Iran threatens 'devastating' response if attacked by Israel
Iran: Israel drill shows it is a danger to world peace; Israeli official tells U.K. paper drill was warning to Iran.
Iran's defense minister on Sunday warned of a "devastating" response to any Israeli attack on the country.
Mostafa Mohammad Najjar told Iranian state television Sunday that Tehran would strongly counter any hostile action with a destructive response, considering all options regardless of time and place.
The New York Times quoted U.S. military officials on Friday as saying that Israel had recently carried out large-scale military exercises over the Mediterranean, apparently aimed at warning Iran of its capabilities to attack Tehran's nuclear sites.
The New York Times on Friday cited unidentified American officials as saying that more than 100 Israeli F-16 and F-15 fighter jets took part in the maneuvers over the eastern Mediterranean and Greece during the first week of June.
Najjar called the exercise an operation of "psychological warfare", and said Iran would not initiate any tension or conflict.
Iran would resort to "all means available" if it was attacked, Najjar said. adding that "Iran will come up with a devastating ... response without any time limit to any hostile measure against our country."
The Iranian government on Saturday criticized the Israeli military exercises, saying it demonstrated how Israel poses a threat to global peace and security, the official Iranian news agency IRNA reported.
Also Saturday, an Israeli political official told the London-based Times that the Iranians should view the exercise as a warning.
"Read the writing on the wall" the official urged Iran. "This was a dress rehearsal, and the Iranians should read the script before they continue with their program for nuclear weapons. If diplomacy does not yield results, Israel will take military steps to halt Tehran's production of bomb-grade uranium."
Prime Minister Ehud Olmert's office declined to comment on the reported exercise, but a senior lawmaker in Olmert's Kadima Party said Saturday that diplomatic efforts to curb Iran's nuclear program have failed and that the next 1-2 years would be critical.
Tzachi Hanegbi, who heads the Knesset Foreign Affairs and Defense Committee, told Israel Radio that the world had to decide how to proceed.
An Israeli military spokesman said of the report: "The Israeli Air Force regularly trains for various missions in order to confront and meet the challenges posed by the threats facing Israel."
Meanwhile, in remarks aired Friday, the head of the United Nations nuclear watchdog said that he would resign if a military attack was launched against Iran, warning that any such attack would turn the region into a "fireball."
International Atomic Energy Agency Director General Mohammed ElBaradei told Al Arabiya television that "I don't believe that what I see in Iran today is a current, grave and urgent danger. If a military strike is carried out against Iran at this time ... it would make me unable to continue my work."
"A military strike, in my opinion, would be worse than anything possible. It would turn the region into a fireball," he said, emphasizing that any attack would only make the Islamic Republic more determined to obtain nuclear power.
"If you do a military strike, it will mean that Iran, if it is not already making nuclear weapons, will launch a crash course to build nuclear weapons with the blessing of all Iranians, even those in the West."
Earlier Friday, Oil prices jumped more than $3 on Friday on reports of rising tensions between Israel and Iran.
A hardline Iranian cleric said Friday that Israel and its U.S. ally would receive a "slap in the face" if they speak of using force against the Islamic Republic, a member of the Organization of Petroleum Exporting Countries (OPEC).
Energy experts are concerned any conflict in Iran could lead to a shutdown of the Strait of Hormuz, a waterway separating Iran from the Arabian Peninsula, through which roughly 40 percent of the world's traded oil is shipped.
Friday's spike was not the first caused by tensions between Israel and Iran. Oil prices soared $11 on June 6, after former Israel Defense Forces Chief of Staff and Transportation Minister Shaul Mofaz said in a newspaper interview that "if Iran continues with its program for developing nuclear weapons, we will attack it. The sanctions are ineffective. Attacking Iran, in order to stop its nuclear plans, will be unavoidable."
Adding to oil's gains Friday, Royal Dutch Shell shut 220,000 barrels of daily production in Nigeria after militants in speedboats attacked the Bonga offshore oil facility.
Shell said it was too soon to say how long output at the deepwater installation would be shut. Nigeria, another OPEC member, is already producing about 20 percent below potential due to sabotage by militants in the Niger Delta oil hub.
The gains marked a reversal from heavy losses Thursday that had been triggered by news China was raising domestic fuel prices -- a move that could slow demand growth in the world's second largest energy consumer -- and expectations Saudi Arabia was planning a 6 percent output hike.
"The petroleum markets rebounded ... on worries that Israeli military exercises held in the first week of June might have been preparation for a strike against Iranian nuclear facilities," said Tim Evans, energy analyst for Citi Futures Perspective in New York.
U.S. July crude, which was expiring on Friday, rose $3.12 to $135.05 a barrel by the evening, off highs of $136.80. London Brent was up $3.06 at $135.06.
China move to backfire
Oil prices had plunged nearly $5 in the previous session after China raised fuel prices by up to 18 percent, its first hike in eight months, as the government bowed to a nearly $40 increase in crude prices since the last hike in November.
Initial forecasts suggested the move by China would hurt demand, but some analysts now say consumption could rise as the price increase will encourage healthier supply at the pumps.
Chinese fuel retailers have had to deal with long queues of customers and rationing as refiners cut back on production to limit hefty losses made by selling discounted fuel.
"We do not think that a country where consumers are used to waiting 3 hours for automotive fuel in many cases will see significant negative demand elasticity from a simple 20 percent price increase," said Citi analyst James Neale.
Demand for oil by China, India and the Middle East has been cited as a factor behind crude's almost sevenfold surge from $20 six years ago to a record high of nearly $140 a barrel.
Oil's rally on Friday also came despite assurances from Saudi Arabia that it was raising its production after months of pressure from consumer nations calling for more supply.
Saudi Oil Minister Ali al-Naimi confirmed on Friday the kingdom will be pumping 9.7 million barrels per day of crude in July, an increase of 550,000 barrels per day since May.
Oil traders said Friday's strength was also supported by a weaker dollar, which improves the purchasing power of buyers using other currencies and encourages investors to ply money into commodities as a hedge against inflation.