The Brent and New York contracts reached $121.15 and $105.44 a barrel in early trading on Monday -- the highest levels since May 5, 2011.
In late London deals, Brent North Sea crude for delivery in April stood at $120.14 a barrel, up 56 cents compared with Friday's closing level.
New York's main contract, West Texas Intermediate light sweet crude for March, jumped $1.84 to $105.08.
"Iran's decision to halt oil exports to France and Great Britain is commonly cited today as the reason for the price rise," said Commerzbank analyst Carsten Fritsch.
"Since Iranian oil exports to both these countries are virtually negligible, however, the news is likely to have only a psychological effect, fuelling uncertainty on the oil market," Fritsch said.
"The fact that EU finance ministers are expected to approve further assistance for Greece this evening, plus the lowering of the reserve requirement ratio for banks in China, are providing the financial markets with positive 'background noise'."
Iran on Sunday announced that it was halting its oil sales to France and Britain in retaliation for a phased European Union ban on its crude, which has yet to take full effect.
The decision is not expected to have a big impact as France last year bought only three per cent of its oil -- 58,000 barrels per day -- from Tehran, while Britain is believed to no longer be importing Iranian oil at all.
But it is seen as a warning shot to other EU nations that are much more dependent on imports from the Islamic republic, including Italy, Spain and Greece.
Tehran on Monday insisted that it would cut oil exports to more EU nations if they remain "hostile."
Exports to Spain, Greece, Italy, Portugal, Germany and the Netherlands would be stopped, deputy oil minister Ahmad Qalebani said, quoted by Mehr news agency.
"Certainly if the hostile actions of some European countries continue, the export of oil to these countries will be cut," said Qalebani, who runs the National Iranian Oil Company.
He added: "In the current market situation, the price per barrel (of oil) will probably reach $150."
Analysts said the move to cut exports to Britain and France was largely symbolic.
"This latest move by Iran has not led to a price rise because it is going to lead to shortages of fuel in the UK and France, the price rise is more a reflection of concerns about the further escalation in tensions between Iran and the West," said Caroline Bain, commodities analyst at the Economist Intelligence Unit research group.
Iran pumps 3.5 million barrels per day, of which it exports 2.5 million barrels, making it the world's fourth biggest oil producer.
Oil traders also reacted to news at the weekend that China's central bank decided to cut commercial banks' reserve requirement ratio by 0.50 percentage points from February 24 to ease restrictions on lending.
The reduction by the People's Bank of China in the amount banks must hold in reserve will bring the ratio for most large banks to 20.5 per cent, effectively increasing the amount they can lend, Xinhua news agency reported.
The move is a sign the government is continuing to ease restrictions put in place to curb surging inflation and property prices, and follows the central bank's last cut announced on November 30, which took effect on December 5.
"Crude oil, copper and a number of other financial markets received a boost from the policy rate cut," said Prestige Economics president Jason Schenker.
Meanwhile, there were growing signs that a new bailout for Greece could be finalised at last. Greece said Monday it was confident a deal would be found to seal the country's eurozone future with a new bailout but key partners demanded strict surveillance of the Athens government.