Oil prices rallied to a 3½ year high on Monday, with the U.S. benchmark breaking above $70 a barrel, as investors braced for the country’s expected exit from the Iran nuclear deal this week.

Brent crude, the global oil benchmark, was up 1% to $75.59 a barrel on London’s ICE Futures exchange having hit $75.89 earlier, their highest level since 2014. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1% at $70.42 a barrel.

Oil prices have risen over 10% in the past month as U.S. President Donald Trump has indicated it is likely the country will withdraw from a 2015 international agreement with Iran which eased sanctions in return for curbs to its nuclear program. A decision is due by May. 12.

“There is some scope for profit-taking now that prices are at 42-month highs but that is been overshadowed by the potential re-imposition of sanctions on Iran,” said Dubai-based Ehsan Khoman, head of research for the Middle East and North Africa region at MUFG bank.

Oil prices continue their march upward.
Oil prices continue their march upward. Photo: Agence France-Presse/Getty Images

Previously, international sanctions have cut Iranian exports by around 1 million barrels a day, but MUFG expects the U.S. will “go it alone” if they impose sanctions, meaning the impact will be a loss of 250,000-350,000 barrels a day.

“The EU may not deem it necessary to reinstate sanctions on shipping insurance which were paramount in restricting Iranian crude exports last time around,” said Mr. Khoman.

The U.S. doesn’t import any Iranian crude but certain allies including Japan and South Korea which do, may switch to other suppliers to comply with the changed stance of the U.S., analysts said.

There were also signs of discord among members of the Organization of the Petroleum Exporting Countries after Iran’s deputy oil minister Amir Hossein Zamaminia said a “suitable price” for oil is $60 to $65 a barrel in an interview with Bloomberg on Sunday. Iran’s position differs from OPEC’s top producer Saudi Arabia, which is seeking to push oil to $80 a barrel to fund economic reforms.

This creates uncertainty for the prospects of an extension to the group’s deal to cut production, initially struck to target reducing a glut in global oil stocks, which had ballooned because of rising U.S. shale output. Saudi Arabia is expected to push for the cuts to continue beyond 2018 to keep oil prices closer to their target.

Oil production in the U.S. is expected to continue its march higher with the number of rigs drilling for oil rising by 9 last week to a three-year high of 834 rigs, according to oil-field services firm Baker Hughes (BHGE) data published on Friday.

Nymex reformulated gasoline blendstock—the benchmark gasoline contract—up 0.7% to $2.13 a gallon. ICE gasoil changed hands at $660.50 a metric ton, up $11.50 from the previous settlement.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Biman Mukherji at biman.mukherji@wsj.com