Iran crisis spooks oil market

Oil prices rose sharply, stocks fell and the yen rallied yesterday as escalating tensions with Iran sparked a fresh wave of risk-aversion.

Investor unease grew after Federal Reserve Chairman Ben Bernanke told Congress that US economic uncertainties had increased but inflation remained a concern.

On Tuesday, a false rumour of a clash between Iran and the US Navy jolted oil prices up $5 to a six-month high above $68.

Washington dismissed talk of a skirmish and prices eased, but lingering fears, tied partly to the standoff over Iran's detention of British Royal Navy personnel, pushed prices back near $65 a barrel.

Britain denied another market rumour yesterday that it had sent troops to free its personnel. "Although it didn't happen this time, people think it could happen," said Christopher Bellew at oil brokers Bache Financial.

US light sweet crude oil rose 2.19 per cent to $64.31 per barrel.

Dependence

Iran's heavy dependence on imported crude oil products is "a vulnerability," a top-ranking US Energy Department official said yesterday.

"There are no free moves for Iran - everything has a consequence," U.S. Deputy Energy Secretary Clay Sell said. "Their dependence on imported products is a vulnerability."

Iran and the West are engaged in a diplomatic dispute over Iran's nuclear programme.

Spot gold, often viewed as a hedge against inflation in times of rising energy costs, climbed to a four-week high of $669.50 an ounce.

US stocks followed European and Asian shares lower, and the selling increased after Bernanke said uncertainty had grown.

But US Treasury debt prices pared gains when Bernanke told Congress that persistent inflation remains a top policy concern.

"Bernanke's comments were a bit of a mixed bag. On one hand, he said their primary concern remains the fight against inflation, but on the other, he is expressing worries with the economic outlook," said Omer Esiner, market analyst at Ruesch International in Washington.

Unease across markets about Iran and the health of the US economy prompted investors to ditch risky carry trades. The strategy, a favourite of hedge funds, involves borrowing cheap yen and using it to finance purchases of assets with higher yield - and often higher risk.

Dollar

As a result, the dollar tumbled more than 1 per cent to 116.39 yen before edging back to 116.62 yen.

In recent weeks, the yen's performance has been closely correlated with global stock moves.

The Dow Jones industrial average was down 106.79 points, or 0.86 per cent, at 12,290.50. The Standard & Poor's 500 Index was down 10.78 points, or 0.75 per cent, at 1,417.83. The Nasdaq was down 18.76 points, or 0.77 per cent, at 2,418.67.

In Europe, the FTSEuro-first 300 index of top European shares fell 0.8 per cent at 1,496.83.

Asian shares fell on a combination of Iran jitters and worries that a weak US consumer confidence report could mean flagging demand in the world's biggest economy.

source:www.gulfnews.com