LONDON - Oil prices rose more than 3 percent on Wednesday to 3-1/2 year highs, after U.S. President Trump abandoned a nuclear deal with Iran and announced the "highest level" of sanctions against the OPEC member.
Ignoring pleas by allies, Trump on Tuesday pulled out of an international deal with Iran that was agreed in 2015, a move that raises the risk of conflict in the Middle East and casts uncertainty over oil supplies in an already tight market.
Brent crude oil touched its highest since November 2014 at $77.20 a barrel. The benchmark contract was up $1.90 a barrel, or more than 2.5 percent, at $76.75 by 1335 GMT.
U.S. light crude was up $1.70 a barrel, or almost 2.5 percent, at $70.76, near highs also last seen in late 2014.
In China, the biggest single buyer of Iranian oil, Shanghai crude futures hit their strongest in dollar terms since they were launched.
"Iran's exports of oil to Asia and Europe will almost certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite," said Sukrit Vijayakar, director of energy consultancy Trifecta.
Iran re-emerged as a major oil exporter in 2016 after international sanctions against it were lifted in return for curbs on its nuclear programme, with its April exports standing above 2.6 million barrels per day (bpd).
That made Iran the third-biggest exporter of crude within the Organization of the Petroleum Exporting Countries, behind Saudi Arabia and Iraq.
Walking away from the deal means the United States will likely re-impose sanctions against Iran after 180 days, unless some other agreement is reached before then.
Analysts' estimates of the possible reduction in Iranian crude supplies as a result of any new U.S. sanctions range from as little as 200,000 bpd to as much as 1 million bpd, with most impact from 2019 as sanctions take time to be imposed.
Several refiners in Asia said on Wednesday they were seeking alternatives to Iranian supplies.
A number of countries have already cut reliance on Iranian oil, as well as other "traditional" sources of supply, due to surge in cheaper U.S. crude exports.
All key crude oil futures contracts saw traded volumes jump as investors took new positions and refiners hedged to protect themselves from higher feedstock prices.
Saudi Arabia said it would work with other producers to lessen the impact of any shortage in oil supplies. The country has been leading efforts since 2017 to withhold production to prop up prices.