THE THREAT of war in the Gulf sent oil prices soaring and wiped billions off stock markets last night - prompting fears that a conflict could plunge the world into recession.

On the eve of MPs gathering to debate the growing Iraqi crisis, Prime Minister Tony Blair was given a stark reminder of the consequences of getting it wrong.

Oil prices in the UK hit a 12-month high, raising fears that the cost at the pumps is set to go up.

And London's FTSE 100 Index of Britain's biggest companies hit a six year low. The Footsie fell more than 120 points to 3739.4 - wiping £28bn off stocks and heightening economic uncertainty.

Mr Blair told the Cabinet last night that the policy of "containing" Saddam Hussein had failed and that the Iraqi dictator had to be stopped.

Briefing senior ministers on the Government's long-awaited dossier on Iraq, the Prime Minister said it was clear from intelligence reports that Saddam was continuing to build his arsenal of weapons of mass destruction (WMD).

The prospect of war with Iraq strengthened fears of a global shortage of oil and sent the price of crude soaring.

Analysts said sustained increases were likely to be bad news for motorists and business alike.

Anne Preston, chairman of North Yorkshire firm Prestons of Potto and a board member of the Road Haulage Association, said: "Fuel is the number one cost in our business, apart from wages.

"We pay double what they pay in Europe and if it goes up, it would have a significant effect on us, which we would have to pass on to the customers.

"There is a great deal of worry about fuel increases and those involved in the original protests are still out there."

Denise Raven, a spokeswoman for the AA in the North-East, said the average price of a litre of unleaded in the region - currently between 73p and 74p - was just below the national average.

She said: "We say that, at the end of the day, motorists are continuing to pay a lot, but getting little back."

Two years ago, a series of blockades at fuel refineries by hauliers and farmers protesting about fuel prices caused chaos as petrol pumps ran dry.

The Northern Echo understands that some of the original protest leaders, including members of the People's Fuel Lobby, have already met to discuss possible protest plans if prices increase dramatically.

The lobby is thought to have joined forces with the Countryside Alliance at its protest march in London, which attracted upwards of 400,000 people.

Any new blockade could concentrate on clogging up the roads with hauliers and farmers planning a series of go-slow convoys on major arterial routes.

Last night, Gateshead haulier Craig Eley, who independently helped to lead the North-East protests two years ago, said: "The Government will not be happy until they have put all hauliers contractors out of business.

"It wants to see how far it can push the British public and it will not be long before the whole thing erupts again."

Protestors have been angered by the Government's high taxes on fuel and the continued profits of petrol companies.

In the US, benchmark crude shot up above 30 dollars a barrel yesterday to a 19-month high and in London, Brent rose 48 cents to 28.91 dollars.

Henk Potts, equities strategist at Barclays Private Clients, said: "We have to believe that this will be reflected at the pumps."

Meanwhile, Mr Blair said the 50-page dossier, drawing on the latest intelligence, showed that the "real and serious problem" of Iraq's WMD programme had grown worse in the four years since the inspections ended.

"There is no doubt whatever that, despite the denials, despite sanctions, despite the UN Security Council resolutions, he is continuing with his WMD programme," he said.

"We are not talking about historic leftovers, but an ongoing, continuing programme."

The dossier is due to be made public at 8am today as MPs return to Westminster for a day-long emergency debate on the growing crisis.

Earlier, Mr Blair met a number of Cabinet ministers individually to discuss the situation, including International Development Secretary Clare Short, who at the weekend expressed her opposition to "another Gulf War".