The price of Brent crude, the global benchmark, has rallied to almost $115 a barrel as the war of words between Israel and Washington, on one side, and Tehran over its nuclear programme escalates. 

Oil traders are used to brinkmanship between western countries and Iran. But three elements make the latest standoff more dangerous than at any point over the past three years. One, the market is already battling with supply disruptions in Libya, Yemen and Syria; two, crude oil inventories, particularly in Europe, are sharply lower; and three, the starting point for a price rally is much higher than in the past.

This combination of tight fundamentals and rising geopolitical tension has driven up oil prices more than 16 per cent, from an eight-month low of $99.7 a barrel in early October. Prices remained elevated on Tuesday as a long-awaited report from the UN’s International Atomic Energy Agency said Iran had carried out work for developing a nuclear weapon and may still be doing so.