Rich nations could tap strategic oil reserves if needed to ward off the risk that Middle East political unrest triggers an inflationary price spiral, Treasury Secretary Timothy Geithner said on Thursday.

In wide-ranging testimony before the U.S. Senate Foreign Relations Committee, Geithner again tweaked China for keeping its currency too low and assured lawmakers he was committed to expanding U.S. overseas trade while playing down risks that oil prices were a threat to a budding recovery.

He said there was considerable spare oil production capacity around the world and substantial reserves on hand.

If necessary, those reserves could be mobilized to help mitigate the effect of a severe, sustained supply disruption, he said. Political protests have swept through parts of the Middle East and North Africa, sending tremors through markets for fear it could spread to key producers such as Saudi Arabia.

Geithner did not appear to be signaling any short-term intent to dip into U.S. reserves but rather to make the point that there were options if a lengthy interruption of supplies occurred.

Tapping the Strategic Petroleum Reserve, created in the mid-1970s after the Arab oil embargo, is a relatively rare event and it has been U.S. policy to turn to the emergency supply only when faced with a major supply disruption.

The last time it was done was in 2005 following Hurricane Katrina and it drove oil prices down by about 9 percent at the time.

Unrest in oil producer Libya has propelled U.S. crude oil futures above $100 a barrel in recent days. Crude had traded at roughly $86 before protests struck Egypt in late January, the first in a wave of unrest that has encompassed much of the region.

Geithner said the Obama administration was monitoring Middle East developments closely and acknowledged that rising commodity prices -- for both food and oil -- were causing hardship in many parts of the world by pushing prices up.

But he said Americans were feeling less impact.

In the United States, rising gasoline prices have left consumers with less money to spend, but underlying inflation across all goods and services is modest, Geithner said.

He also repeated a call for global agreement on stronger norms for exchange rate policies to ensure that some countries don't use an artificially low currency rate to benefit their own economies at the expense of other nations.

There is broad consensus that the major economies -- not just Europe, Japan and the United States, but also the large emerging economies -- need to allow their exchange rates to adjust in response to market forces, Geithner said.

He said China's yuan currency remains substantially undervalued and said there has been limited progress in getting Beijing to let it rise in value more rapidly.

The global economy is gradually regaining its footing after three years of crisis, Geithner said, though the pace of growth was uneven and unbalanced.

Geithner pointed to forecasts from the International Monetary Fund that envision emerging-market economies will expand 6.5 percent this year while Japan and Europe will manage only 1.5 percent growth.

The global recovery had already been pushing oil prices up before the recent disruptions from Middle East unrest.

Deutsche Bank economist Peter Hooper said roughly $10 to $15 a barrel of that can be tied to concerns about possible supply disruptions from unrest in Libya and the Middle East.

If prices stay around $110, Hooper estimated it would trim 0.35 percentage point off of U.S. economic output, a moderate hit considering economists expect growth in the 3.4 percent range this year.

(Editing by James Dalgleish)

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