The threat of new sanctions comes amid an oil market that has been tightening due to strong demand and as top exporter Saudi Arabia and top producer Russian Federation have led efforts since 2017 to withhold oil supplies to prop up prices.
In an address to the nation from the White House, President Trump said, the United States will withdraw from the Iran nuclear deal and warned countries against any cooperation with Tehran on its controversial nuclear weapons programme.
Iranian officials, however, said that the country's oil industry would continue to develop even if the United States pulls out of the accord.
With President Donald Trump junking the landmark nuclear deal with Iran, the USA will now reimpose the stringent sanctions it placed on Tehran before the 2015 agreement and is considering new penalties, the U.S. media reported today.
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"I think it's a sign that he's planning on reimposing sanctions, and the only question for oil markets is how soon", said Joe McMonigle, an energy analyst at Hedgeye Research.
"Given the unilateral move by the USA, much of the movement on oil prices had been factored in", said Stephen Innes, head of Asia-Pacific trade at OANDA.
Other nations that do business with Iran also could face US sanctions.
"The focus of oil markets is now on the USA president's pending decision on the fate of the Iran nuclear deal", said Victor Shum, an oil industry analyst at research firm IHS Markit.
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By 0823 GMT, the pan-European STOXX 600 had risen almost 0.2 percent to fresh three-month highs, while higher crude prices helped the commodity-stocks-heavy FTSE index.FTSE gain 0.4 percent.
Several refiners in Asia said they were seeking alternatives to Iranian supplies.
At that time, conflict had engulfed fellow OPEC member Libya, driving its oil production down to little more than 200,000 barrels per day from around 1.4 million bpd in the space of 12 months. And there is no guarantee that Iran's major customers will comply with new sanctions.
After sanctions were eased as part of the nuclear agreement, Iran ramped up production to about 3.8 million barrels a day.
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India and Iran have robust economic and commercial ties covering many sectors though it has traditionally been dominated by the import of Iranian crude oil by India. He said companies doing business in Iran would not be able to generate new business but would be able to wrap up existing contracts.