Iran threatens oil price reprisals against the West

Oil prices could scale new heights this week after Iran warned yesterday that it was prepared to use an export boycott as a "weapon" in its fight for the right to nuclear energy.

Ali Larijani, chief nuclear negotiator for the world's fourth-largest exporter of crude oil, said the country was prepared to launch "painful" reprisals if the United Nations imposed sanctions.

The warning came as analysts warned that oil prices could hit $100 a barrel, a rise that would trigger a US recession.

Mr Larijani told a news conference yesterday: "We do not want to use the oil weapon, it is they who would impose it upon us. Iran should be allowed to defend its rights in proportion to their stance."

He warned the UN Security Council not to impose sanctions on Iran. "If they do, we will react in a way that would be painful for them. They should not think that they can hurt us and we would stand still without a reaction," he said.

Crude prices hit record levels last month, after Israel's invasion of southern Lebanon aimed at eliminating Hizbollah triggered fears of an Arab oil boycott.

Brent crude in London hit a record of $78.10 a barrel as the first wave of violence spread across both northern Israel and Lebanon. Prices in New York also broke through the $78 a barrel barrier.

Prices have since eased to around $76 on growing confidence that the world economy has proved resilient to high energy prices, although markets remain nervous about geopolitical tensions.

Fred Fromm, natural resources analyst at Franklin Templeton Investments, said a growing number of companies were buying options to protect against a spike in oil above $100 a barrel. He said: "If oil were to reach such a level, the world economy and stock markets could be severely depressed.

"The impact on the US economy would be especially brutal."

Mr Fromm said petrol prices above $4 a gallon could serve as a "tipping point" for consumer confidence. "It would raise the spectre of stagflation."

Nader Habibi, a senior Middle Eastern economist at the consultants Global Insight, said that while the impact of the Israel-Lebanon war had been small, the conflict could result in increased terrorist attacks on western targets.

He added: "The economic relations of the US and UK with the Arab world might also come under stress as a result of this war."