Oil prices could hit economically damaging record highs if unrest in Africa and the Gulf cuts investment in output, the West's energy watchdog warned oil producers, which said the real problem was likely defaults among euro zone members and banks.

The International Energy Agency (IEA), which advises major oil-consuming countries on energy policies, said on Wednesday oil prices could spike by a third to above their all-time high of $147 a barrel. The Organization of the Petroleum Exporting Countries (OPEC) said the main risks were of price falls.

Relations between OPEC and the IEA hit lows earlier this year when OPEC failed to agree on an increase in oil output and the IEA released its stockpiles to compensate for the loss of Libyan oil and to help support flagging economic recovery.

OPEC has already signaled it sees no need to release any extra oil to the markets when it meets in December but will probably face increased pressure from consumers as the IEA insists that current prices are damaging the economy.

"In 2011, $102 is the average price through to today which means the global economic recovery is at risk. We are in the danger zone for the global economy at current levels," IEA economist Fatih Birol told a news conference.

"There is a possibility that production growth from the (Middle East and North Africa, MENA) region may not be what the consumers would like to see. This would be a pity for the global economy, a pity for the oil sector and a pity for those governments."

Birol's comment followed the release of the IEA's annual World Energy Outlook, which said that if investment in the MENA region runs one-third lower than the $100 billion per year required between 2011-2015, consumers could face a near-term rise in the oil price to $150 per barrel.

Benchmark Brent crude was down $1.54 at $113.56 a barrel by 1150 GMT on Wednesday, pressured by European debt worries, after reaching its highest close since Sept. 15 on Tuesday.

EURO DEFAULTS AND EURO UNREST

OPEC, which produces every third barrel in the world and has faced unprecedented unrest across its members this year, said in its monthly report on Wednesday it was not overly concerned by underinvestment by its member countries in light of current oil prices and large increases in public spending.

"It is expected that economic growth in 2012 in the MENA region will be stronger than in 2011, mainly due to the massive infrastructure and industrial development in Saudi Arabia, and robust growth in Iraq," it said.

"The economic expansion of the region might also be affected by the rebound of Libya and other North African economies affected by unrest in 2010," it said, devoting much more space in the 75-page report to Europe's debt crisis.

It said that while China's growth was still strong and the United States was seeing a slight improvement in its economy, the situation in Europe was deeply worrying even though the continent was not a major factor in oil demand growth.

"Worries about its (Europe's) sovereign debt situation and the possibility of defaults by some of its member states - which could bring down major European banks and push the euro-zone into unchartered territories - are the main concerns that have driven markets over the recent weeks".

"In light of the most recent developments of an almost default by Greece, it is almost unavoidable to not provide a bigger answer to calm nervous markets, which have pushed up the risk-premium of Italian sovereign bonds to almost unbearable levels of around 7 percent," OPEC said.

OPEC said European unemployment had been at very high levels for about two years and this was not only depressing consumption but also increasing social tensions in some euro-zone economies.

"European economic growth forecasts for 2011 and 2012 are now reduced, which undoubtedly will affect the global economy through euro zone trade and financial relationships with other parts of the world," OPEC said.