Iran tells world to get ready for oil at $200 a barrel as it fires on merchant ships

Smoke and flame rise up in a unit of Abadan oil refinery in southwestern Iran. (AP Photo/Farid Hamoudi/Fars News Agency)

Iran said the world should be ready for oil at $200 a barrel as its forces hit merchant ships on Wednesday and the International Energy Agency recommended a massive release of strategic reserves to dampen one of the worst oil shocks since the 1970s.

The war unleashed with joint U.S. and Israeli air strikes nearly two weeks ago has so far killed around 2,000 people, mostly Iranians and Lebanese, as it has spread into Lebanon and thrown global energy markets and transport into chaos.

Despite what the Pentagon has described as the most intense airstrikes since the start of the war, Iran also fired at Israel and targets across the Middle East on Wednesday, demonstrating it can still fight back.

On Wednesday, three vessels were reported to have been hit in Gulf waters as Iran’s Revolutionary Guards said their forces had fired on ships in the Gulf that had disobeyed their orders.

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U.S. President Donald Trump suggested the campaign would not last much longer, telling Axios news website there was “practically nothing left” to target in Iran. “Any time I want it to end, it will end,” he said in a telephone interview.

Oil prices, which shot up earlier in the week to nearly $120 a barrel before settling back to around $90, rose more than four per cent on Wednesday amid renewed fears about supply disruption, while Wall Street’s main share indexes fell in morning trade.

Previously, stock markets had rebounded as investors bet on Trump finding a quick exit.

But other signs pointed to a continuation of fighting which has seen ports and cities in the Gulf states as well as targets in Israel hit by drone and missile barrages from Iran, adding urgency to calls from Turkey and Europe to end the fighting.

An Israeli military official said the military still had an extensive list of targets to hit in Iran, including ballistic missile and nuclear-related sites.

‘Legitimate targets’

So far there has been no sign that ships can safely sail through the Strait of Hormuz, the now-blockaded channel along the Iranian coast that serves as a conduit for around a fifth of the world’s oil.

Trump said on Wednesday that ships “should” transit through the Strait but sources said Iran had deployed about a dozen mines in the channel, further complicating the blockade.

The U.S. military told Iranians to stay clear of ports with Iranian navy facilities, drawing a warning from Iran’s military that if the ports were threatened, economic and trade centers in the region would be “legitimate targets.”

With prices at the pumps already surging in some countries and Trump’s Republican Party trailing badly in the polls ahead of midterm elections, oil prices have become an increasingly urgent element in the calculations behind the war.

The International Energy Agency, made up of major oil consuming nations, recommended releasing 400 million barrels from global strategic reserves to stabilize prices, the biggest such intervention in history, which was swiftly endorsed by Washington.

But the rate at which countries can release strategic reserves will vary and the amount released would account for just a fraction of the supply through the Hormuz Strait.

Iranian officials made clear on Wednesday they intended to impose a prolonged economic shock as the war continues.

“Get ready for oil to be $200 a barrel, because the oil price depends on regional security, which you have destabilized,” Ebrahim Zolfaqari, spokesperson for Iran’s military command, said in comments addressed to Washington.

After offices of a bank in Tehran were hit overnight, Zolfaqari said Iran would respond with attacks on banks that do business with the U.S. or Israel. People across the Middle East should stay 1,000 meters from banks, he added.

At sea, a Thai-flagged bulk carrier was set ablaze, forcing the evacuation of crew, with three people reported missing and believed trapped in the engine room.

Two other ships, a Japanese-flagged container ship and a Marshall Islands-flagged bulk carrier, were also reported to have sustained damage from projectiles, bringing the number of merchant ships that have been hit since the war began to 14.

Iranian official says Mojtaba Khamenei lightly wounded

In Iran, huge crowds took to the streets for funerals for top commanders killed in airstrikes. They carried caskets and brandished flags and portraits of slain Supreme Leader Ayatollah Ali Khamenei and his son and successor, Mojtaba.

An Iranian official told Reuters that Mojtaba Khamenei had been lightly wounded early in the war, when airstrikes killed his father, mother, wife and a son. He has not appeared in public or issued any direct message since the war began.

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The Iranian military said on Tuesday it had launched missiles at targets including a U.S. base in northern Iraq, the U.S. naval headquarters for the Middle East in Bahrain, and at targets in central Israel. Explosions rang out in Bahrain, while in Dubai four people were wounded by two drones that crashed near the airport.

In Tehran, residents said they were growing accustomed to nightly airstrikes that have sent hundreds of thousands of people fleeing to the countryside and contaminated the city with black rain from oil smoke.

“There were bombings last night but I did not get scared like before. Life goes on,” Farshid, 52, told Reuters by phone.

‘No time limit,’ says Israel

Despite calls from Trump for Iranians to rise up, U.S. and Israeli hopes that Iran’s system of clerical rule would be overthrown by popular protest have not been borne out.

Iran’s police chief, Ahmadreza Radan, said on Wednesday anyone taking to the streets would be treated “as an enemy, not a protester. All our security forces have their fingers on the trigger.”

A senior Israeli official told Reuters Israeli leaders now privately accepted that Iran’s ruling system could survive the war. Two other Israeli officials said there was no sign Washington was close to ending the campaign. O/R

U.S. and Israeli officials say their aim is to end Iran’s ability to project force beyond its borders and destroy its nuclear program.Israel’s Defence Minister Israel Katz said on Wednesday the operation “will continue without any time limit, as long as required, until we achieve all objectives and win the campaign.”

(Reporting by Parisa Hafezi in Dubai, Alexander Cornwell in Tel Aviv and Reuters bureau Writing by Peter Graff and James Mackenzie; Editing by Sharon Singleton, Alex Richardson and Gareth Jones)