The oil cartel Opec is pumping more crude than at any time since late 2008. Europe is in deep crisis, the pace of activity in the global economy is easing, and the dollar is strong. Under these conditions, oil prices would normally be falling, yet the cost of crude has risen strongly in the first few days of 2012 and Brent crude was changing hands at just over $113 a barrel on Thursday, having been above $114 at one point.

It's not hard to see why prices are hardening. The US and the European Union are threatening oil sanctions against Iran that may be triggered by the end of the month. Washington and Brussels believe tough action is needed in the dispute over Iran's nuclear programme, but there is a risk of collateral damage to the already shaky economies of the developed world.

Iran is an important oil producer and exports around 2.3m barrels a day. The west has an assurance from Saudi Arabia that it will make up any shortfall from Iran, but as analysts from Commerzbank have noted, this would use up virtually all of the spare capacity from the world's biggest producer. The last time that happened, back in 2008, oil prices climbed to almost $150 a barrel.

The expectation in western capitals is that the threat of sanctions will bring Tehran to heel, although there is not much sign yet of this happening. On the contrary, Iran is negotiating with China in the hope of finding a market for its crude (the Chinese, predictably enough, are driving a hard bargain) and is hinting at retaliatory action by threatening to block the strait of Hormuz, the strategically vital waterway at the tip of the Gulf, through which 70% of Opec's exports are transported.

Although this appears to be merely sabre-rattling at this stage, even the hint of a supply problem from the Middle East has been enough to ensure that no oil trader wants to be short of crude. Strikes in Nigeria over the removal of gasoline subsidies have not helped the mood.

What does all this mean? In the very short term, there is little prospect of crude prices coming down to the sort of levels that would be expected given the current state of global demand – $75 a barrel or thereabouts. On the contrary, there is a higher chance of Brent climbing above $120 a barrel than there is of it falling below $100.

In the slightly longer term, much depends on who wins the game of chicken. If the Iranians tough it out and are prepared to risk military action with the west by closing the strait of Hormuz, the cost of crude could easily rocket above $150 a barrel.

That would, without question, lead to a deep global recession in 2012. Policymakers in the west are banking on weaker inflationary pressure this year boosting real incomes, and have certainly not factored a serious oil shock into the equation. And, as every finance minister and central banker knows, each and every recession since 1973 has been associated with a sharp increase in the cost of crude.