The oil price soared to a nine-month high yesterday, threatening to derail the efforts of Europe's weakest nations to pull themselves out of the economic mire and stoking inflation fears at home.
Sabre-rattling by Iran, which banned oil exports to Britain and France over the weekend, and further efforts by Beijing to boost Chinese growth pushed Brent crude up as far as $121.15 in early trade, the highest since last May.
Iran, facing international sanctions over its nuclear programme, is the world's second-biggest exporter of crude oil. Its action against Britain and France is largely symbolic because Britain buys virtually no oil from Iran and France's imports are minimal.
But analysts warned the impact could be far greater if Iran chose to extend its ban on crude exports to Italy, Spain and Greece when European Union sanctions kick in on 1 July.
Greece imports nearly a third of its oil from Iran while around one in eight of every barrel of crude imported by Italy and Spain comes from the Persian state.
David Morrison, a senior markets strategist at GFT, said oil could rise to $127 a barrel after breaching $120.