Petrol hits £1.40 a litre as minister makes alarmist forecast it could reach £4

Drivers began paying £1.40 per litre of unleaded petrol for the first time yesterday as motorists started to feel the pinch of rising oil prices. The news came as several experts warned of the damaging impact across the economy of such an increase.

The peak price at the BP garage in Rainham, Kent – which is also selling diesel at £1.44p a litre – might even seem cheap in coming months if predictions that the cost could rise to twice that figure are borne out. Peter Carroll, spokesman for Fair Fuel UK, a campaign group, warned: "We are being pushed into a fuel price crisis. My reaction to these prices is one of horror, of what it will do to the economy, what it will do to people and what it will do to business."

Earlier in the day, the International Aid Minister, Alan Duncan, a former oil trader, suggested that it was not inconceivable that motorists would end up shelling out £4 a litre. "When I said oil would go through $100, people thought I was bonkers. Now we are not far off $130," he said.

The biggest fear of those watching the price movements is a "rocket and feather" effect, whereby retail fuel prices rise sharply after an increase in the price of crude oil but drift down only slowly if it falls.

Further unrest across Libya and the Middle East is expected to exacerbate the problem. The knock-on effects could include higher food prices because of extra transport costs and more expensive holiday flights.

Energy firms are anticipating larger profits, but it was suggested yesterday that petrol providers would make more money if the price of oil begins to dip

Tim Harford, journalist and author of The Undercover Economist, said: "It's actually when the oil price starts falling that petrol retailers make the most money. When prices start falling, we get very relaxed about it because we know petrol is cheaper than it was last week so we don't look so hard for a deal."

Pressure is mounting on the Government for intervention as the price of Brent crude increased to nearly $103 a barrel on Friday – the second highest figure since the $147 high in 2008. Chancellor George Osborne who gives his second Budget on 23 March, hinted he was preparing to act when he told the Conservative spring forum in Cardiff yesterday that he "heard" the complaints about fuel prices. "I won't take risks with economic stability, or wreck the public finances," he said. "But I promise you I am doing everything I can to find a way to help."

The Treasury is considering using an unexpected windfall from lower than forecast levels of jobseeker's allowance claimants to ditch the planned 1p rise in fuel duty.

The issue of fuel prices took on an increasingly political dimension this weekend, with warnings about public disquiet and a senior Liberal Democrat telling Mr Osborne that it was a matter of "social justice".

Tim Farron, the Lib Dem party president, said soaring fuel costs were forcing people on low incomes to consider giving up work to avoid travelcosts. "This is not just an issue for white van man or Jeremy Clarkson fans. It is an issue of social inclusion and social justice," he said.

Significantly, the Lib Dems have withdrawn their opposition to financial assistance for motorists, insisting those still driving have no alternative. "Nobody is choosing not to use their car any more because of petrol prices," Mr Farron said. "If you were able to take that decision, you did that five or six years ago. Now people are making decisions about not working because of the cost of driving."

David Cameron has promised that the Treasury is still examining proposals for a fuel stabiliser, which would level out prices by reducing duty when oil prices were high and increasing duty when the cost of oil fell.

In a speech yesterday, Ed Balls, the Shadow Chancellor, told Mr Osborne to "get his head out of the sand". "He should be helping hard-pressed families now by immediately reversing the Tory VAT rise on fuel."

Britain's oil barons: Profits from the pumps - the industry's winners

James Smith, 54

Chairman, Shell UK

Net worth: Unknown

Company profits: £3.2bn in first quarter of 2010

Keen on tennis, golf, skiing, hill walking and gardening, Smith has a physics degree and is a chartered accountant. Before joining Shell he worked with Accenture. Married with one son.

Bill Gammell, 58

Chief executive, Cairn Energy

Net worth: £17m

Company profits: £16.4m

Friend to Tony Blair, he also spent holidays with George W Bush who visited his farm in Glen Isla, Angus, in 2008. His Edinburgh-based energy empire is worth over £6.14bn ($10bn).

Jim Ratcliffe, 54

Chairman, Ineos

Net worth: £450m

Company profits: £3.3bn

The firm's millionaire founder travels by private jet. His company recently shifted its £1.41bn ($2.3bn) petrochemical operations from the UK to Switzerland to save over £100m in tax.

Aidan Heavey, 58

Chief executive, Tullow Oil

2010 salary: £610,000

The Irish-born founder has houses in Dublin, Surrey and the Caribbean. Heavey bought up depleted oil fields in Senegal. Also donated £10,000 to the Conservative Party before the general election.

Tony Buckingham, 59

Chief executive, Heritage Oil

Net worth: £565m

The founder of Heritage Oil was the beneficiary of a £315m special dividend. His energy company became a FTSE 250 firm worth £1.1bn. Donated £50,000 to the Tories before the general election.

Iain Conn, 48

Head of Downstream, BP

Net worth: £724,000

Company profits: £3.1bn

One of the few staff not vilified in the Deepwater Horizon disaster. He has just had his first bonus since 2008, following the Gulf of Mexico spill last year.