Prices could go much higher if President Donald Trump continues to pressurise Iran, with Brent crude currently trading at $70 per barrel. In early 2016, the commodity fell to less than $30 per barrel after trading at more than $100 in 2014.
However, last week there was the biggest one-day drop in two years, with Brent crude dropping by seven per cent over concerns that US-China trade tensions may affect oil demand.
Ann-Louise Hittle, vice-president of consultancy group Wood Mackenzie, told The Times it was “a real change to see it that volatile again” and said that the volatility was likely to continue.
Mr Trump unilaterally withdrew from the Iran nuclear deal in May and reimposed sanctions on the country, which exports more than two million barrels of oil per day.
The President cited Iran’s ballistic missile programme among other reasons for his decision.
Oil markets have been volatile ever since, while the US has promised to sanction any EU country that continues to trade with Iran.
On Monday, the US rejected pleas from the EU to grant exemptions to European firms from sanctions on Iran, that will begin to be reinstated next month.
In a letter, Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin wrote that they wanted to exert “unprecedented” pressure on Tehran.
However, Mr Mnuchin has said some oil buyers could get waivers that would allow them to continue buying Iranian oil, despite US sanctions.
He said: “We want people to reduce oil purchases to zero, but in certain cases if people can’t do that overnight, we’ll consider exceptions.”
Mr Mnuchin added that the Trump administration wants to avoid unsettling global oil markets, as it attempts to pressurise Iran to make concession on its nuclear programme, ballistic missile tests and its ongoing proxy wars in the Middle East.
Iran is the third largest exporter of Brent crude within the Organisation of the Petroleum Exporting Countries (OPEC), behind Saudi Arabia and Iraq.