Iran warns oil could reach $200 on sanctions

Iran's Foreign Relations Vice Minister Manuchehr Mohammadi told Venezuelan state television, "The first consequence of these sanctions would be an increase in the price of oil to around $200 per barrel."

The statement comes after the United Nations on Monday demanded that Iran suspend all nuclear development within a month or face the threat of sanctions. Iran responded that it had a sovereign right to nuclear development.

"Clearly Iran does not want to have sanctions imposed, so they want to convey the idea that the cost of these sanctions would be incredibly high," said Tim Evans, an Energy Analyst with Citigroup Futures Research.

"While we can't rule out $200 oil, I think we can assign it a rather low probability," he said.

Markets appeared to shrug off the comment, with U.S. crude oil falling $1.01 to $74.80 on signs that Tropical Storm Chris would not become a hurricane.

Tension over Iran's nuclear ambitions, which has rattled oil markets in recent weeks, has been overshadowed by the bloody conflict in Lebanon.

"It serves (Iran's) interests to create this kind of concern in the world community about the price of oil," said Mark Routt, a senior analyst with Energy Security Analysis Inc. "But there are elements to suggest it might not reach that level."

He said high prices have lead to an increase in non-OPEC production and turned once prohibitively expensive projects like Canadian tar sands into profitable ventures.

At the same time, Routt said, product demand has been dampened by alternative fuel products like biodiesel and ethanol.

Venezuelan President Hugo Chavez has backed Iran's nuclear program and developed close ties to the Iranian government. Chavez visited Iran last week as part of a two-week world tour meant to boost global alliances.

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