Oil at new highs on growing Iran disruption fears

The oil price roared to fresh highs today on growing fears that supplies from Iran could be disrupted, forcing the FTSE back into bear-market territory.

With tension between the US and Iran growing, analysts say there seems little hope of oil prices falling soon. For the first three days of this week, oil was in decline, supporting the notion that recent prices are partly speculative.

Oil added $6 a barrel yesterday, and was today up another $4 to almost $146. Equity investors already nervous about the likelihood of a UK recession, saw no reason to buy and by lunchtime the Footsie was down 87.4 points at 5319.4.

Iran, led by President Mahmoud Ahmadinejad, has been testing missiles and making it plain it would respond aggressively to any attack on its nuclear facilities. There has been speculation for weeks that Israel, supported by the US, is working on just such an attack. There were rumours today that Israel has been landing jets in Iraq as a precursor to a military move.

Opec, the Organisation of Petroleum Exporting Countries, warned of an "unlimited" increase in oil prices in the case of war with Iran, the secondbiggest producer after Saudi Arabia.

Opec secretary general Abdallah Salem el-Badri said: "We really cannot replace Iran's production. The prices would go unlimited. I can't give you a number."

Further supply pressures loom in Nigeria and Brazil. Militant groups in Niger Delta said they have abandoned a ceasefire, and oil workers at Brazil's Petrobras are poised to go on strike next week.

Analysts say speeches from US Secretary of State Condoleezza Rice insisting that America will defend allies only serve to send prices upwards. John Kilduff at MF Global said: "Iranian tensions are putting a higher and higher floor under this market."

The International Energy Agency yesterday raised its forecast for global oil demand, which it now think will rise by 1% this year.

Iran has ignored United Nations efforts to persuade it to halt its nuclear energy programme. The US and others are concerned it will use the technology to develop nuclear weapons.