Iran's foreign ministry warned yesterday that the global price of crude oil would more than double if sanctions were imposed to block oil exports from the country.
Ramin Mehmanparast, spokesperson for the Iranian foreign ministry, told the local newspaper Sharq: "As soon as such an issue is raised seriously the oil price would soar to above $250 (Dh918) a barrel."
But oil analysts told Gulf News last night that Iran's predictions seemed exaggerated.
"In the unlikely situation that oil exports were cut off then I still don't buy [the argument] that oil prices would double," said Robin Mills, an analyst at Manaar Energy Consulting.
Saudis may step in
"Saudi Arabia would step in and increase production to cover for that. In theory, they could make up the entire loss of Iran-ian exports, which practically they wouldn't.
"In the case that Saudi Arabia does not cover for any of the loss and all the Iranian exports are lost, as long as you assume that people don't panic, I estimate oil prices might go up to $150 a barrel."
The West recently renewed its talks of tightening sanctions on Iran following the release of a United Nations report last month which states that there is "credible" evidence of Iran's efforts to build a nuclear bomb.
Tensions with UK
Tensions were also heightened following the recent storming of the UK Embassy in Tehran.
The US Senate voted on Thursday to penalise foreign financial institutions that do business with Iran's central bank.
The European Union is also considering a ban on oil imports from Iran, but is concerned about the implications.
Mills believes that the likelihood of Iran's oil export industry being stopped completely is highly unlikely.
"There will always be a buyer using other financial mechanisms or other methods," Mills told Gulf News.
"The output may be reduced somewhat but not cut off entirely."
Iran is the second-largest oil producer in the Organisation of Petroleum Exporting Countries (Opec) after Saudi Arabia.
The country's oil exports earned it $56 billion in the first seven months of this year, according to the US Energy Department. The top refiners came from China, Japan, India, Italy and South Korea.
The country is also the sixth-biggest source of EU oil imports, accounting for around 5.7 per cent of total imports from outside the EU in 2010.
Many European oil companies purchased Iranian crude oil in 2010, including Shell, BP, Total and Eni.
According to Fitch Ratings, a potential European Union ban on buying Iranian oil would be likely to have a much smaller negative impact on European oil companies than the recent Libyan crisis because exposure to Iran is almost exclusively through refining operations, rather than production.
"Oil production in Iran is dominated by the National Iranian Oil Company and the involvement of European oil companies in upstream activities is negligible," said Simon Kennedy, Director at Fitch Wire.
"Any ban on Iranian oil imports, therefore, wouldn't result in the same loss of cash-flow from production that occurred when facilities were shut down in Libya."