Moves by Iran to stop sending oil to the UK and France have pushed the price of crude to a nine month high, meaning more bad news is potentially on its way for motorists.
Benchmark oil for March delivery was up more than 1.5% to 104.92 US dollars per barrel on the New York Mercantile Exchange, its highest since May.
This helped the FTSE 100 Index to rise 0.6% in early trading, with oil giant BP among the biggest risers, up nearly 2%. Its shares pushed above 500p at points today, their highest level for a year.
But the escalation in oil prices spells more bad news for motorists, already struggling with record diesel prices of 143.05p per litre.
Oil prices have also risen because of hopes that demand will improve as the world economy recovers.
The EU imposed tough sanctions against Iran last month, which included a freeze of the country's central bank assets and an oil embargo, which is set to begin in July. The 27 nations in the EU account for about 18% of Iran's oil exports.
Iran has denied that it is trying to develop nuclear weapons and has instead claimed its nuclear programme is only to generate power.
Ali Reza Nikzad-Rahbar, a spokesman for Iran's oil ministry, said on the ministry's website yesterday that crude oil exports to British and French companies have been halted.
He said: "We have our own customers and have no problem to sell and export our crude oil to new customers."
There are also reports that the National Iranian Oil Company has sent letters to refineries in other EU countries with an ultimatum to either sign long-term contracts of between two and five years or be cut off.
The price of Brent crude oil was also up to a nine month high of 121 US dollars per barrel on 20 February.
Motorists in the UK are already struggling to pay high petrol prices.
The AA said last week that diesel climbed past its previous high reached last May, meaning that the cost of filling up a commercial van with an 80-litre fuel tank has risen from £90.90 in February 2010 to £114.44.
The cost of petrol is also on the rise, having reached £135.39 per litre, up from £132.25 at the beginning of January. However, it is currently still below the record of £137.43 it set in May last year.
Further rises in prices at the pumps would deal a blow to hopes that inflation will continue to fall in 2012, easing the pressure on households whose pay is failing to keep up with the cost of living.Suggest a correction