Oil hit a record $72.20 a barrel, yesterday, as Iran defied world pressure to halt its nuclear programme, raising new fears of a cut in supplies from the world's fourth-largest crude exporter.
In London, North Sea Brent crude oil jumped 74 cents to set the new all-time high as Iran and the West exchanged increasingly sharp words over the Islamic Republic's determination to push ahead with a nuclear programme.
US West Texas Intermediate crude oil hit a record $70.88, smashing through its end-August high of $70.85.
"The Iranian situation is making us all very nervous... We don't seem to be getting anywhere on the diplomatic solutions," said Deborah White, an analyst at SGCIB in Paris.
With almost a quarter of Nigerian oil production still shut after rebel attacks two months ago, oil consumers feel almost as vulnerable as they did during the Arab oil embargo in the 1970s.
Oil prices have soared from $20 at the start of 2002 and are now nearing the inflation-adjusted peaks of over $80 hit in 1980, the year after the Iranian revolution.
Initially fired by strong demand from the United States and the fast-growing economies of China and India, the rise has accelerated over the past year on worries over supplies.
Iraq's once significant oil industry is in crisis, Nigerian exports have been slashed by rebel attacks on the world's eighth biggest exporter and consumers are worried that Iran's exports could fall victim to its nuclear dispute with the West.
The rally has also been aided by big investment funds putting their money into commodities in the hope of higher returns than they get from equities or bonds.
President Mahmoud Ahmadinejad declared Iran a nuclear power last week, saying it had enriched uranium to the level used in power stations. Yesterday, he delivered a warning to any nation considering attacking the Islamic republic.
"The Iranian situation is making us all very nervous... We don't seem to be getting anywhere on the diplomatic solutions."
"Today, Iran's army is one of the most powerful armies in the world and it will powerfully defend the country's political borders and the nation," Mr Ahmadinejad said in a speech during an armed forces parade.
"It will cut off the hands of any aggressors and will make any aggressor regret it," he added.
The US has said it wants a diplomatic solution to the stand-off but has not ruled out a military option.
The disruption to Nigeria's crude output will become more critical as the US driving season begins next month. Analysts reckon gasoline stocks in the world's top oil user fell again last week.