World oil prices could triple if the West's stand-off over Iran's nuclear programme escalates into conflict, the Saudi Arabian government has warned, according to the BBC.
The Saudi Ambassador to the US, Prince Turki Al-Faisal, said such an event could send prices spiralling from their current level of about $70 per barrel.
Iran is the Opec cartel's number two oil producer and analysts fear it could halt exports if the dispute worsened.
Tehran is currently examining proposals aimed at ending the diplomatic impasse.
"The idea of somebody firing a missile at an installation somewhere will shoot up the price of oil astronomically," Prince Turki told a conference hosted by the United States Energy Association.
He warned that any conflict involving Iran would threaten the Strait of Hormuz, through which most Middle East nations export their oil.
Tankers carry 17 million barrels of oil through the channel every day, according to the International Energy Agency.
US President George W. Bush has refused to rule out a military attack should diplomatic efforts to reach an agreement with Iran fail.
The US Energy Secretary, Sam Bodman, has maintained that the country would be in "good shape" if Iran did put a stop on its oil exports, thanks to America's emergency stockpile of almost 700 million barrels of crude oil.
The threat of a cut in Iranian oil exports has been the main factor driving oil prices higher in recent months, with the price fluctuating either side of $70 per barrel.
Meanwhile crude oil futures fell yesterday as traders waited for the release of U.S. oil inventories and developments in the diplomatic standoff over Iran's nuclear ambitions, according to the Associated Press.
Light sweet crude for August delivery fell 18 cents to $69.16 a barrel in electronic trading on the New York Mercantile Exchange. In London, August Brent crude futures on the ICE Futures exchange dipped 17 cents to $67.91 a barrel.
The U.S. Department of Energy's midweek report is likely to show rising gasoline inventories and crude oil stocks flat, analysts predict.
Later Wednesday, President Bush was to meet with senior EU officials to discuss efforts to get Tehran to relinquish its nuclear programme. Traders worry that Iran could disrupt its oil exports if provoked.
"The market is not particularly bullish or bearish; we're now in a static environment," said Victor Shum, a Singapore-based energy analyst with Purvin & Gertz. "So traders will continue to look for direction."
The mood on energy markets has seesawed in recent weeks with traders anxiously watching the verbal sparring between Iran and the West.
Earlier this week, oil prices declined amid conciliatory remarks out of Iran over the weekend that the Western package of incentives meant to persuade the Islamic republic to give up its uranium enrichment programme was "a step forward." But the issue remains tense, with no definite move by Iran to accept the incentives.
On Monday, President Bush had threatened Iran that a rejection of the incentives would result in political and economic sanctions.
In other media reports, Saudi Arabia's ambassador to the United States, Prince Turki Al-Faisal, said Tuesday that world oil prices could triple if the diplomatic standoff over Iran's nuclear programme escalates into a military conflict.
Meanwhile, analysts predict that U.S. gasoline stocks are seen rising for the eighth consecutive week when data was released later Wednesday.
Ten analysts surveyed by Dow Jones Newswires expect gasoline stocks to increase an average of 1.12 million barrels.
Expectations for crude stocks were mixed, with five analysts projecting a build of 400,000 barrels to 1.25 million barrels and the five others forecasting a draw of 500,000 barrels to 1.25 million barrels.
In other Nymex trading, heating oil futures fell marginally to $1.9070 a gallon, while natural gas futures rose 6.8 cents to $6.570 per 1,000 cubic feet. Gasoline futures rose slightly to $2.0125 per gallon.