You really should use dried chiles. Contrary to what your intuition might say, oil does not inhibit the growth of mold or bacteria. There has been a bit of publicity in this country about the danger of home-made garlic oils producing botulism food poisoning if not handled correctly. Commercially produced garlic oils must contain “specific levels of microbial inhibitors, usually acidifying agents such as phosphoric or citric acid.” Because these inhibitors are not generally available in home kitchens or convenient for home cooks, the US Food & Drug Administration suggests that such oils be made in small quantity and refrigerated.
We have seen commercially produced chile oils with a pretty little fresh pepper in the middle of each bottle, but our guess is that the oil was treated to prevent the growth of fungus and other critters. Among the recipes we have found for chile oils (and flavored oils in general), virtually all want you to use dried chiles and herbs. (It goes without saying that the bottle you use be scrupulously clean.)
One recipe we’ve come across for chile oil asks you to put 2 cups of olive oil and 1 tablespoon of crushed red pepper flakes in a saucepan over medium-low heat. Cook for 15 minutes, being careful not to let it reach the simmer or boil. Remove from the heat and let cool to room temperature before straining the oil through a fine mesh strainer lined with cheesecloth into a glass jar. Cover and refrigerate for 7 to 10 days before using.
A cold-infusion method calls for a larger amount of peppers – 1/4 to 1/3 of a cup – in a couple cups of olive oil sealed in a bottle and allowed to steep in the refrigerator for a month before straining. Either version can then be stored in the refrigerator for up to a month.