Oil prices have soared to their highest level since Iraq's invasion of Kuwait 12 years ago.
War or no war, the oil market is tight
Prices have been pushed up by severe winter weather and a shortage of heating oil in the US, as well as the prospect of war in the Gulf.
The price of US light crude jumped by more than $2 a barrel to $39.99 in late morning trade in New York.
But it fell back on profit taking to close at $37.20 a barrel - $0.50 down on the day.
In London, the price of Brent crude set a two-year high of $33.80 a barrel before ending at $33.04 a barrel, down $0.03 on Wednesday's close.
"It's all down to a shortage of heating oil and natural gas in the United States, backed up by the prospect of war," said Christopher Bellew of brokers Prudential Bache in London.
"All the pressure on oil prices is still on the upside,"
Geoff Pyne, a consultant for Sempra Energy, said: "Stocks are low, winter demand is high and war is looming. It would take a very brave trader to sell oil at the moment."
But Fadel Gheit, senior energy analyst at Fahnestock and Co, doubted the potential for oil prices to skyrocket.
"The global economy is weak, industrial production is very weak," Mr Gheit said.
"The only thing keeping prices higher in my view primarily is the tension regarding a war."
After Iraq invaded Kuwait in 1990, US crude peaked at $41.15 a barrel.
US Energy Secretary Spencer Abraham said on Tuesday that he would release crude oil from the 600-million-barrel national reserve if supplies suffered a heavy cut due to war.
The US's emergency reserve was last used in September 2000, when low stockpiles boosted prices to $37.80 a barrel.
Reserve oil was also released during the Gulf War.
The oil producers' cartel Opec tried to calm fears that prices might be sent spiralling if the US went ahead with military intervention in Iraq.
"We won't use oil as a weapon," said Opec's secretary general, Alvaro Silva Calderon.
"We manage oil in the economic field, as an economic fact, not as a weapon of war."
He made his comments the day after Malaysian Prime Minister Mahathir Mohamad called on Muslim states to consider using oil prices as a weapon to force the US to seek a peaceful resolution to the Iraq crisis.