Iran hits back with oil embargo threat

Fighting sanctions with sanctions in a trial of strength with the West over its nuclear ambitions, Iran has warned it may halt oil exports to Europe next week in a move calculated to hurt ailing European economies.

At the same time, the government in Teheran, grappling with its own economic crisis under Western trade and banking embargoes, will host a rare visit on Sunday by UN nuclear inspectors for talks that the ruling clergy may hope can relieve diplomatic pressure as they struggle to bolster public support.

Since the UN watchdog lent independent weight in November to the suspicions of Western powers that Iran is using a nuclear energy programme to give itself the ability to build atomic bombs, US and EU sanctions and Iranian threats of reprisal against Gulf shipping lanes have disrupted world oil markets and pushed up prices.

Amid forecasts Iran might be able to build a bomb next year, and with President Barack Obama facing re-election campaign questions on how he can make good on promises - to Americans and to Israel - not to tolerate a nuclear-armed Islamic Republic, a decade of dispute risks accelerating towards the brink of war.

Western diplomats see little immediate prospect of renewed talks between Iran and the UN's International Atomic Energy Agency, scheduled from Sunday to Tuesday in Teheran, as likely to elicit much in the way of concessions to Western demands.

For all the tension, there was little clear market response to Friday's talk by members of Iran's parliament that they may vote on Sunday to stop sending oil to the European Union - its second biggest customer - as early as next week, to spite EU states that gave themselves until July to enforce an oil import embargo on Iran.

While Greek and Italian refineries which rely on Iranian crude face hardships - recession-hit Greeks bought more than half their oil from Iran lately - analysts see Arab producers satisfying some shortfall, and demand for Iranian oil from China and other Asians that do not back Western sanctions may mean world oil flows are merely diverted rather than blocked.

Traders admit to wearying of rhetorical thrust and parry.

"They are the masters of bluffing," one Mediterranean crude oil trader said of remarks by Iranian lawmakers on Friday. "And they aren't very reliable when they threaten extreme measures," he said, noting the serious practical difficulties for tankers and storage plants of diverting 700,000 barrels of oil per day.

"That said, we are living in strange and difficult times," he added, as Brent crude futures gained 0.8 percent to $111.64 on the threat, while disappointing US growth data prices back.

In Teheran, Hossein Ibrahimi, vice-chairman of parliament's national security committee, was quoted by the semi-official Fars news agency as saying: "On Sunday, parliament will have to approve a 'double emergency' bill calling for a halt in the export of Iranian oil to Europe starting next week."

Moayed Hosseini-Sadr, a member of the energy committee in the legislature, said there would be no delay of the kind the EU allowed to its members on Monday when it imposed a ban on oil imports from Iran that would take full effect only on July 1:

"If the deputies arrive at the conclusion that the Iranian oil exports to Europe must be halted, parliament will not delay a moment," Hosseini-Sadr said. "The Europeans will surely be taken by surprise and will understand the power of Iran."

Echoing President Mahmoud Ahmadinejad, who said on Thursday that Europe would be the loser from its sanctions policy, the hardline cleric leading Friday prayers at Teheran university jibed: "Why wait six months, why not right away? The answer is clear. They are in trouble; they are grappling with crisis."

That comment from Ahmad Khatami indicated the pre-emptive export ban is backed by Supreme Leader Ayatollah Ali Khamenei.

The EU accounted for 25 percent of Iranian crude oil sales in the third quarter of 2011. But China, India and others have made clear that they are keen to soak up any spare Iranian oil, even as US Treasury measures to choke Teheran's dollar trade make it harder to pay for supplies.

Highlighting the difficulties of securing international sanctions when many other governments, including Russia and China, question their value or say they will only harden Iranian defiance, Turkish state-controlled Halkbank, a key player in handling payments for Iranian oil, said it would keep on doing so.

A manager at the bank told Reuters that, as far as it was concerned, it was not in breach of US financial sanctions.

The European Union's response was muted, saying only that Iran's intentions had been reported and repeating that the goal of sanctions was to pull Teheran, a signatory to treaties banning the spread of nuclear weapons, back into negotiations intended to ensure its nuclear programme was transparent and peaceful.

"We want to see Iran coming back to the negotiating table, engaging in meaningful discussion on confidence-building measures and demonstrate the willingness to address concerns over its nuclear programme, without preconditions," said Maja Kocijancic, spokeswoman for EU foreign policy chief Catherine Ashton.