Oil prices rose Tuesday with the global benchmark crude, Brent soaring above $74 per barrel as the United States revived sanctions against Iran, a major producer, tightening supply to the international market.
A first batch of US sanctions against Iran, which shipped out almost three million barrels per day (bpd) of crude in July, officially came into effect Tuesday.
While Brent crude oil futures were up 75 cents to $74.50 per barrel, the US West Texas Intermediate (WTI) crude futures were up 32 cents at $69.33 per barrel.
The President Donald Trump administration has urged all countries to end imports of Iranian oil by November 4 as part of its new policy of hostility towards Tehran after Washington's unilateral exit from the 2015 nuclear agreement.
President Trump tweeted Tuesday that the sanctions were "the most biting sanctions ever imposed".
He noted that: "Anyone doing business with Iran will NOT be doing business with the United States."
The re-imposed sanctions target Iran's US dollar purchases, metals trading, coal, industrial software and its auto sector.
US sanctions on Iran's energy sector are set to be re-imposed after a 180-day "wind-down period" ending on November 4.
However, many European countries, China and India, oppose the sanctions, but the US government said it wants as many countries as possible to stop buying Iranian oil.
"We are going to work with individual countries on a case-by-case basis, but our goal is to reduce the amount of revenue and hard currency going into Iran," Reuters quoted a senior US administration official as saying on Monday.
The sanctions are already brewing a potential confrontation between the US and Iran as Tehran has threatened to block the Strait of Hormuz, an important sea route through which tankers ship more than 30 per cent of crude oil to the international market, in retaliation to the sanctions.
All the Persian Gulf oil exporters such as Saudi Arabia, Iran, Iraq, Kuwait, Qatar, the UAE, and Bahrain, ship their crude oil to the international market through the Strait of Hormuz.
But the US military has promised to counter any blockade of the Gulf passageway.
Iran's President Hassan Rouhani responded during a rare visit to Europe last month that Tehran could disrupt regional crude shipments and cut its cooperation with the UN nuclear watchdog.
The Guardian of the UK reported that the commander of Iran's elite Revolutionary Guards, whose forces patrol the Strait of Hormuz, had stated that the guards were ready to put Rouhani's words into action if necessary.
However, the US navy promptly signalled it was ready to confront Tehran militarily in response.
The Guards commander, Mohammad Ali Jafari, was quoted by the semi-official Tasnim news agency as saying: "We will make the enemy understand that either everyone can use the Strait of Hormuz or no one."
A spokesman for US Central Command, Bill Urban, said Washington and its allies provided security in the region and would not stand idly by.
"Together, we stand ready to ensure the freedom of navigation and the free flow of commerce wherever international law allows," he said.
Analysts have cautioned that a global heatwave could affect oil demand.
Much of the northern hemisphere has been gripped by extreme heat this summer, pushing up demand for industrial and residential cooling.
This mostly affects demand for power fuels such as thermal coal and natural gas.
But US bank, JPMorgan, said a warmer-than-usual fourth quarter could stem from a potential El Niño weather pattern that "can cause droughts, flooding and other natural disasters across the globe, including heatwaves in the US that affect commodities".