Oil prices jumped sharply higher yesterday amid increased concerns that the US will take action against Iraq and petrol prices will rise.

By lunchtime Brent crude was at $28.37 a barrel, up from $27.58 on its open and touching highs not seen since the aftermath of September 11.

The hike had a knock-on impact on shares in oil giants BP and Shell, which both jumped sharply in trading.

The rise follows yesterday's comments by US Vice President Dick Cheney, who issued the strongest signal yet that the US is determined to topple Saddam Hussein.

Mr Cheney warned of grave consequences resulting from not acting quickly against Saddam.

Threat to supply

The remarks raised expectations that the US will take action against Iraq and had an immediate impact on the oil price, which generally rallies when there is a perceived threat to supply.

Kamal Sharma, a strategist at Commerzbank, said: "It is all about supply. Threats to supply tend to be positive for the oil price."

Analysts say there is now a "war premium" of around five to six dollars added into the oil price and, if it rises higher, there are fears for economic growth as well as petrol pump prices.

"In an economic environment where a recovery is far from assured, you would expect the price to be five to six dollars lower than this," said Alex Scott, analyst at Seven Investment Management.

Price worries

The rise will cause renewed worries about higher petrol prices, and analysts said that if the price remains high, motorists could be hit with higher fuel prices.

In addition to the war threat pushing the oil price higher, traders were also looking ahead to September's meeting of the Organisation of the Petroleum Exporting Countries (Opec).

There is uncertainty over whether Opec will increase output at the meeting on Thursday, September 19, to lower the oil price, or leave output unchanged.

Petrol companies said yesterday's rise in the price of crude oil was unlikely to have an immediate impact on motorists.