OIL prices climbed to their highest level in 21 years last night as dealers expressed concerns about a security breakdown in the Middle East.

Markets watched as the cost of a barrel of crude reached $41.50 in New York - higher than at any time during the 1990 Gulf War. The upward surge was sparked by fears that oil installations in Saudi Arabia and Iraq may be targeted by Islamic militants.

Concerns about a shortage of petrol ahead of the summer driving season in the US were also at the forefront of traders' minds.

Also, despite attempts by the Chinese government to slow the pace of the country's economic growth, the nation has shown little sign of reducing its thirst for crude.

Rising oil prices have left their mark on world markets this week, with the Dow Jones Industrial Average falling below the 10,000 mark for the first time since December, falling another 60 points yesterday.

The world's largest retailer, Wal-Mart, which owns Asda, has warned that recent sharp rises in the cost of petrol could hurt its sales, with the average shopper paying as much as £4 a week more for fuel.

The FTSE 100 Index has also come under pressure as investors worry about the impact of higher fuel costs on the balance sheets of blue-chip companies.

The rise in the cost of crude has been matched by a rise in its importance on the political agenda. Motorists are paying more than 80p for a litre of unleaded petrol on forecourts.

One of the ringleaders of the fuel revolt in 2000, Brynle Williams, has warned that protests against rising petrol prices were a "distinct possibility".