Oil Prices Move Higher as Tensions With Iran Mount

Improvements in the U.S. economy and tensions in the Middle East are pushing up global oil prices. Brent crude futures climbed to $110.81 a barrel in London today in mid-afternoon trading, while U.S. light crude traded at $102.02.

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Recent U.S. employment data has been better than expected, suggesting an increased demand for oil, while frictions between the U.K. and Iran over its nuclear program have many worried that access to the world’s fourth-largest oil producer may be restricted. Iran produced 4,245,000 barrels of oil a day in 2010, according to a BP (NYSE:BP) review of world energy.

Iranian diplomats were expelled from their embassy in London on Friday. U.K. Foreign Secretary William Hague ordered them to leave within 48 hours on Wednesday, one day after protesters stormed the British embassy in Tehran following Britain’s decision to impose further sanctions on Iran over its nuclear program.

U.K. Deputy Prime Minister Nick Klegg said: “Something really bad happened when the Iranian authorities allowed those people to overrun our embassy compounds, and it is quite right that we have been very clear in our response — as have many other European countries who have withdrawn their ambassadors for consultations.”

The foreign secretary said there had been “some degree of regime consent” in the attacks on the embassy. He also said that all U.K. diplomatic staff in Tehran had been evacuated and the embassy closed. However, Hague said the U.K. is not severing relations with Iran entirely.

Germany, France, and the Netherlands announced on Wednesday that they were recalling their ambassadors to Tehran for consultation. Norway said it would temporarily close its embassy there as a precaution.

Last week, the U.S. Senate voted to penalize financial institutions doing business with Iran’s central bank, also because of concern over the country’s nuclear program. And on Sunday, Iran’s official Irna news agency reported that Iran had shot down an unmanned U.S. drone aircraft.

The European Union is reportedly considering a ban on Iranian oil exports, which would disrupt the region’s oil supply. “The risk of disruptions to oil supplies remains high,” said Christophe Barret, global oil analyst at Credit Agricole CIB.

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The cost of WTI crude in the U.S. has increase by 35% since October 4, narrowing the gap with Brent crude, which has risen by 11%.