NEW YORK: Fears of violence in the Persian Gulf escalated Thursday, pushing the price of oil higher.    

The Obama administration slapped Iran with more sanctions aimed at stifling its nuclear program.

Traders, who worry that the sanctions will eventually lead to a military conflict in the Gulf, responded by buying oil.

“This just puts the risk back out there,” said Phil Flynn, an oil analyst with Price Futures Group.

The US and other Western nations believe Iran is building a weapon and have heaped financial and diplomatic pressure on the country since November to force it to negotiate. Iran denies the claim.

Its leaders have threatened to block a key shipping channel out of the Gulf if the sanctions continue.

Such a move, or a conflict in the area, could slow down or even halt shipments out of one of the world’s most prolific sources of oil.

About 20 per cent of the oil traded around the world comes from the Persian Gulf. Sanctions helped cut Iran’s oil production by 188,500 barrels per day from May to June as buyers looked for other sources of crude, according to Opec.

Iran fell to No 3 in Opec production last month. Iraq moved to No 2, behind Saudi Arabia.

Oil prices, which had been down all day, jumped after the sanctions were announced.

Benchmark US crude added 27 cents to end at $86.08 per barrel in New York. Brent crude, which sets the price for imported oil, added 84 cents to finish at $101.07 per barrel in London.

Thursday’s sanctions were aimed at companies and people affiliated with Iran’s defense ministry. Previous sanctions were meant to curtail its ability to export oil.

Earlier this year, European refineries stopped buying Iranian oil, and Iran’s banks were blocked from doing business with much of the world.

For most of July, oil prices have been on a bumpy ride, changing direction almost every day as the global economy putters along.

Investors and analysts say it's hard to figure where prices are headed. China and other emerging economies appear to be using more oil.

Yet those increases are offset by weaker demand in the US, the world’s biggest oil consumer, where the job market has stagnated, and in Europe, which continues to wrestle with massive government debts.

“The market seems kind of directionless,” Gene McGillian, a broker and oil analyst at Tradition Energy, said. “Are we going to see the emergence of a global economic recession, or are things going to stabilize?”

The latest batch of data continued to deliver mixed views of the global economy.

Reports out of Europe Thursday said borrowing costs rose in Spain and unemployment rose in Greece, stoking concerns about the region's financial crisis.

Meanwhile the US Labor Department said the number of people filing for unemployment benefits plunged last week. Economists said they thought the drop will be temporary.

The International Energy Agency said global oil demand should rise this year, but the increase will be less than what it predicted a month ago.

Natural gas futures rose after the US said the nation's natural gas surplus is falling more in line with historic levels.

The government said the nation’s supply is 20 per cent larger than the five-year average, much lower than what it was earlier in the year. The price of natural gas added 2.1 cents to finish at $2.874 per 1,000 cubic feet in New York.

At the pump, retail gasoline prices were flat at a national average of $3.384 per gallon, according to AAA, Wright Express and Oil Price Information Service. Gasoline prices have been steady this week. A gallon of regular is about 55 cents cheaper than what it was in April.

In other futures trading, heating oil rose 1.15 cents to finish at $2.7733 per gallon, while wholesale gasoline added 3.73 cents to finish at $2.8062 per gallon.