As petrol prices continue to rise and the threat of fuel protests looms, Christen Pears looks at how the events rocking the oil industry are effecting the price we pay at the pump.

THERE may have been doubts about the justifications for war with Iraq, but there was one certainty: the conflict would result in greater political stability in the Middle East and consequently, cheaper oil.

At first, all seemed to be going according to plan. Before the invasion last year, prices had been slowly rising, but once troops were on the ground, the cost of oil fell $10 to just $24 a barrel. Unfortunately, it didn't last, and as the conflict wore on, it started to climb again. A massive surge in demand exacerbated the situation and earlier this week, following the terrorist attacks on Saudi Arabia, the price of oil reached a record high of $42 a barrel.

The knock-on effects are being felt at the petrol pumps, with the average cost of a litre rising to 85p - the level that provoked the fuel protests in 2000 and threatened to bring the country to a standstill.

Despite the threat of more demonstrations, the Government has ruled out any changes to its policy on fuel tax, and the Chancellor plans to increase petrol duty by 1.9p a litre on September 1.

Opec (the Organisation of Petroleum Exporting Countries) is due to meet in Beirut today and is being urged to increase oil production to counter escalating prices. Saudi Arabia has hinted that it will, but Opec officials say this is likely to have only a short-term effect. Some analysts predict the price of crude oil could hit $50 next year, rising to $60 by 2006 and pushing the price of petrol up to as much as 92.5p a litre.

What do you get for your money?

Britain has some of the highest petrol prices in Europe, cheaper only than the Netherlands. According to AA figures for April 2004, the price per litre in the UK was 78.6p, compared to just 53.9p in Greece and 69.2p in France.

Almost three quarters of the UK petrol price is made up of taxes and duties. In May 2004, the average cost of a litre of unleaded fuel had risen to 82.9p at the UK's petrol pumps. Of that, 59.6p was duty and VAT. The oil itself was valued at just 19.8p, while retailer costs were 2.9p and delivery 0.6p.

It now costs £41.40 to fill the tank of a Mini One compared to £37.36 at the same time last year. The price of filling a Vauxhall Vectra 1.8LS has risen from £44.83 to £49.68.

Why have prices risen so much?

Oil prices have jumped from about $24 a barrel a year ago to $37 last week, and US crude oil prices are now trading at a 21-year high.

Accelerating violence in the Middle East, including the terrorist attacks in Saudi Arabia at the weekend, have caused minimal disruption to oil production. They have, however, underlined the vulnerability of the world's oil supplies, causing jitters in the market. But experts say price rises had become inevitable even before then due to soaring demand.

The International Energy Agency has forecast that demand will grow by two million barrels a day this year due to economic growth in industrialised countries, particularly in a resurgent America. China is also a major factor, where demand has rocketed by 20 per cent over the last year due a burgeoning economy. Traders expect this growth to continue for several years although there is a chance that the economy will overheat and demand will slacken.

In recent years, oil companies have attempted the streamline the way they operate by having smaller stocks of crude oil. While this has improved efficiency, it has also resulted in less of a cushion in the market, and events such as violence in the Middle East have caused more disruption than they would have if stocks had been higher.

Who controls the world's oil?

The Middle East is home to around two thirds of the world's oil reserves, although Venezuela, Nigeria and Russia are also major producers.

Opec accounts for more than half of the world's crude oil exports and was set up in 1960 to control oil supplies and influence prices. It now has 11 member countries and its stated policy is to keep crude oil prices within a range of $22 to $28 a barrel by reducing or increasing the amount of oil its members produce according to the state of the market.

In the West, the cartel is often portrayed as greedy and manipulative, an image that has its roots in the events of 1973, which sent the world economy into crisis. It was also blamed when prices peaked in 2000, prompting fuel protests across much of Europe.

However, many of the oil rich states are very poor in terms of other resources. Crude oil is often their only export, making them vulnerable to market changes. When prices slumped to $10 a barrel in 1998, many were hard hit, and in recent years, their price range mechanism has been aimed at preserving market stability.

Can't Opec just produce more oil?

Opec's output ceiling is set at 23.5m barrels a day but it is thought to be producing as many as 26m, with most members already pumping oil at maximum levels.

Saudi Arabia is the world's largest crude oil exporter but is only operating at 85 per cent of full capacity. Consequently, it is the only producer with any significant ability to increase output and has said it will raise daily production by up to two million barrels.

Will it be enough?

Probably not. Even if oil production is increased, it will not immediately bring down prices. There is usually a time lag of around six weeks before any changes are felt on garage forecourts.

As long as demand continues to grow and the situation in the Middle East remains unstable, experts predict the rise in prices will continue for some time, with the cost of a barrel reaching as much as $60 by 2006. Some estimate it could rise to as much as $100 within three years.

What else can be done to keep fuel prices low?

Petrol companies are already doing all they can, halving profit margins since the beginning of the year in an attempt to avoid accusations of profiteering. They are barely making enough money to cover their costs.

Tony Blair has expressed what he describes as a "keen interest" in oil prices and promised that, "Where we can, and where we are able to, we try and take action". Protestors and motoring organisations are calling on the Government to drop its plans to increase petrol duty in September but so far, that seems unlikely.