Crude oil markets are “sitting on the edge” as the tanker crisis involving Britain, the United States and Iran extends without resolution.
"It's really reached a new level of tension that we have not seen," former Exxon Arabian Gulf president Jerry Bailey told CNBC's Worldwide Exchange, as Britain and Iran jostle over the captured tankers that have caused tensions to flare in the Middle East.
Iranian President Hassan Rouhani signalled a rapprochement to the stalemate last Wednesday, indicating Iran may be willing to release the British-flagged Stena Impero tanker it seized if the UK was willing to release the Iranian Grace 1 tanker in its possession.
"We are not going to continue tensions with some European countries," Mr Rouhani said in a speech to Cabinet, according to a statement posted on state news agency Irna.
“If they are committed to international frameworks and abandon some actions, including what they did in Gibraltar, they will receive a proper response from Iran.”
The message is likely to receive a cool response from Britain, which said the seizure of the Stena Impero was an "act of state piracy" – while Iran's Grace 1 tanker was detained legally amid claims it was carrying Iranian oil to Syria in breach of EU sanctions.
Britain has so far remained committed to a broader European effort to keep intact the 2015 Iran nuclear agreement, and opposed the United States' decision to withdraw from the deal last year. But the tanker impasse may give new UK Prime Minister Boris Johnson an opportunity to change tack.
He could initiate a tougher policy stance on Iran, aligning Britain more closely with the agenda of US President Donald Trump and his hardline advisers, who have used a highly successful "maximum pressure" campaign of economic sanctions and an oil embargo to isolate the regime.
The delicate balancing act comes as Britain attempts to rally support for a European-led “maritime protection mission” to assist in the safe passage of crew and cargo in the region, complementing recent US proposals, despite both sides stressing they do not want confrontation with Iran.
“It’s important for everybody to realise, it’s important for Boris Johnson to understand, that Iran does not seek confrontation. Iran wants to have normal relations based on mutual respect,” Iran’s Foreign Minister Mohammad Javad Zarif said.
Despite the tanker stalemate and escalating tension in the Strait of Hormuz and Gulf of Oman, oil prices have stayed mostly muted.
“There has certainly been enough tension to cause a rise, but I think it’s been built in over the last six months with all of the instability, not only in Libya but also Venezuela and then this Iranian business,” Mr Bailey said.
“The price will go up if things continue to escalate. I can see numbers easily reaching back to $80, and in a worst-case scenario if actual military confrontation comes across, you could be pushing numbers back towards $100.”
“It’s poised for a problem.”
Meanwhile, analysts say markets aren’t able to accurately price in the slew of uncertainties around the outlook for oil, particularly against the backdrop of wider economic concerns.
“What I find amazing is, oil has become a broken barometer for Mideast conflict,” Helima Croft, RBC Capital Markets managing director and global head of commodity strategy, told CNBC.
“It’s due to the fact that there is still big concerns over the trade war, demand destruction, and a view that American energy dominance means that we can have these disruptions.
“I think what the market is looking for is a real physical disruption of supply.”
Vandana Hari, founder and chief executive of Vanda Insights, said the market will be ready to quickly buy-up at any sign of escalation or a threat, but that it "doesn't want to factor that in as a default question for now".
"Clearly there is reason for nervousness and the risk ought to be factored in, but there is also an argument that logic and common sense dictate that neither the US nor Iran actually want or will willingly initiate military conflict in the region," she said.
Dan Murphy is a correspondent for CNBC International in the UAE
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