Oil producers in the Gulf and other regions could be forced to scale down their investments plans because of tightening crude demand, higher costs and fund shortages, according to Arab and Western officials.

As the world creeps into a recession and lenders reel under credit crunch, demand for oil could largely slacken while costly projects could be delayed because of lack of funding and low profit margins due to weak crude prices.

"The current financial crisis could push the world into a recession and this will depress demand for oil and consequently push down prices," said Khaled Al Falih, Deputy Chief Executive of the government-owned Saudi Aramco.

"If this happens, then Saudi Aramco and other oil producing companies will have to revise their investment plans and reconsider the timing of production projects," Al Falih said in a statement yesterday.

In a similar warning, Dutch Minister of Economic Affairs Maria van der Hoeven said global energy investment plans are set to exceed earlier forecasts by the International Energy Agency which put them at $9.5 trillion until 2030.

"Estimates in the next World Energy Outlook will certainly be higher because of cost inflation. Investments, meanwhile, are still lagging behind. Most analyses of oil markets point to tight markets and relatively small spare capacity," she said in a lecture at the Riyadh-based International Energy Forum last week.

"But overall the market has remained tight, up until now. I am well aware that we live in turbulent and even confusing times. In the midst of the present credit crunch, rock solid institutions as banks appear not to be solid at all. They fall like leaves in autumn. It raises fears of recession, in turn leading to falling demand in oil and gas, less tight markets and thus falling prices."

The Dutch minister said oil companies would find it difficult to acquire credits and this could force them to postpone some of their investment programmes.

Der Hoeven said oil producing nations need to create the right conditions but stressed that companies are the "real agents of energy security".

"This includes publicly owned National Oil Companies as well as privately- owned international oil firms, transport companies, refineries and distribution firms or utilities," she added.

In a study published last month, an official Arab oil investment group said energy projects in the region could become a victim of the present global financial crisis because of fund shortages, slowing oil demand and lower crude export earnings.