Oil prices have risen in the UK and US after continued unrest in Libya and worries about the impact on the country's crude exports.
In London Brent crude rose by more than $2 a barrel to $108.5, before falling back to $105.78 a barrel.
In New York, US light sweet crude oil rose by $7.37 to $93.57 a barrel.
US shares also closed heavily down. Asian stocks had closed down, and European shares also fell before recovering by mid-afternoon.
At close in New York, the Nasdaq was behind by 2.74%, the Dow by 1.44%, and the S&P 500 by 2.05%.
At close France's Cac 40 had fallen by 1.15%, Germany's Dax by 0.05%, and the London FTSE by 0.30%.
Meanwhile, Spanish oil firm Repsol-YFP was joined by Italy's Eni in closing down production in Libya.
On Tuesday, the Standard & Poor's (S&P) credit rating agency downgraded Libya from A- to BBB+, and said it could lower the rating further.
"We expect that the violent outbreaks of civil unrest seen in Libya's eastern region, and particularly the city of Benghazi, of the past few days will persist," S&P said.
Fellow agency Fitch downgraded the country on Monday.
Libya is the world's 12th-largest exporter of oil, and there are concerns that growing tensions in the country could hit oil production.
Spillover into other big regional producers, such as Saudi Arabia and Kuwait, is another concern that is forcing up the price of oil.
"The market is reacting to violence in the Middle East... and not to fundamentals," said United Arab Emirates Energy Minister Mohammad bin Dhaen al-Hamli.
However, Saudi Arabia's Oil Minister Ali al-Naimi said his country's spare production capacity could help "compensate for any shortage in international supplies".
Global oil companies have been pulling staff out of Libya as unrest continues to spread.
On Tuesday, Royal Dutch Shell, Italy's Eni and BP said they had started pulling out expat employees.
The rising price of oil, which could fuel further rises in already high inflation rates and hit corporate profits, affected stock markets in Asia and Europe.
The Italian stock exchange, based in Milan, was suspended on Tuesday morning due to "technical problems", but reopened in mid-afternoon. The market fell 3.6% on Monday on concerns about Italian companies' exposure to Libya.
Earlier, Japan's Nikkei index closed down 1.7%, South Korea's Kospi ended the day 1.7% lower and Hong Kong's Hang Seng was down 2.1%.
"The market is very nervous over news of violence in Libya, and that's driving prices," said Yinxi Yu of Barclays Capital.
"It looks like the uncertainty in the region is not going to be resolved anytime soon."
Unrest in the region could spark a wider correction in stock markets, analysts said.
"Given the fact that we have seen massive gains in stock markets over the last few months, investors have been nervous about a possible correction for some time," said Michael Hewson at CMC Markets.
"The tensions in the Middle East with Libya imploding and concerns that the unrest could spread to Saudi Arabia could provide a catalyst for [this] correction."
In Asia, market sentiment was also affected by an earthquake in New Zealand.
New Zealand's NZX 50 stock index fell 0.7% on concerns that the damage caused by the earthquake will add further to the country's growing debt.
The New Zealand dollar also weakened by nearly 2% against the US dollar.
Companies that depend on fuel, such as airlines, were among the biggest fallers on Asia's stock markets.
Fuel represents about 40% of operational costs for airlines, and investors are worried that the higher prices will eat into profits.
Shares in Singapore Airlines, the world's second-biggest carrier by market value, declined 1.7%, while Korea Airlines slumped 9% and Cathay Pacific Airways was down 4.5%.
In Taiwan, China Airlines lost 6%, dropping to its lowest value since 30 July. Shares in Australia's national carrier Qantas slipped 1.2%.
In Europe, Germany's Lufthansa fell more than 3% before recovering in late-afternoon trading.
In the UK, International Consolidated Airlines, formed from the merger of British Airways and Iberia, fell 3.6% before bouncing back in late trading.