(CNN) -- Oil prices spiked to their highest levels since 2008 on fears that tensions with Iran have the potential to disrupt supplies through the Strait of Hormuz.
The price of a barrel of brent crude hit $128.40 a barrel and eclipsed $110 on the New York Mercantile Exchange after a disputed report Thursday on Iran's Press TV and other Middle East outlets of a pipeline explosion in Saudi Arabia.
Prices for brent crude dropped to $125.45 and $108.50 on the NYMEX early Friday.
"I think the main problems are coming from some supply disruptions, or some fear to supply disruptions, particularly Iran," U.S. Federal Reserve Chief Ben Bernanke told a U.S. House Financial Services Committee on Wednesday. "So I'm not sure what could provide relief in the very short term."
The price of North Sea brent crude has risen more than 15% this year, while NYMEX crude has risen more than 8.5% on growing tensions surrounding Iran and fears that may lead to the closure of the Strait of Hormuz, a critical pathway for petroleum exports.
"Frankly, it has nothing to do with supply and demand there -- these are geopolitical situations," Angel Gurria, head of the Organization for Economic Co-operation and Development, told CNN. "So it has to be solved at that level."
While worries in the Middle East have caused a spike, oil prices face longer-term pressure due to increased demand from China and other emerging economies.
At 9.4 million barrels a day, China consumes half the amount of oil of the U.S., according to 2010 data from the U.S. Energy Information Administration. But while U.S. usage has remained flat, China's oil consumption rises about 5% per year.
China is now the world's largest automobile market. Last year, 18 million vehicles were sold in China, compared with about 13 million in the United States.
"It's not just more people driving, it's also every product that you buy is made of plastic or synthetic materials out of China is made with oil," said Patrick Chovanec of Tsinghua University.
After the U.S. and China, Japan is a top consumer with 4.4 million barrels a day, followed by India (3.1 million) and Russia (3 million).
If oil prices continue to rise, analysts worry it will hurt developing economies whose growth has helped buoy Western economies struggling with tepid growth and the threat of recession.
"Very high oil prices will dampen any kind of recovery and any kind of growth even during normal times," Gurria said. "It's not desirable. It is something we would like not to have."
Rising oil prices, however, present a silver lining for Japan, which has been struggling with deflation for years, says Jesper Koll, managing director of research of JP Morgan in Tokyo.
"Oil is rising because global demand for goods and services is accelerating. And Japan is a big beneficiary of that because Japan is such a powerful exporter, so volumes are picking up much, much faster than costs are picking up for corporate Japan," Koll said.
"Bad news would be a supply shock - if you did have a blockade of the Strait of Hormuz or a war in the Middle East," Koll said. "You'd have a big supply disruption, that would be cost push and Japan would get a double punch with declining global growth as well as an increase in costs really squeezing profits."
CNN's Ramy Inocencio and Eunice Yoon contributed to this report