Oil prices have risen to their highest level this year after 15 British navy personnel were seized at gunpoint by Iranian forces in the Gulf.
Iran has warned it will halt oil exports if it is attacked
The incident caused an immediate reaction in the markets, with a barrel of light, sweet crude rising to $62.65 - its highest mark since December.
In London, Brent crude rose to $63.68 a barrel, near a four-month high.
A major oil producer, Iran's volatile relationship with the international community is a worry for investors.
One analyst described Friday's incident as "potentially explosive" as far as oil was concerned.
"This sort of incident, and subsequent mishandling, is just the sort of thing that fuels concerns about a global conflagration over oil," said Fimat analyst John Kilduff.
The long-running dispute over Iran's nuclear ambitions and fears this could lead to a military confrontation with the US helped underpin oil prices for much of last year.
Earlier this month the UN Security Council drafted a new sanctions package against Iran over its refusal to stop enriching uranium, which Iran claims is merely for civilian use.
Tehran, the world's fourth largest oil exporter, has warned that it will halt oil exports if it is attacked.
Oil prices have risen steadily in the past week after fresh cases of violence in Nigeria's main oil producing region and worries about gasoline supplies in the US.
But the Gulf incident, which came after British personnel boarded a vessel they suspected of smuggling during a routine patrol, added fresh momentum to the market.
"This is bound to add some short-term tension to the market," oil analyst Geoff Pyne said.
"But it's a long shot that this will become a serious issue in the long run."
By close of trading, Brent crude was up 67 cents at $63.18 while US light, sweet crude had fallen back slightly to $62.28, still up 59 cents on the day.