Oil price hits 21-year high on Yukos threat

Oil prices hit a 21-year high yesterday raising the prospect of substantially dearer petrol after the Russian oil giant Yukos claimed it had been told to halt production, a statement which caused panic and confusion on the world markets.

Oil prices hit a 21-year high yesterday raising the prospect of substantially dearer petrol after the Russian oil giant Yukos claimed it had been told to halt production, a statement which caused panic and confusion on the world markets.

London Brent crude leapt $1.06 to $39.60 a barrel- its highest level since 1990 - while US light crude rose to $43.05 a barrel, its highest price since 1983.

Traders said they were concerned that Yukos, which supplies 2 per cent of the world's oil (more than Iraq) had entered its death throes as company executives warned they might have to cease production within a couple of days.

Yukos is embroiled in what appears to be a company-breaking row with the Russian government over unpaid taxes, and is expected to be dismembered and sold to Kremlin-friendly companies. Shares plunged more than 22 per cent, forcing a suspension of trading until further notice. They have lost 64 per cent of their value in the last week alone.

Faced with tax bills of more than $7bn - cash which Yukos does not have because its assets and bank accounts are frozen - it is being slowly torn apart by government bailiffs in what is widely regarded as a Kremlin-backed attempt to punish its main shareholder and former chief executive, Mikhail Khodorkovsky, for his unsanctioned forays into politics. Separately he is being tried for fraud and embezzlement to the tune of $1bn.

The markets' nervy reaction was understandable. Yukos pumps one-fifth of the Russia's oil, and Russia is the world's largest oil producer.

Yukos sources told The Independent yesterday that the company had been told by bailiffs to stop selling "material assets" at three of its principal production units, a phrase which appeared to suggest oil. Yukos has written to the authorities to clarify whether the government really wants its biggest private oil firm to stop selling its lifeblood. It said 15,000 jobs would be lost overnight if that was the case and that there would be large-scale social unrest. Until the matter is clarified Yukos said it would carry on pumping and shipping its 1.7 million barrels a day, but the markets appeared not to listen.

Stephen Theede, Yukos' chief executive, said he hoped, optimistically, that the matter was a "misunderstanding." However Russia's Justice Minister, Yuri Chaika, accused Yukos of blackmail and said there would be no problem paying wages.

Doug Godden, head of economic analysis at the Confederation of British Industry, said: "This will be yet another blow for UK businesses who are already facing a cocktail of cost pressures."