Oil prices hit $70 yesterday, the highest level for nearly eight months, as Iran's pursuit of its nuclear programme heightened fears the US might take military action against it.

Crude finished the day on the futures market up $1.08 at $70.40.

The peak was the highest since Hurricane Katrina battered oil infrastructure along the American Gulf Coast and drove US crude to a record of $70.85 on August 30 last year.

London's Brent crude rose 16 cents to $70.73 after touching a new record high of $71.40.

"The drama over Iran's face-off with the West, the rise of insurgency in Nigeria and gasoline supply concerns in the US ahead of the driving season are keeping a high floor under oil," said Victor Shum at consultancy Purvin & Gertz in Singapore.

The West suspects that following its announcement last week it had enriched uranium for use in power stations Iran is trying to build an atomic bomb.

That has lead to talk of a possible US attack with Washington supposedly considering using tactical nuclear weapons to knock out Iran's subterranean nuclear sites.

Fear of possible disruption of supplies from Iran have helped to drive the price of US crude 20 per cent higher since mid-February.

Another concern is the shut-in of more than 500,000 barrels per day in OPEC producer Nigeria following militant unrest.