Oil prices have surged to a nine-month high after turmoil in Iraq threatened the outlook for production.
The spike comes after al Qaida-linked insurgents captured key cities including Mosul - in a region that is considered a gateway for the nation’s crude - and vowed to advance on Baghdad.
Iraq is the second largest producer in the Organisation of the Petroleum Exporting Countries (OPEC). Production has increased by a fifth since 2011 to reach 3.3 million barrels per day.
Brent crude rose to 113.62 US dollars (£66.95), a level not seen since last autumn when unrest in Egypt sparked fears that major supply routes could be choked.
The violence in Iraq has prompted the US to weigh up short-term military options, including air strikes,though officials have ruled out putting troops on the ground.
It has been focused on the north of the country, away from the major oil-producing regions of the south and has not had a major effect on exports.
But it raises concerns over whether Iraq can continue to rebuild its oil infrastructure and boost output to meet global demand.
Ryan Huang, market strategist at IG Markets, said: “The possibility of present supplies being disrupted is a low possibility at the moment. What’s more likely is that future production is not going to go up in the near term.”
Analysts at Barclays said: “The stakes are high for the oil market. With Libyan production looking set to be offline for a significant period, and the return of Iran’s sanctions-restricted barrels likely to be slow, Iraqi oil is an important swing factor.”
They pointed to disruption to a key pipeline linking Kirkuk in Iraq to Ceyhan in Turkey, which has been repeatedly bombed by insurgents.
“The security situation is thwarting repair efforts. With no immediate end in sight to the violence in the north, we do not expect that pipeline to be operational on a sustained basis any time soon,” the analysts said.