Contrary to expectations, global oil prices, which have touched a 21-year high, are unlikely to fall substantially even if oil producer cartel Organization of the Petroleum Exporting Countries or OPEC raises production, industry officials said on Thursday.

If that happens, it would be bad news for oil guzzling India, which spent $18.2 billion, equivalent to 3 per cent of its GDP, on oil imports in 2003-04.

"Against global oil consumption of 80 million barrels per day, OPEC produces just 25 million bpd. The remaining 55 million bpd is produced by non-OPEC countries and I don't see OPEC's decision to raise output influencing the prices substantially," Subir Raha, chairman of Oil and Natural Gas Corp, India's most valuable company by market capitalisation, said.

The spike in prices to record highs of over $42 dollars a barrel were primarily driven by terrorist attacks on oil producing city of Al-Khobar in Saudi Arabia, in which 22 people were killed.

With further attacks expected in Saudi Arabia and no signs of stability returning to Iraq, analysts expect the "war premium" on oil to remain.

"The premium for terrorism and instability is about seven to eight dollars. When this goes, the market will go down," a leading Mumbai-based oil analyst said.

"OPEC can ask members to produce more but that's not going to soften prices," said P Sugavanam, finance director at Indian Oil Corp, the nation's biggest oil refiner. "You may see an immediate drop, though prices will come back up again. I don't see any respite."

Already the high crude prices have drilled deep holes in pockets of public sector oil firms, who for political reasons have not been allowed to raise petrol and diesel prices for the past five months and LPG and kerosene prices since 2002, in step with the rise in cost of raw material.

Public sector oil companies lost Rs 900 crore (Rs 9 billion) on selling petrol and diesel below the cost since January and the estimated under-recovery on LPG and Kerosene is being put at Rs 14,000 crore (Rs 140 billion) in 2004-05.

Industry officials said petrol and diesel prices will have to go up by Rs 3-4 per litre each while LPG would cost Rs 130 per cylinder more and kerosene Rs 4 per litre if domestic prices are to be aligned with the cost of raw material.

"Today's prices have nothing to do with the fundamentals of the oil market. You might call it terrorism, you might call it expectations of the destruction of an oil and gas facility.

There is no supply problem. It is due to perception of disruption," an analyst said.

OPEC has also warned that it cannot be solely responsible for a reverse in soaring oil prices, with terrorism concerns in the Middle East being an important factor the cartel has little control over.

Experts have warned that OPEC is fast running out of spare capacity, leaving the market at the mercy of any supply disruptions in Saudi Arabia or other volatile producers such as Iraq and Venezuela.

Analysts have also said rampant demand from China, the United States and India, as well as US refinery bottlenecks, mean that prices are unlikely to fall significantly any time soon.

Raha said world oil demand will rise in winter months to 83-84 million bpd and the OPEC increase of 1-1.5 million bpd would have no significant impact.

"It (rise in prices) is the result of geopolitical uncertainties," he said.

The global watchdog International Energy Agency has forecast a one per cent drop in economic growth of India if the present high crude price trend continues. Inflation would rise by 2.6 percentage point and unemployment would also increase.

Indian economy would suffer more from higher oil prices because its economy is more dependent on imported oil. It imports some 70 per cent of its requirement. Last fiscal it imported 90.7 million tonnes of crude oil.