Oil prices will hurt but will exact a much smaller toll than surging oil prices did in the 1970s, US Federal Reserve Chairman Alan Greenspan said yesterday.

Despite an inevitable near-term impact on growth, oil prices remain below their inflation-adjusted peak of 1981 and the world?s economy has grown more energy-efficient in recent decades, Greenspan said in a speech to Japanese business leaders. ?Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on,? he said.?The effect of the current surge in oil prices, though noticeable, is likely to prove significantly less consequential to economic growth and inflation than the surge in the 1970s.?

Greenspan, making his first visit to Tokyo in five years and probably the last before his term is due to end in January, did not address the outlook for US monetary policy and did not take any questions. Greenspan?s remarks, the text of which had been made available to the media in advance, were accidentally released ahead of time by a news organisation, surprising the market.

US crude oil prices hit a record high of $ 70.85 a barrel in the immediate aftermath of Hurricane Katrina, which slammed into the US Gulf Coast on Aug. 29, shuttering much of the region?s oil-producing and refining capacity. Prices have eased since, trading at $ 63.72 a barrel at 0800 GMT yesterday.

However, Greenspan noted oil futures for distant months had moved up close to current spot prices, and he suggested the market did not expect oil production outside of Organization of Petroleum Exporting Countries (OPEC) countries to be adequate to meet rising world demand.

The Fed chief said OPEC members and other developing countries appeared to see little benefit from investing in additional production capacity, citing as evidence the ?significant proportion? of oil revenue invested in financial assets.

He also issued a warning on refining capacity. ?Besides feared shortfalls in crude oil capacity, the status of world refining capacity has become worrisome as well,? Greenspan said, saying oil production had risen faster than refining capacity for a decade.?A continuing of this trend would soon make lack of refining capacity the binding constraint on growth in oil use,? he said.

But, as he has done in the past, Greenspan said market prices were providing the signals that could shift economic behaviour in a way that would bring better balance to supply and demand. ?The incentives to alter oil consumption provided by market prices eventually resolved even the most seemingly insurmountable difficulties posed by inadequate supply outside the OPEC cartel,? he said.

Greenspan said the ratio of US oil consumption to its gross domestic product had fallen by half since 1973, although the pace at which it was dropping had slowed with the relatively lower oil prices after 1985. ?With real energy prices again on the rise, more rapid decreases in the intensity of energy use in the years ahead seem virtually inevitable,? he said.

He said the US trend toward a less oil-intensive industrial sector and greater energy conservation in recent decades has ?likely intensified of late with the sharp, recent increases in oil prices,? and a drop in US gasoline consumption in recent weeks was likely due to higher prices. Japanese Finance Minister Sadakazu Tanigaki, in a meeting with Greenspan yesterday, noted a similar trend in Japan. ?Japan has been making efforts to use its energy more efficiently, so I expect the impact of high oil prices on the economy to be limited,? Tanigaki was quoted by a finance ministry official as telling Greenspan.