Tuesday, March 27, 2007

Iran Conflict Rocks Oil Market

Evelyn M. Rusli, 03.26.07, 3:45 PM ET

Escalating hostility between Iran and the international community pushed crude oil prices toward $63 a barrel on Monday morning, touching a high for the year.

Amid concerns that increased tensions in the Middle East could interfere with future oil deliveries, crude oil prices spiked on Friday after Iran, the fourth-largest oil provider in the world, seized 15 British naval officers in the Persian Gulf.

New York Mercantile Exchange crude futures rose to $62.98 during early Morning trading, up 1.1% from Friday's $62.28 close. Oil is up 24.8% from a January low of $49.90 a barrel.

Over the weekend, Iran and other countries continued to lock horns over the British seizure issue and the country's uranium-enrichment program. Iran continued to detain the British personnel despite claims from the United Kingdom that its sailors and marines were not trespassing in Iranian waters. Prime Minister Tony Blair called the seizure "unjustified and wrong." On Saturday, the United Nations Security Council unanimously voted to impose new finance and arms sanctions against Iran. The body ordered Iran to suspend its uranium program in 60 days.

In reaction, Iran stiffened its posture on Sunday by affirming its commitment to its uranium-enrichment program and declaring that it will limit cooperation with United Nations officials. Iranian president Mahmoud Ahmadinejad said the Security Council's ultimatum will not disrupt Iran's nuclear program "even for a second."

Because of Iran's location, increased conflict could jeopardize oil shipments. More than 20% of the world's oil passes through the Strait of Hormuz, a narrow water passage bordered by Iran's coast.

John Flemy, chief economist for the American Petroleum Institute, said the knee-jerk spike was triggered by uncertainty surrounding Iran's nuclear program and strong statements issued by its politicians. But he dismissed the concern that Iran would use oil as a weapon against international aggression. "There's a whole host of mischevious things Iran could do, but Iran won't use their oil supply as a weapon, because oil sales are too important for their economy," he said in an interview on Monday.

Oil stocks were higher during Monday afternoon trading in New York. Royal Dutch Shell (nyse: RDSA - news - people ) gained 0.5%, or 34 cents, to $66.40, and Exxon Mobil (nyse: XOM - news - people ) edged up 0.1%, or 7 cents, to $75.09. Meanwhile, the iPath Goldman Sachs Crude Oil Tracking Index (nyse: OIL - news - people ), an exchange-traded fund, was up 0.87%, or 32 cents, to $37.24.

--The Associated Press contributed to this article.

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