The killing of Pakistani opposition leader Benazir Bhutto had an unnerving effect on the world's markets yesterday, causing the dollar to dip and oil to rise.
Oil rose more than a dollar yesterday both in response to the assassination and a big fall in crude oil stocks in the United States.
US stock markets were already depressed after weaker-than-expected US durable goods data.
In Britain however, the FTSE 100 shrugged off events to edge up for the sixth straight session in a row. Oil plays led the way on the first full day of trading after the Christmas break and the shares index closed up 18.5 points, or 0.3 per cent at 6,497.8.
US light sweet crude for February was $1.33 cents up at $97.30 a barrel. London Brent crude rose $1.25 cents to $95.19 a barrel.
US crude oil stocks fell to their lowest since January 2005 last week, according to the US Energy Information Administration.
Crude oil inventories fell 3.3 million barrels, which was more than the one million barrel fall forecast by analysts.
Analysts said they remained concerned about the destabilising effect events in Pakistan would have on the already fragile markets.
Audrey Childe-Freeman, European economist at CIBC bank in London, said: "Pakistan is a crucial country in the region and prospects for political uncertainty are leading to some nervousness (which is reflected in) gold, bond and oil prices rising and the dollar dipping."
This view was shared by MF Global trader Kevin Blemkin, who said the news from Pakistan had increased market jitters.
Oil's sensitivity to world events had been shown on Wednesday when the price surged to one-month highs following Turkey's raid on Kurdish guerrilla targets in northern Iraq.
Mr Blemkin said this had reminded the market of potential risks to crude supplies in the Middle East.
Oil prices have risen 57 per cent since the start of the year and touched a record high of $99.29 on November 21, boosted by concerns over shrinking supplies ahead of winter and the weak dollar.
But the prospect of slower economic growth in the US - the top oil consumer - as well as forecasts for a mild winter had put a lid on prices until the latest Turkish raid.