EXPERTS warned last night that fuel prices will get worse as the Iranian crisis deepened with President Mahmoud Ahmadinejad’s regime threatening to expand its oil embargo to the whole of the European Union.
The threat saw the price of a barrel of crude oil climb to an eight-month high of $121 (£76), just days after diesel hit a record level in the UK of 143.05p.
Brian Madderson, head of RMI Petrol, which represents 6,000 independent forecourts across the UK, said that the full effect of the crisis had yet to be felt by motorists.
He pointed to new predictions from JP Morgan which suggested the cost of a barrel of oil could hit as much as $150 (£94) by Easter, sending fuel costs soaring even higher.
His warning came as Foreign Secretary William Hague told MPs that the Iranian regime’s desire to arm itself with nuclear weapons, which sparked the crisis, is the single biggest crisis facing the international community and could lead to an arms war in the world’s biggest oil- producing region.
His comments came in a debate called by John Baron, a member of the Commons foreign affairs select committee, who said the West needed to abandon “sabre-rattling” policies over Iran’s nuclear ambitions – warning that last night’s debate could be the last chance for Parliament to consider the situation “before possible hostilities begin” in a regional war.
As the five nuclear inspectors from the International Atomic Energy Association (IAEA) set off for Iran from Vienna yesterday, the markets were further spooked by the increasing threat of military intervention from the United States and Israel.
The sabre-rattling by Mr Ahmadinejad over blocking oil sales to the whole of the EU came after he stopped supplies being sent to the UK and France last week.
The main fear seemed to centre on the impact of military action by the US, which could see the vital Strait of Hormuz shipping lane closed off.
Iraq’s planning minister said yesterday that closing the shipping lane would cut off half of its oil exports alone, adding that no immediate alternatives would make up the shortfall.
Of the average 2.165 million barrels of oil per day that Iraq exported last year, 1.7 million went through Basra export terminals to the Gulf via Hormuz.
“What worries us is the closure of the Strait of Hormuz, because it means Iraq will lose more than half of its oil exporting capabilities,” the minister, Ali al-Shukri, said.
“Today, we are trying to look for alternatives to export Iraqi oil,” said Mr Shukri, whose Opec member country is home to the world’s fourth largest oil reserves.
While the UK uses only a small proportion of Iranian oil, experts said that the overall uncertainty had increased costs.
Mr Madderson said yesterday: “The stand-off with Iran will only lead to further increases of price in the market, if there are concerns over the future of supplies caused by possible military action.”
He warned that there was unlikely to be any good news for drivers in the near future.
“We have not even had the full effect of the rise in the price of the barrel filter through yet,” he said. “As it is likely to be between $145 and $150 a barrel by Easter, it will be even worse.
“We saw diesel hit a new record high last week, and this will also affect petrol, too. So this is bad news for the government, bad news for inflation, bad news for the hard-pressed taxpayer, bad news for drivers and bad news for petrol retailers.”
He said in Scotland Calanike, a company that runs 19 forecourts and employs 170 people, has just gone in to administration.
“This sort of thing is happening across the UK,” he said.
However, it was claimed by an International Energy Agency official that the EU could cope with an abrupt halt by Iran of oil exports to the region, because buyers of Iranian oil were already adjusting to the EU’s forthcoming ban on Iranian shipment.
“We don’t think that this announcement will have a real impact on the market, because France and the UK have already stopped buying crude from Iran,” said Didier Houssin, the director of energy markets and security at the IEA.
Iran’s announcement came after European oil buyers have already cut purchases from Iran ahead of the sanctions, reducing flows to the Continent in March by more than a third – or 300,000 barrels per day, according to industry sources.
Given that customers are readying themselves for the embargo on Iranian oil and that demand for crude typically declines at the end of the northern hemisphere winter, the EU could also cope with a wider stoppage by Iran of its oil sales.
“If such a move were taken by Iran to immediately stop exports, we don’t think it would have a very significant impact on the market,” Mr Houssin said. “Because again the customers are already adjusting to the new environment.
“Second, we are getting close to the end of the winter period, and the second quarter is typically when European refiners go for maintenance.”
The crisis, however, was good news for the markets yesterday as shares in the oil companies rose in value with the increasing cost of a barrel of oil.
BP’s shares pushed through the 500p barrier for the first time since last January at one stage, before it closed 10.3p higher at 499.3p.
The wider FTSE 100 Index was up 40.2 points at 5945.3, its highest close for seven months.