Motorists could face chronic fuel shortages and soaring prices at the pumps after one of Britain's biggest fuel refineries went bust, petrol retailers have warned.

Forecourt bosses and MPs said there was a risk of parts of the South East 'grinding to a halt' amid reports production had stopped at the Coryton refinery, which supplies around a fifth of the fuel in the region and 10 per cent of the UK's supplies.

The closure of the giant Essex refinery also threatens to push up pump prices as supplies diminish.

The warning came as the refinery's Swiss parent company Petroplus said talks with its lenders had broken down and it would be filing for insolvency with the loss of up to 1,000 UK jobs.

Petrol retailers warned Treasury minister Danny Alexander in a face-to-face meeting that the financial crisis at the Coryton refinery in Essex - one of the UK's biggest suppliers of fuel - would cause chaos at the forecourts if it ceased production.

Petrol stations fear a repeat of the chaos in Scotland when the giant Grangemouth refinery was hit by strike action - leading to pumps running dry and cases of fuel rationing.

Instability in Iran and their threat to blockade key oil tanker routes in the Straits of Hormuz the Gulf, coupled with the strong dollar, is also storing up trouble, the retailers warned.

Supplies across London and the South East could be affected as a result and in turn could affect the Olympics.

Motorists are already on course for a 2p a litre fuel price hike at the pumps that could take diesel prices to a new record high, the AA has warned.

It is adding £4.25 a month to already hard-pressed family budgets and increasing the cost of a fill-up for 'Mondeo Man' by £1.40.

The AA said drivers have already seen a 1p a litre rise over the last fortnight - with another 1p now in the pipeline as wholesale prices rises work their way through to forecourts.

Record pump prices set on 9 May 2011 are 137.43p a litre for petrol and 143.04p for diesel.

There was a strong warning from the AA for motorists to not to panic buy, which could drain petrol stations of their reserves and lead to queues on the forecourts.

The Unite union said it was in dialogue with the owners of Coryton to try to assist the refinery.

National officer Linda McCulloch said: 'One thousand jobs are at risk but we firmly believe that joint action by the owners and Government can help secure the business.

There only eight refineries in the UK - at Fawley near Southampton, Grangemouth, Stanlow, Milford Haven, Lindsey in north Lincolnshire, South Killingholme and Pembroke, as well as Coryton.

They may now be called upon to help make up the shortfall following the 586-acre Essex site's closure.

However there are no immediate supply issues, but obviously the situation is being monitored very closely.

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