Oil hit a nine-month high above $71 (Rs 2876) on Thursday, a day after a report by the United Nations' nuclear agency opened the way to tougher sanctions against Iran, the world's fourth-biggst crude exporter.
London Brent crude, a more accurate indicator than US oil, was up 43 cents at $71.03 a barrel.
Prices steamed higher on Wednesday after US warships put on a show of force off Iran's coast, coinciding with a report by UN monitors that Tehran had expanded its nuclear programme.
"That played into the price action although the report had nothing new in it. It was a knee-jerk reaction to the headlines," said Mike Wittner of investment bank Calyon.
Lehman Brothers analyst Ed Morse doubted the U.S. exercises were a precursor to conflict. More probably they were designed to demonstrate U.S. willingness to defend the Strait of Hormuz, conduit for 40 percent of globally traded oil, he said.