Afternoon:
10°c
Shares fall in oil alert
Simon English, City Correspondent11 Jul 2008
Share prices fell to a three-year low this afternoon as the oil price soared to a record high.
The FTSE-100 tumbled more than 100 points at one stage as tensions in the Middle East sparked frenzy in the oil markets.
Although it rallied slightly it was still 55.2 points down at 5351.6 - the lowest since October 2005. The figure left the Footsie in clear "bear market" territory.
The slump - echoed on Wall Street - sparked fresh panic about the depth of the global economic slump.
Oil prices were sent soaring when a report in the Middle East claimed Israeli fighters were training in Iraq - immediately creating tensions with Iran.
A denial of the claims, which surfaced in Iraqi media and were repeated in Iran, did nothing to calm the frenzy, which saw oil rise to $147.27 a barrel in London - an all-time high that is putting severe pressure on industry and consumers.
Ten years ago, oil cost just $11 a barrel. Oil companies BP and Royal Dutch Shell were among the few to see their shares rise.
Shares in Kingfisher - the owner of B&Q - and Marks & Spencer were hit again as investors took fright.
In New York, the Dow Jones opened another 127.1 points down at 11,101.9. There is a growing expectation that America's two biggest mortgage companies will need a Northern Rock style government bail-out.
Freddie Mac and Fannie Mae underpin US home-ownership by guaranteeing tens of millions of mortgages, but their finances have been ravaged by the credit crunch. Other Wall Street banks are also rumoured to be in trouble.
Iran, led by President Mahmoud Ahmadinejad, has been testing missiles and making it plain it would respond aggressively to any attack on its nuclear facilities.
Their rocket tests had sparked rising oil costs but the report of Israeli fighters in Iraqi airspace and possibly landing US air force bases in the country sent shockwaves through the markets.
Speculation that Israel, supported by America, is working on an attack on Iran's nuclear facilities has mounted in the Middle East.
More than 100 Israeli F15 and F16 fighter bombers took part in a massive exercise over the Mediterranean which was seen as a dry run for an attack.
Late this afternoon, Iraq said it had no knowledge of any air force drills in its airspace by Israel, and the Israelis said the report was "wrong". The denial did little to calm volatile markets across the globe.
The Organisation of Petroleum Exporting Countries stepped in to warn that oil prices would see an " unlimited" increase in the case of war with Iran - the second biggest producer after Saudi Arabia.
