Iraq chaos could spark worldwide recession, says Short

An outbreak of violence across the Middle East would trigger a massive surge in oil prices that would cause a global recession and a backlash against globalisation, Clare Short warned yesterday.

An outbreak of violence across the Middle East would trigger a massive surge in oil prices that would cause a global recession and a backlash against globalisation, Clare Short warned yesterday.

The former Secretary of State for International Development, a leading Labour backbench rebel, told business leaders that "all bets would be off" if the Iraqi conflict spiralled out of control.

Ms Short, who quit her Cabinet job over Britain's role in the attack on Iraq, said there was a real threat of "chaos and resistance". "If we don't get the Middle East managed more sustainably then the growth of disorder in that region could lead to a massive hike in oil prices and a world depression," she told the CBI conference.

"In that case, the debate about outsourcing would be transformed and all bets would be off. If jobs are collapsing then labour in developed countries will no longer have such a wise and thoughtful approach [to outsourcing]."

Ms Short said the growth in outsourcing - companies moving lower-paid jobs abroad - could benefit developing countries by providing jobs and infrastructure. Research published by the CBI at the weekend showed that one-quarter of companies polled said they were seriously considering moving jobs overseas, while nine out of 10 that had already done so said it had been a success.

James Robinson, the vice-president of the American Chamber of Commerce and a counsellor to the White House, said there had been "mass hysteria" in the US over outsourcing. But he said that in the presidential election, people had rejected John Kerry's anti-outsourcing message.

Tarun Das, a senior figure at the Confederation of Indian Industry, said that outsourcing was "two-way traffic", pointing out that one Indian company alone had awarded a £700m services contract to a multinational based in the UK and US.He said that 500 Indian companies had outsourced work to Britain.