By Parisa Hafezi, Alexander Cornwell and Bo Erickson
DUBAI/TEL AVIV/WASHINGTON, March 11 (Reuters) - Iran said the world should be ready for oil at $200 a barrel as its forces hit merchant ships on Wednesday and the International Energy Agency recommended a massive release of strategic reserves to dampen one of the worst oil shocks since the 1970s.
The war unleashed with joint U.S. and Israeli airstrikes nearly two weeks ago has so far killed around 2,000 people, mostly Iranians and Lebanese, as it has spread into Lebanon and thrown global energy markets and transport into chaos.
Despite what the Pentagon has described as the most intense airstrikes since the start of the war, Iran also fired at Israel and targets across the Middle East on Wednesday, demonstrating it can still fight back.
On Wednesday, three vessels were reported to have been hit in Gulf waters as Iran's Revolutionary Guards said their forces had fired on ships in the Gulf that had disobeyed their orders.
U.S. President Donald Trump, who has not committed to a timeline for military operations, suggested on Wednesday he was not yet ready to call an end to the war.
At a rally in Kentucky, he said "we won" the war, but the United States didn't want to have to go back every two years.
"We don't want to leave early, do we?" he said. "We got to finish the job."
Trump said U.S. forces had knocked out 58 Iranian naval ships and that oil prices would come down and told reporters in Washington that Iran was "pretty much at the end of the line."
"Doesn't mean we're going to end it immediately, but ... They've got no navy, they've got no air force, they've got no anti-air traffic anything. They have no systems of control. We're just riding free range over that country," he said.
STRATEGIC STRAIT
Trump said the U.S. would now "look very strongly" at the Strait of Hormuz, adding: "The straits are in great shape. We've knocked out all of their boats. They have some missiles, but not very many."
Despite Trump's words, there has been no sign that ships can safely sail through the strait, a now-blockaded channel along the Iranian coast that serves as a conduit for around a fifth of the world's oil. An Iranian military spokesperson said the strait was "undoubtedly" under Iran's control.
Trump said ships "should" transit through the strait but sources said Iran had deployed about a dozen mines in the channel, further complicating the blockade.
On Wednesday, the G7 group of nations - the United States, Canada, Japan, Italy, Britain, Germany and France - agreed to examine the option of providing escort for ships so they can navigate freely in the Gulf.
ABC News said the Federal Bureau of Investigation had warned of Iranian drones potentially striking the U.S. West Coast, although Trump said he was not worried that Iran might launch strikes on U.S. soil.
The State Department also warned that Iran and aligned militias may be planning to target U.S.-owned oil and energy infrastructure in Iraq and warned that militias had previously targeted hotels frequented by Americans.
U.S. and Israeli officials have said their aim is to end Iran's ability to use force beyond its borders and destroy its nuclear programme.Oil prices, which shot up earlier in the week to nearly $120 a barrel before settling back to around $90, rose nearly 5% on Wednesday amid renewed fears about supply disruption, while Wall Street's main share indexes fell.
Advertisement
The war has seen ports and cities in the Gulf states, as well as targets in Israel, hit by Iranian drone and missile barrages.
'LEGITIMATE TARGETS'
The U.S. military told Iranians to stay clear of ports with navy facilities, drawing a warning from Iran's military that if the ports were threatened, economic and trade centres in the region would be "legitimate targets".
With prices at the pumps already surging and Trump's Republican Party trailing badly in the polls ahead of midterm elections in November, oil prices have become an increasingly urgent element in the calculations behind the war.
The International Energy Agency, made up of major oil consuming nations, recommended releasing 400 million barrels from global strategic reserves to stabilise prices, the biggest such intervention in history, which was swiftly endorsed by Washington.
Trump said the IEA decision would "substantially reduce oil prices as we end this threat to America and the world."
U.S. Energy Secretary Chris Wright said Trump had authorized the release of 172 million barrels from the U.S. Strategic Petroleum Reserve from next week.
The rate at which countries can release strategic reserves will vary and the amount released would account for just a fraction of the supply through the Hormuz Strait.
Iranian officials made clear on Wednesday they intended to impose a prolonged economic shock.
"Get ready for oil to be $200 a barrel, because the oil price depends on regional security, which you have destabilised," Ebrahim Zolfaqari, spokesperson for Iran's military command, said in comments addressed to Washington.
After offices of a bank in Tehran were hit overnight, Zolfaqari said Iran would respond with attacks on banks that do business with the U.S. or Israel. People across the Middle East should stay 1,000 metres from banks, he added.
At sea, a Thai-flagged bulk carrier was set ablaze, forcing the evacuation of crew, with three people reported missing and believed trapped in the engine room.
Two other ships, a Japanese-flagged container ship and a Marshall Islands-flagged bulk carrier, were also reported to have sustained damage from projectiles, bringing the number of merchant ships that have been hit since the war began to 14.
IRANIAN OFFICIAL SAYS MOJTABA KHAMENEI LIGHTLY WOUNDED
In Iran, huge crowds took to the streets for funerals for top commanders killed in airstrikes. They carried caskets and brandished flags and portraits of slain Supreme Leader Ayatollah Ali Khamenei and his son and successor, Mojtaba.
An Iranian official told Reuters Mojtaba Khamenei had been lightly wounded early in the war, when airstrikes killed his father, mother, wife and a son. He has not appeared in public or issued any direct message since the war began.
Despite Trump's calls for Iranians to rise up, U.S. and Israeli hopes that Iran's system of clerical rule would be overthrown by popular protest have not been borne out.
Iran's police chief, Ahmadreza Radan, said on Wednesday anyone taking to the streets would be treated "as an enemy, not a protester. All our security forces have their fingers on the trigger".
(Reporting by Parisa Hafezi in Dubai, Alexander Cornwell in Tel Aviv and Bo Erickson in HEBRON, Kentucky, and Reuters bureaux; Writing by Peter Graff, James Mackenzie and David Brunnstrom; Editing by Sharon Singleton, Alex Richardson, Gareth Jones, Deepa Babington and Michael Perry)
