Oil prices climbed more than $1 to above $73 on Monday after major exporter Iran hinted it might use oil as a weapon in its nuclear dispute with the West.
The country's Supreme Leader Ayatollah Ali Khamenei warned on Sunday that flows from the Gulf, which supplies nearly 20 percent of the world's energy, would be endangered if Washington made a "wrong move" over Iran.
Officials from the world's fourth biggest oil exporter previously have said Iran would not halt crude shipments over its nuclear standoff with the West.
But comments from Khamenei, who has the final say in matters of state, suggested Tehran could disrupt supplies if pushed. "The threat, whilst remote, would be serious in the context of global oil markets operating with little more than 2 million barrels per day of spare capacity," a Citigroup report said.
Tension between Iran and the West over Tehran's nuclear programme has helped drive oil's 20 percent rally this year.
U.S. Secretary of State Condoleezza Rice reacted to Khamenei's comments by counselling a wait-and-see approach.
Washington offered to join European countries in talks with Iran about its atomic work, but said Tehran must first suspend uranium enrichment. Iran so far has rejected the demand, saying enrichment was a national right. EU foreign policy chief Javier Solana was to present the proposals to Iran on Tuesday.
Oil prices were also boosted by production problems at U.S. refineries during the start of peak summer fuel demand.