Crude oil prices rose to a six-month high on Tuesday, triggered by false reports of an Iranian missile attack on a U.S. ship as well as increasing tensions over Iran's capture of 15 British sailors and marines.

British Prime Minister Tony Blair, seen in London on Tuesday, says Iran must release the British navy crew it seized four days ago.
(Ian Nicholson/Associated Press)

The U.S. military was quick to deny rumours of the attack on one of its ships in the Persian Gulf. Military officials said they checked all their ships and no evidence of any attack was found.

Still, oil prices rose by eight per cent.

Meanwhile, Britain and Iran were battling over the British navy crew seized by Iran on Friday.

Britain and the United States say the sailors and marines were intercepted after they completed a search of a civilian vessel in Iraqi waters near Iran. Iran claims the British crew was in Iranian waters.

Demand crew's release

British Prime Minister Tony Blair demanded the crew's release on Tuesday.

"I hope we manage to get them to realize they have to release them," he said. "If not, this will move into a different phase.

"But at the moment, what we are trying to do is make sure that diplomatic initiative works."

He did not specify what he meant by "a different phase," but officials in his government were quick to clarify he wasn't talking about military action, rather that he is ready to release evidence proving that the crew was seized by the Iranians in Iraqi waters.

Such evidence would show the Iranian ships strayed into Iraqi waters, which could spark a row between the two Middle Eastern countries, a British official said, speaking on condition of anonymity.

British Foreign Secretary Margaret Beckett echoed Blair's demands Tuesday, telephoning Iran's foreign minister to demand the crew's swift release.

Iran would not address Britain's demands publicly. Instead, Mohammed Ali Hosseini, spokesman for Iran's foreign minister, would only say that the captured sailors and marines are being treated well.

He said the only woman in the crew — 28-year-old Faye Turney — is being held separately to ensure her privacy.

U.S. forces flex muscles in Gulf

Iran has said it's questioning the British sailors and marines to determine if their alleged entry into Iranian waters was intentional or unintentional. Once Iran gets answers, it will decide what to do with the crew.

Meanwhile, the U.S. navy instructed its warplanes to run through simulated attacks and manoeuvres off the coast of Iran on Tuesday. It was the United States's largest demonstration of force in the Persian Gulf since the invasion of Iraq in 2003.

U.S. commanders said the exercises were not a direct response to the capture of the British navy crew. They said the demonstration was planned weeks ago.

With files from the Associated Press