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Financial Times: Iran weapons test drives up oil prices

By Carola Hoyos in Londonand Gareth Smyth in Beirut
Published: April 4 2006 03:00 | Last updated: April 4 2006 03:00
European crude oil prices yesterday jumped to their highest level since Hurricane Katrina after Iran announced it had tested new weapons during wargames in the Strait of Hormuz.
Tehran's declaration that it had test fired a missile and a newly developed torpedo in the strait, the world's main oil shipping route, propelled benchmark Brent crude oil futures nearly $2 higher to trade at a high of $67.93 a barrel.
Iran's armed forces frequently conduct military manoeuvres that are given extensive coverage on domestic television. But market nerves have been jangled by the timing and strategic location of Iran's latest military tests, which follow last week's 30-day deadline set by the UN Security Council for Iran to suspend its nuclear programme.
Traders warned yesterday that the oil market had entered a more volatile phase, fuelled by speculative buying over fears that the diplomatic stand-off over Iran's nuclear programme could threaten supplies.
The US Department of Energy calls the Hormuz Strait, which links the Persian Gulf with the Gulf of Oman and the Arabian Sea, “by far the world's most important oil chokepoint”. More than a third of the world's exported oil travels through the strait. Iran is the world's fourth largest producer.
In the current military exercises, Tehran has also announced the testing of a radar-evading missile. Iran has three diesel-electric Russian submarines and has started building midget submarines, although there has been greater western concern over its ballistic missile programme.
Mohammad Hadi Nejad-Hosseinian, Iran's deputy oil minister, yesterday hinted at Iran's ability to influence the oil price, when he said: “Owing to the current situation, any fall in oil prices this year is unlikely . . . a sum of factors show that prices will not fall in the next two or three years unless there is a conspiracy against oil.”
But any move to influence prices by Tehran would be double edged, as Iran is heavily dependent on its oil exports, which account for about 60 per cent of government revenue and 80 per cent of export earnings.
Oil markets also reacted nervously yesterday to events in Nigeria, the world's eighth largest exporter, where rebels have shut down about a quarter of the country's production. Edmund Daukoru, Nigeria's energy minister said it would take Royal Dutch Shell, the Anglo/Dutch energy group and the country's biggest foreign producer, a month to restore the bulk of its lost production.
Oil futures in the US, which is particularly depen-dent on Nigeria's light, sweet crude oil to make petrol, rose more than $1 to a high of $67.90 a barrel.

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