Brent crude, the global benchmark, was up 0.58% to $78.09 a barrel on London's Intercontinental Exchange. So far, the news is having a limited impact on Brent prices.
By around 1420 BST, the price of Brent Crude oil was 1.68% higher at $79.46 per barrel.
But prices could also be hit by lower demand from China due to a trade war with the U.S.
"Robust demand but, more importantly, the disruptions of oil production from two OPEC producers (Venezuela and Angola) as well as the United States pulling out of the Iran nuclear agreement are the key factors for this outperformance", Justin Smirk, Research Analyst at Westpac noted.
Tehran is offering nearly free shipping and extended credit period, arranging for tankers and insurance after Indian firms including Shipping Corp of India (SCI) were forced to halt voyages to Iran due to USA sanctions.
It's unclear, however, how much the U.S.'s allies will cut back on Iranian oil imports.
Oil prices have stabilized over the last two years largely thanks to a deal between OPEC and non-OPEC oil producers, including Bahrain and Oman, to curb oil output.
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The economists added that in order to survive, Iran should "ensure that the remaining key trading partners will continue buying its oil and not bow to USA demands".
"We do not expect oil demand to be materially impacted in the next 6-9 months by economic uncertainty linked to US/China trade tensions and recent concerns over emerging markets", said Harry Tchilinguirian, senior oil strategist at BNP Paribas. S&P suggested that the September 11th OPEC meeting may well spark an increase in production from Iraq and possibly even its fellow members if Iran continues to struggle. Iran is also likely to use any means at its disposal, as it did during the last sanctions, to ensure it is able to export its oil.
While investors are now enjoying the bullish wave in oil markets, it is important to keep an eye on the bearish flashpoints hanging over markets this September.
The larger-than-expected draw in U.S. crude inventories for the week ended August 24 has been keeping prices supported, analysts said.
Japanese refiner Cosmo Oil said Tuesday it does not plan to load any crude oil from Iran in October, while it is still monitoring the progress of bilateral talks between Japan and the USA to make a final decision on its Iran oil import policy.