Oil prices jumped more than $3 per barrel to a new record of above $143 after Iran threatened to block shipping in the Persian Gulf if Israel were to attack it.

The price in London Brent Crude as well as US light crude also rose on a falling US dollar to three week lows against the euro.

US light crude was up $3.33 at $143.54 a barrel by 10.40am, after a record high of $143.67 a barrel. London Brent crude was up $3.50 to $143.81.

Iran has stated it would impose controls on shipping in the Persian Gulf and Strait of Hormuz if Israel were to launch an attack over the country's nuclear programme as feared.

Roughly 40 per cent of the world’s traded oil travels through the Strait of Hormuz, a narrow waterway separating Iran from the Arabian Peninsula.

Oil prices have jumped more than 40 per cent this year on fears that ever tightening supply will fail to keep pace with burgeoning demand from China and India.

Analysts at Goldman Sachs have predicted the price will reach $150 a barrel this summer while in Russia, Gazprom has predicted the price will reach as high as $250 a barrel.

There is fierce controversy between those who say the price is simply a speculative bubble and those who believe there is a real shortage of supply as easily available fields run dry but demand fails to fall.

Tony Hayward, BP chief executive, told delegates at the World Petroleum Congress in Madrid this morning that the failure of supply to match rising demand was the real cause of the surging oil price. “This is a fundamental thing. It’s not about speculation,” he said, adding that it was a “myth” that speculators were to blame. “Investors is a better word than speculators. They are investing in the oil market because they believe prices will go up.”

Jeroen van der Veer, head of British-Dutch oil group Shell, also said blaming speculators was wrong.

Most of the world's reserves are held by politically unstable countries.

A succession of militant attacks on Nigeria’s oil facilities have shut a fifth of the country’s output since early 2006. This has also helped drive prices higher, as has a flood of cash from investors moving away from sagging global equity markets into commodities. Investors also want to hedge against inflation and the weak dollar by investing in oil.

The soaring oil price has been weighing on the world's economies, driving inflation at a time when economic growth appears to be stagnating.

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