THREATS of sabotage brought Iraqi oil production to a halt yesterday and caused the oil price to race to new records in London and New York.

Soaring prices plunged the world’s aviation industry into yet another crisis just as airlines showed signs of recovering from the Iraq war and the outbreak of the Sars virus.

British Airways and Virgin Atlantic doubled their long-haul ticket surcharges to offset rising costs. BA, whose shares fell to a nine-month low, also admitted that the rising price of jet fuel would help to erase profits from its European business.

Delta Airlines, America’s third-largest carrier, gave warning that it could be forced to file for Chapter 11 bankruptcy without relief from the steep rise in fuel costs.

The US airline industry suffered further uncertainty when United Airlines said it needed more time to emerge from bankruptcy protection.

Airlines including Hong Kong’s Cathay Pacific, which reports its interim results tomorrow, are also under pressure to raise their prices amid predictions that oil prices will continue to soar.

Crude oil brushed close to $45 per barrel in New York, prompting some analysts to speculate that oil could reach $100 in the event of multiple failures in the supply chain. The fear of disruption was heightened by news of further setbacks to Yukos, the Russian oil company. In London the Brent futures contract gained $1 to $41.65 per barrel.

The shutdown by Iraq’s Southern Oil Company followed a threat by Moqtada al-Sadr, a Shiite cleric whose followers took to the streets in Basra yesterday and threatened to attack oil facilities. “We have stopped pumping oil for security reasons,” an Iraqi official said.

The first complete shutdown since the handover of Iraq by the coalition could remove about 1.7 million barrels per day of Iraqi oil from the market. Iraq’s northern supply route has operated only sporadically since the war and exports of crude from the Gulf terminals near Basra remain Iraq’s only outlet. Storage tanks at Basra hold about two days’ supply.

A lengthy shutdown of Iraqi exports could have severe consequences to an oil supply system with almost no spare capacity, reckons Adam Sieminski, an analyst at Deutsche Bank.

“With Opec now producing at over 95 per cent of its current capacity, a loss of 1-2 million barrels per day could, in theory, result in a doubling of the current oil price,” he said.

A second disruption, such as loss of exports from Russia, Nigeria or Venezuela, could push prices towards $100 per barrel, he suggested. “This is not a forecast. Nevertheless, markets are spooked and the global supply-demand balance looks precipitous.”

Further trouble for Yukos emerged yesterday as a Russian court threw out the company’s challenge to a bailiff’s seizure of Tomskneftegaz, a Yukos production subsidiary.