grains for the U.N. Food and Agriculture Organization (FAO). "Currently if you're in Haiti, unless the government is subsidizing consumers, consumers have no choice but to cut consumption. It's a very brutal scenario, but that's what it is."

No one knows that better than Eugene Thermilon, 30, a Haitian day laborer who can no longer afford pasta to feed his wife and four children since the price nearly doubled to the local equivalent of US$0.57 (€.37) a bag. Their only meal on a recent day was two cans of corn grits.

"Their stomachs were not even full," Thermilon said, walking toward his pink concrete house on the precipice of a garbage-filled ravine. By noon the next day, he still had nothing to feed them for dinner.

Their hunger has had a ripple effect. Haitian food vendor Fabiola Duran Estime, 31, has lost so many customers like Thermilon that she had to pull her daughter, Fyva, out of kindergarten because she can't afford the US$20 (€13) monthly tuition.

Fyva was just beginning to read.

In the long term, prices are expected to stabilize. Farmers will grow more grain for both fuel and food and eventually bring prices down. Already this is happening with wheat, with more crops to be planted in the U.S., Canada and Europe in the coming year.

However, consumers still face at least 10 years of more expensive food, according to preliminary FAO projections.

Among the driving forces are petroleum prices, which increase the cost of everything from fertilizers to transport to food processing. Rising demand for meat and dairy in rapidly developing countries such as China and India is sending up the cost of grain, used for cattle feed, as is the demand for raw materials to make biofuels.

What's rare is that the spikes are hitting all major foods in most countries at once. Food prices rose 4 percent in the U.S. last year, the highest rise since 1990, and are expected to climb as much again this year, according to the U.S. Department of Agriculture.

As of December, 37 countries faced food crises, and 20 had imposed some sort of food-price controls.

For many, it's a disaster. The U.N.'s World Food Program says it's facing a $500 million (€324 million) shortfall in funding this year to feed 89 million needy people.

In Egypt, where bread is up 35 percent and cooking oil 26 percent, the government recently proposed ending food subsidies and replacing them with cash payouts to the needy. But the plan was put on hold after it sparked public uproar.

"A revolution of the hungry is in the offing," said Mohammed el-Askalani of Citizens Against the High Cost of Living, a protest group established to lobby against ending the subsidies.

In China, the price hikes are both a burden and a boon.

Per capita meat consumption has increased 150 percent since 1980, so Zhou Jian decided six months ago to switch from selling auto parts to pork. The price of pork has jumped 58 percent in the past year, yet every morning housewives and domestics still crowd his Shanghai shop, and more customers order choice cuts.

The 26-year-old now earns US$4,200 (€2,723) a month, two to three times what he made selling car parts. And it's not just pork. Beef is becoming a weekly indulgence.

"The Chinese middle class is starting to change the traditional thought process of beef as a luxury," said Kevin Timberlake, who manages the U.S.-based Western Cattle Company feedlot in China's Inner Mongolia.

At the same time, increased cost of food staples in China threatens to wreak havoc. Beijing has been selling grain from its reserves to hold down prices, said Jing Ulrich, chairwoman of China equities for JP Morgan.

"But this is not really solving the root cause of the problem," Ulrich said. "The cause of the problem is a supply-demand imbalance. Demand is very strong. Supply is constrained. It is as simple as that."

Chinese Premier Wen Jiabao says fighting inflation from shortages of key foods is a top economic priority. Inflation reached 7.1 percent in January, the highest in 11 years, led by an 18.2 percent jump in food prices.

Meanwhile, record oil prices have boosted the cost of fertilizer and freight for bulk commodities — up 80 percent in 2007 over 2006. The oil spike has also turned up the pressure for countries to switch to biofuels, which the FAO says will drive up the cost of corn, sugar and soybeans "for many more years to come."

In Japan, the ethanol boom is hitting the country in mayonnaise and miso, two important culinary ingredients, as biofuels production pushes up the price of cooking oil and soybeans.

A two-pound bottle of mayonnaise his risen about 10 percent in two months to as much as 330 yen (nearly US$3, €1.95), said Daishi Inoue, a cook at a Chinese restaurant.

"It's not hurting us much now," he said. "But if prices keep going up, we have no choice but to raise our prices."

Miso Bank, a restaurant in Tokyo's glitzy Ginza district, specializes in food cooked with miso, or soybean paste.

"We expect prices to go up in April all at once," said Miso Bank manager Koichi Oritani. "The hikes would affect our menu. So we plan to order miso in bulk and make changes to the menu."

Italians are feeling the pinch in pasta, with consumer groups staging a one-day strike in September against a food deeply intertwined with national identity. Italians eat an estimated 60 pounds of pasta per capita a year.

The protest was merely symbolic because Italians typically stock up on pasta, buying multiple packages at a time. But in the next two months pasta consumption dropped 5 percent, said farm lobbyist Rolando Manfredini.

"The situation has gotten even worse," Manfredini said.

In decades past, farm subsidies and support programs allowed major grain exporting countries to hold large surpluses, which could be tapped during food shortages to keep prices down. But new liberal trade policies have made agricultural production much more responsive to market demands — putting global food reserves at their lowest in a quarter century.

Without reserves, bad weather and poor harvests now have a bigger impact on prices.

"The market is extremely nervous. With the slightest news about bad weather, the market reacts," said economist Abbassian.

That means that a drought in Australia and flooding in Argentina, two of the world's largest suppliers of industrial milk and butter, sent the price of butter in France soaring 37 percent from 2006 to 2007.

Forty percent of escargot, the snail dish, is butter.

"You can do the calculation yourself," said Romain Chapron, president of Croque Bourgogne, which supplies escargot. "It had a considerable effect. It forced people in our profession to tighten their belts to the maximum."

The same climate crises sparked a 21 percent rise in the cost of milk, which with butter makes another famous French food item — the croissant. Panavi, a pastry and bread supplier, has raised retail prices of croissants and pain au chocolat by 6 to 15 percent.

Already, there's a lot of suspicion among consumers.

"They don't understand why prices have gone up like this," said Nicole Watelet, general secretary at the Federation of French Bakeries and Pastry Enterprises. "They think that someone is profiting from this. But it's not us. We're paying."

Food costs worldwide spiked 23 percent from 2006 to 2007, according to the FAO. Grains went up 42 percent, oils 50 percent and dairy 80 percent.

Economists say that for the short term, government bailouts will have to be part of the answer to keep unrest at a minimum. In recent weeks, rising food prices sparked riots in the West African nations of Burkina Faso, where mobs torched buildings, and Cameroon, where at least four people died.

But attempts to control prices in one country often have dire effects elsewhere. China's restrictions on wheat flour exports resulted in a price spike in Indonesia earlier this year, according to the FAO. Ukraine and Russia imposed export restrictions on wheat, causing tight supplies and higher prices for importing countries. Partly because of the cost of imported wheat, Peru's military has begun eating bread made from potato flour, a native crop.

"We need a response on a large scale, either the regional or international level," said Brian Halweil of the environmental research organization Worldwatch Institute. "All countries are tied enough to the world food markets that this is a global crisis."

Poorer countries can speed up the adjustment by investing in agriculture, experts say. If they do, farmers can turn high prices into an engine for growth.

But in countries like Burkina Faso, the crisis is immediate.

Days after the riots, Pascaline Ouédraogo wandered the market in the capital, Ouagadougou, looking to buy meat and vegetables. She said a good meal cost 1,000 francs (about US$2.35, €1.52) not long ago. Now she needs twice that.

"The more prices go up, the less there is to meet their needs," she said of her three children, all in secondary school. "You wonder if it's the government or the businesses that are behind the price hikes."

Irène Belem, a 25-year-old with twins, struggles to buy milk, which has gone up 57 percent in recent weeks.

"We knew we were poor before," she said, "but now it's worse than poverty."

Faced with the dramatically spiralling costs of wheat, rice and corn, the World Food Programme has made an unprecedented appeal for at least $500m (£250m) to help it continue supplying food aid to 73 million needy people this year.

Josette Sheeran, the organisation's executive director, told journalists yesterday that this was the first time in its history that the WFP had appealed for funds, not because of a crisis caused by famine or war but because of market conditions. And she warned that if extra resources were not received before the beginning of May, food rations would have to be cut.

"This is the new face of hunger," she said. "People are simply being priced out of food markets. It's the first time we have been hit by a dramatic market surprise. We have never before had a situation where aggressive rises in food prices keep pricing our operations out of our reach."

The WFP estimates that food prices rose by 55 per cent between June and the end of February, meaning it needed an extra $500m on top of the $2.9bn it had already budgeted for. However, prices have risen a further 20 per cent in the past three weeks, meaning the organisation's emergency shortfall could, in reality, be closer to $700m.

"It's a situation that is changing nearly every day. We used to adjust our basic food prices every year or two but now it's weekly or even daily because the changes are so quick and, unfortunately, all seem to go in the same direction," said Ms Sheeran.

She warned that if donors did not stump up: "We will see the scaling back of operations in the next months – each operation will need to be scaled back. There could be quite a dramatic effect on the number of people we are able to provide with food."

Rice last week jumped to a three-decade high, experiencing the same sort of spike that has already affected wheat, corn and soybeans. The price of these staple foods has been driven skywards by increased demand for food from the newly prospering parts of south and east Asia, damage to crops by natural disasters, and by the growing demand for biofuels. "It's a global phenomenon which is hitting the most vulnerable populations hard," Ms Sheeran said.

In Bangladesh, those on a dollar a day are dropping the protein element of their diet because they can only afford the basic staple rice. "And even those earning $2 a day are forced into coping strategies which could lead to a malnutrition crisis," Ms Sheeran said. "They are giving up health or educational needs to get a basic food budget."

It is the people eking out an existence on 50 cents per day that are suffering most, however, like people in some parts of El Salvador who have been forced to halve their nutritional intake. "We now have a situation where there's a lot of food on the shelves but people cannot afford it," Ms Sheeran said.

Ban Ki-moon, the UN secretary general, wrote in an editorial in the Washington Post: "The new face of hunger is increasingly affecting communities that had previously been protected. The 'bottom billion', people living on one dollar a day or less ... do one of two things: they buy less food, or they buy cheaper, less nutritious food. The result is the same: more hunger and less chance of a healthy future."

After a recent announcement that it will cut the amount of food aid it gives to poor countries, the United States is likely to shift most of its focus to emergency needs, the American government agency responsible for humanitarian aid has hinted.

The US Agency for International Development (USAID) told IRIN on 25 March that it was reviewing its food aid plans "to ensure our resources go to the highest priority needs." Last month, USAID announced that the cost of wheat and other food had gone up by 41 percent setting its budget back by US$121 million, which meant it would have to reduce the amount of food aid sent overseas.

Harry Edwards, a press officer for USAID said, "Commodity and ocean freights costs are increasing globally; as these two factors comprise the majority of food aid budgets, the price increases are reducing the tonnage of food aid available".

Food prices have risen in part because of increased demand. But the cost of food aid has also been directly hit by freight charges, which have shot up because of rising oil prices. The price spike at the beginning of 2008 follows a 34 percent increase last year. The USAID annual budget for food aid, with supplemental appropriations, is about $1.5 billion.

The food aid cuts will affect the agency's emergency operations in more than 40 countries across the world. The US is the world's biggest food aid donor, contributing an average of six million tonnes of cereal annually since 1970. It funds half of the UN's World Food Programme (WFP), which is responsible for 40 percent to 50 percent of global food aid.

Besides emergency food, the US also provides monetised food aid, when food is bought at subsidised prices in the donor country and sold in the recipient country to generate funds for development projects. The US is one of very few countries that does this; most donors give food in kind or supply cash to UN agencies or NGOs for buying food on national or world markets.

"The prospect of the food aid budget in the US going up is very dim - so it will have to make the donated dollar work more efficiently and prioritise," explained Christopher Barrett, who teaches development economics at Cornell University and edits the American Journal of Agricultural Economics.

Remove restrictions

"In cases where the US is the primary donor, it will have to relax its binding restriction, which does not allow food aid to be procured locally [in the recipient country] and regionally; improve timeliness of response and focus on emergency food aid."

Almost all food aid donated by the USA is tied to domestic requirements for procurement, processing and shipping. "Freight costs form a major portion of the costs of food aid," said Barrett. According to him, it costs more than two dollars of US taxpayers' money to deliver one dollar’s worth of food procured as in-kind food aid.

American legislation requires that 50 percent of commodities be processed and packed before shipment; and that 75 percent of food aid managed by USAID, and 50 percent of the food aid managed by the US Department of Agriculture, be transported in "flag-carrying" US-registered vessels.

"The agency is looking for opportunities to reduce costs where possible," said Edwards. "It is seeking to reduce commodity costs by working with aid agencies implementing food aid programmes to use lower cost commodities and reduce transport costs by consolidating small orders."

Jeff Borns, director of USAID's Food for Peace programme was quoted in the Washington Post as saying, "We're in the process now of going country by country and analysing the commodity price increase on each country. Then we're going to have to prioritise."

But these are "short-term responses" to the situation, added Barrett. "Fuel and food prices are going to continue to rise; in the long term the solution lies in stimulating smallholder farmers into producing more food in poor countries."

[This report does not necessarily reflect the views of the United Nations]

The head of the world's biggest food and drink company says using crops like wheat and corn to make biofuels is putting world food supplies in peril.

The chairman and chief executive of Nestle, Peter Brabeck-Letmathe, says there'll be nothing left to eat if 20 per cent of the world's oil demand is fulfilled by biofuels, as predicted.

He says it's morally unacceptable and irresponsible to grant enormous subsidies to bio-energy.

Mr Brabeck-Letmathe says water, and land for cultivation, are becoming rarer, while biofuel demand is driving up the price of maize, soya beans and wheat.

WASHINGTON (Reuters) - The Bush administration, which has resisted regulating carbon dioxide emissions, this spring will propose rules that could affect everything from vehicles to power plants and oil refineries, the top U.S. environmental official told Congress on Thursday.
Environmental Protection Agency Administrator Stephen Johnson said the agency will issue proposed rules "later this spring" on "the specific effects of climate change and potential regulation of greenhouse gas emissions from stationary and mobile sources."

Johnson's letter to congressional leaders was a response to a landmark 2007 ruling by the Supreme Court that the EPA must reconsider its 2003 refusal to regulate carbon-dioxide emissions from new cars and trucks under the Clean Air Act.

Johnson's letter sets in motion a long process of seeking comments from industry and the public, with at least two chances to change course before final rules are issued.

Democrats accused the White House of stalling to allow U.S. President George W. Bush to slip out of the Oval Office before any rules could take effect. Bush's term will end in January 2009, and it's unlikely that rules could be finalized by then.

"Instead of action, we get more foot-dragging," said Sen. Barbara Boxer of California, chairman of the Senate Environment Committee, which has approved climate change legislation which could see debate by the full Senate as early as June.

"The name of the game here is to run out the clock, basically," said David Hawkins, a climate change expert at the Natural Resources Defense Council. "All of this stuff will come in in a big pile and it will be on the next administration's desk."

The United States is the world's biggest greenhouse gas emitter. The Bush administration has opposed mandatory emissions limits, citing inaction by other major emitters like China and India.

Johnson said the EPA can't weigh emissions from cars and trucks - which comprise about 30 percent of the U.S. total - without considering stationary sources like power plants, oil refineries, and even schools and hospitals.

"This is not just about cars and trucks," Johnson told Reuters in a telephone interview, warning that the "potential domino effect of taking a step toward regulating one source could have significant and in fact lasting implications."

For that reason, Johnson said he widened the rulemaking scope to include stationary sources.

Coal-fired power plants emit about 40 percent of U.S. carbon dioxide emissions. Complying with new regulations could cost big utilities like American Electric Power and Southern Co billions of dollars.

The Edison Electric Institute, which represents big utilities, said it was glad the EPA realized the sweeping nature of potential carbon regulation.

"It's appropriate that the EPA fully understands the consequences of using the Clean Air Act tool to address greenhouse gases," said John Kinsman, the group's senior director for the environment.

U.S. utilities generally favor a legislative fix to carbon dioxide emissions rather than a regulatory one, which could be challenged and delayed by lawsuits.

A chunk of ice the size of the Isle of Man has started to break away from Antarctica in what scientists say is further evidence of a warming climate.

Satellite images suggest that part of the ice shelf is disintegrating, and will soon crumble away.

The Wilkins Ice Shelf has been stable for most of the last century, but began retreating in the 1990s.

Six ice shelves in the same part of the continent have already been lost, says the British Antarctic Survey (BAS).

Professor David Vaughan of BAS said: "Wilkins is the largest ice shelf on the Antarctic Peninsula yet to be threatened.

"I didn't expect to see things happen this quickly. The ice shelf is hanging by a thread - we'll know in the next few days or weeks what its fate will be."

'Like an explosion'

BAS researchers were alerted to the break-up by daily monitoring of satellite images. They sent a Twin Otter aircraft on a reconnaissance mission to video what was happening.

Jim Elliott, who was on board the plane, said he had never seen anything like it before.

He said: "We flew along the main crack and observed the sheer scale of movement from the breakage.

"Big hefty chunks of ice, the size of small houses, look as though they've been thrown around like rubble - it's like an explosion."

A 41-by-2.5km (25-by-1.6 mile) berg appears to be breaking away, with much of the Wilkins Ice Shelf protected only by a thin strip of ice spanning two islands.

Since an ice shelf is a floating platform of ice, the break-up will have no impact on sea level. But scientists say it heightens concerns over the impact of climate change on this part of Antarctica.

'Unprecedented' warming

Professor Vaughan predicted in 1993 that the northern part of the Wilkins Ice Shelf would be lost within 30 years if climate warming continued. But he said it is happening more quickly than he expected.

He told BBC News: "What we're actually seeing is a chunk of the ice shelf drop off in a way that suggests it is not just a normal part of iceberg formation.

"This is not a sea level rise issue, but is yet another indication of climate change in the Antarctic Peninsula and how it is affecting the environment."

Scientists say the Antarctic Peninsula, which juts out into the Southern Ocean towards the tip of South America, has experienced unprecedented warming over the last 50 years.

Several ice shelves have retreated in the past 30 years - six of them collapsing completely.

Other researchers believe the Wilkins Ice Shelf may hang on a little longer, as Antarctica's summer melt season draws to a close.

Dr Ted Scambos of the National Snow and Ice Data Center at the University of Colorado said: "This unusual show is over for this season. But come January, we'll be watching to see if the Wilkins continues to fall apart."

The Governor of the Bank of England yesterday pledged to continue supporting liquidity-starved banks, but stopped short of promising to buy worthless mortgage-backed securities.

Mervyn King told the Treasury Select Committee that following last week's summit meeting with leading banks, he was in continuing talks with the sector over finding a "longer-term solution" to the credit crisis.

Mr King promised that the central bank would "provide the liquidity assistance that the system needs in order to restore confidence". However, while the Governor confirmed that in December, January and March the Bank had broadened the range of collateral it accepted on repurchase agreements to include certain residential mortgage-backed securities, he denied any plans to begin buying unwanted mortgage-backed securities.

Such a move would be hugely controversial, with critics claiming that it would amount to taxpayers bailing out the City. "We are taking some mortgage securities as collateral on repo agreements," he said. "That is very different from offering to buy all mortgage-backed securities."

Last week, the Bank again pumped billions of pounds into the money markets in addition to the weekly funds offered to commercial banks. However, the extra liquidity has failed to bring down the cost of borrowing, with the Libor rate at which banks lend to each other touching 6 per cent yesterday.

Mr King said the offer of funding assistance was only a temporary measure, adding "we are discussing with the banks how a longer-term resolution of the problem might be reached".

He warned it was too soon to say where the discussions would lead, but the Bank later refused to give any further details on the talks.

The financial crisis has moved into a new and different phase worldwide, Mr King added. "Across the world confidence in financial markets is fragile," he warned. "It stems from an 'overhang' on banks' balance sheets of assets in which markets have closed. These assets cannot now be sold or used to secure funding in the market – they are difficult to finance. That has created uncertainty about the strength of banks' financial positions."

In addition to fresh liquidity, MPs on the committee were also told that the further deterioration of the markets meant the chances of an interest rate cut next month had increased.

Mr King said that the weakening market conditions meant the Monetary Policy Committee, which sets the UK's interest rates, was more likely to consider a cut. Last week, the MPC minutes for March's meeting revealed that the Governor's deputy, Sir John Gieve, had voted to cut rates. The vote went eight to two to remain at 5.25 per cent.

Sterling fell against the euro yesterday in the wake of bearish sentiment on the short-term prospects for the currency from the central bank.

Charles Bean, the chief economist to the Bank of England, told the Treasury Select Committee that regarding the currency "the risks are balanced on the downside", sending the pound lower in the afternoon.

Andrew Sentance, another member of the MPC, added that he expected consumer spending to weaken in the next few months. However he called outright recession a "remote risk for the UK economy at present".

The credit crunch on Thursday forced three of the UK’s biggest lenders to tighten the supply of home loans and charge more for them in moves that are likely to put further pressure on the property market.

Millions of home loan borrowers now face higher interest rates as banks pass on higher wholesale funding costs as conditions worsen in money markets.

Home loans will also become harder to secure from Friday, even for those with unblemished credit records, as banks apply more stringent criteria to mortgage approvals and pull some competitive products to avoid being flooded by new applications.

“It is the law of supply and demand. There is less mortgage finance available and it is more expensive,” said HBOS, the UK’s biggest mortgage lender.

Nationwide, the UK’s second largest mortgage lender, increased interest rates on one of its main products to deter new borrowers by making them less attractive. It will increase the cost of two-year mortgage tracker rates for new customers by 0.57 percentage points to 7.1 per cent and is increasing its fixed rate mortgages by 0.2 percentage points.

Cheltenham & Gloucester, part of Lloyds TSB, increased the prices of certain two-year tracker rates by about 30 basis points, as did IF, a subsidiary of HBOS.

The moves will be a blow to consumers who are due to refinance mortgages this year and face a sharp jump in monthly payments.

Ray Boulger, technical director of mortgage broker Charcol believes that more than 2.75m people will be hit when they come off any sort of mortgage deal this year – whether it is a tracker or fixed-rate deal.

The increased mortgage rates partly reflect the higher costs of wholesale funding for banks and building societies, which has risen sharply in recent days. The three-month London Interbank Offered Rate – the rate at which banks borrow in the wholesale market – has climbed to around 6 per cent, the highest this year.

This means there is a 0.75 percentage point gap between Libor and the Bank of England base rate, which is used by banks to determine the price of mortgage rates for consumers.

Nationwide said more expensive funding was one reason behind its decision. It added that it was receiving a large volume of new mortgage applications after rival banks – which rely more heavily on wholesale funding – unexpectedly pulled similar deals.

This made Nationwide’s products seem more competitive than they were intended to be and led to it being swamped with far more mortgage applications than it had intended to take.

Lloyds, which also uses the wholesale markets less than other banks, said it had also upped its rates at C&G to avoid being inundated by new mortgage applications, which would affect the service it could offer to existing customers.

U.K. economic growth will slow more than forecast this year to match the weakest pace since 1992, curbed by higher credit costs, the Confederation of British Industry said.

The economy will expand 1.8 percent, down from an original forecast of 2 percent, and will slow to 1.7 percent in 2009, Britain's biggest business lobby said in an e-mailed statement. The central bank will cut its benchmark interest rate three more times to reach 4.5 percent in 2009, the group forecast.

"Having enjoyed two years of strong growth, we are now living in uncertain times," said Richard Lambert, the CBI's director general and a former Bank of England policy maker. "We are facing a financial shock on a scale not experienced in recent times, which is coming on top of already slower growth."

Bank of England policy makers have said they face a dilemma as they balance the need for interest-rate cuts to spur economic growth against the risk of inflation, which reached a nine-month high in February. The bank renewed an offer of emergency funds to lenders last week and hosted a meeting of executives as officials tried to stem the financial crisis.

"The credit crunch will take longer to work through than we thought," Lambert said in an interview on BBC Radio 4 today. "If you go around the country, outside the banking and finance sectors most business are finding business pretty good but they do expect credit conditions to tighten later this year."

Consumer Spending

Consumer spending growth will slow to 1.6 percent this year, almost half the pace of 2007, the CBI said. The Office for National Statistics will release fourth-quarter gross domestic product figures on March 28.

The CBI forecast inflation will accelerate to 3.2 percent in the third quarter, which would require Bank of England Governor Mervyn King to write to the government with a public explanation. Inflation accelerated to 2.5 percent in February.

"There are real concerns about inflation in the short term and the Bank of England has the tricky task of keeping a grip on inflation," Lambert told Radio 4. "We think they will cut rates later this year."

King and four other policy makers will testify in Parliament tomorrow on the bank's economic forecasts.

US corporate profits fell in the final quarter of last year, according to figures from the Commerce Department released on Thursday, as one of the worst banking crises in decades helped bring the economy near to stalling.

Corporate profits fell 3.3 per cent in the final three months of 2007, much more than the 0.1 per cent drop that economists had predicted. The fall in profits – the second quarterly decline in a row at both financial and non-financial companies - was all the more striking because the data did not include the billions of dollars in writedowns and loan loss provisions that companies have taken as a result of the subprime mortgage problems.

The indication of troubles for businesses came as gross domestic product rose by a sluggish 0.6 per cent in the final three months of 2007, in line with previous estimates from the Commerce Department, and sharply down from the 4.9 per cent growth achieved in the previous quarter. Most economists believe that the US has slipped into recession in the early part of this year.

The US economy grew 2.2 per cent for the whole of last year, the slowest since 2002.

However, the GDP figures also showed that personal spending by consumers was higher than previously estimated, raising hopes that stronger consumption might carry through to this year and boost growth in the first quarter. Inventories were also lower than in earlier figures, suggesting that businesses have done a better job of preparing for a slowdown.

“Companies are keeping their inventories lean, making it less likely that they will need to slash production in future,” said Nigel Gault, an economist at Global Insight.

Carlos Gutierrez, US commerce secretary, told the FT that the US would ”go through a couple of quarters of slower growth” but the economy would improve in the second half of 2008. On the latest fourth quarter GDP numbers, he said ”inventories declined more than we estimated - that is usually a positive sign”.