Oil prices hit a three-week high today after Tehran said it downed a US drone, stoking fears of war in the region.
Iran claimed it downed the drone over its southern territory. However, a US official told Reuters it had lost its drone in international airspace over the Strait of Hormuz.
Read more: Iran downs US drone
The vital strait has become the site of increasing tensions between Iran and US allies in recent weeks.
Saudi and US fingers pointed squarely at Iran after explosions hit two tankers last week.
A barrel of Brent traded at $63.32 around 11am, up 2.4 per cent, after earlier highs of $63.88.
“This will only stoke tensions in the region and produce short-term support for oil prices. We await to see whether this escalates further – the response from the White House will be important,” said Neil Wilson, the chief market analyst at Markets.com.
Fears over a possible war in the Middle East have grown in recent weeks as Saudi Arabia and Iran vie for supremacy in the region.
Already prickly relationships worsened last year when US President Donald Trump decided to rip up a 2015 agreement with Iran.
The agreement, which was signed by his predecessor, Barack Obama, had committed Iran to restricting its nuclear programme.
Tensions in the region have put upwards pressure on global oil prices. Around a fifth of global oil demand flows through the 21-mile wide Strait of Hormuz.
The drone attack was the first Iran has claimed responsibility for. It has denied involvement in attacks on several tankers in the Gulf of Oman over the past two months.
But concerns over US-China trade, and its effect on the global economy, have pulled oil lower. Brent was trading as high as $75 per barrel in April.