Oil prices rose on Monday after the US seizure of an Iranian cargo ship threw the peace process into chaos.
Hopes of a breakthrough and the full reopening of the Strait of Hormuz, the crucial oil and gas shipping route, have receded following the US attack on the Touska.
The prolonged uncertainty, with the US-Iran ceasefire due to end on Wednesday, is likely to further impact households in the UK facing higher petrol and diesel costs at fuel pumps now and the prospect of rising energy bills later in the year.
Oil benchmark Brent crude jumped 5% higher to 94.72 US dollars a barrel in Monday morning trading as a result of the fragile situation in Iran and the fresh closure of the Strait of Hormuz.
The cost of crude had tumbled on Friday after Iran had declared the shipping route open.
Markets were also lower on Monday as trading remained volatile, with the FTSE 100 Index down 0.5% at 10611.18.
The US and Iran were due to hold further talks in Pakistan but it is unclear whether the negotiations will go ahead as a result of the Touska incident.
US forces attacked the cargo ship as it attempted to break the blockade imposed by US President Donald Trump on Iranian ports.
Mr Trump said the USS Spruance stopped the vessel “by blowing a hole in the engine room” after it ignored warnings to stop.
US Central Command said marines then seized the vessel after rappelling from helicopters.
Mr Trump said a US negotiating team would be in Islamabad from Monday evening but if Tehran did not agree a deal his military would “knock out every single power plant and every single bridge in Iran”, warning there would be “no more Mr Nice Guy”.
Reports on Iranian state media suggested Tehran would not take part in talks.
Meanwhile Foreign Secretary Yvette Cooper said any deal must not allow Iran to charge tolls for passage through the strait.
She said: “Proposals have been circulating from Iran to introduce tolls on the strait once the conflict is concluded.
“Since the call I convened with more than 40 countries at the start of April, we have been working to build an international consensus both on the urgency of reopening the Strait of Hormuz, and on the principle that freedom of navigation must be restored in full, without restrictions or tolls.
“It is clear to me from my talks that an increasing number of countries are now joining the UK in insisting that there is no sustainable resolution to the closure of Hormuz that leaves the Iranian regime charging for access.”