Iran warns oil prices could soar as attacks threaten Strait of Hormuz and global supply

Iran’s military says the world should be prepared for oil to hit $US200 a barrel as its forces attacked merchant ships in the blockaded Gulf.

Iran also fired at Israel and targets across the Middle East on Wednesday, demonstrating it can still fight back despite what the Pentagon has described as the most intense US-Israeli strikes yet.

Oil prices that shot up earlier this week have eased, and stock markets have rebounded, with investors betting for now that US President Donald Trump will find a quick way to end the war he began alongside Israel nearly two weeks ago.

Trump, who has repeatedly tried to reassure markets this week that the campaign will end soon, told Axios in a telephone interview that there was “practically nothing left” to target in Iran.

“Little this and that ... Any time I want it to end, it will end,” Trump said during a brief phone interview.

But so far there has been no let-up on the ground or any sign that ships can safely sail through the Strait of Hormuz, where a fifth of the world’s oil has been blockaded behind a narrow channel along the Iranian coast in the worst disruption to energy supplies since the oil shocks of the 1970s.

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

But the rate at which countries can release it would account for just a fraction of the supply through the Hormuz Strait.

“Get ready for oil to be $US200 a barrel because the oil price depends on regional security, which you have destabilised,” Ebrahim Zolfaqari, spokesman for Iran’s military command, said in comments addressed to the US.

Oil prices, which shot up briefly to nearly $US120 a barrel on Monday, have since settled around $US90, suggesting investors are betting on a swift end to the war and reopening of the strait.

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

After offices of a bank in Tehran were hit overnight, Zolfaqari also said Iran would respond with attacks on banks that do business with the United States or Israel.

People across the Middle East should stay 1000 metres from banks, he added.

Iran’s Revolutionary Guards said their forces had fired on two ships in the Gulf that had disobeyed their orders.

One, a Thai-flagged bulk carrier, was set ablaze, forcing the crew to leave, with three people reported missing and believed trapped in the engine room.

Reuters could not verify the second incident described by the Guards involving what they described as a Liberian-flagged ship.

But two other ships, a Japanese-flagged container ship and a Marshall Islands-flagged bulk carrier, were reported to have sustained damage from projectiles.

The strikes raised the number of merchant ships that have been hit since the war began to 14.

A senior Israeli official told Reuters that Israeli leaders now privately accept that Iran’s ruling system could survive the war.

Two other Israeli officials said there was no sign the US was close to ending the campaign.

In the latest public display of defiance, huge crowds of Iranians took to the streets on Wednesday for funerals for top commanders killed in air strikes.

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 air strikes killed his father, mother, wife and a son.

He has not appeared in public or issued any direct message since the war began.

The Iranian military said on Tuesday it had launched missiles at targets including a US base in northern Iraq, the US 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 air strikes that have sent hundreds of thousands of people fleeing to the countryside and contaminated the city with black rain from oil smoke.