Oil rose for the first time in four days after the European Union agreed to ban crude imports from Iran, raising concern that retaliation from the Islamic Republic may disrupt the oil supply in the Middle East.
Futures gained 1.3 percent as the 27-nation bloc said it will implement the crude embargo starting July 1 to pressure the country over its nuclear program. Iran has threatened to close the Strait of Hormuz, the transit point for about a fifth of global oil, if its exports are banned.
“The EU announced this embargo and the market is taking it as a positive,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “July 1 is close enough and Iran may respond with more threats.”
Oil for March delivery climbed $1.25 to settle at $99.58 a barrel on the New York Mercantile Exchange. Prices have increased 12 percent in the past year.
Brent oil for March settlement advanced 72 cents, or 0.7 percent, to $110.58 a barrel on the London-based ICE Futures Europe exchange.
“Today’s decisions target the sources of finance for the nuclear program, complementing already existing sanctions,” the EU said in a statement. The move bans imports of both Iranian crude and petroleum products.
Iran will close the Strait of Hormuz if sanctions impede the sale of its oil, state-run Fars news agency reported today, citing Mohammad Kowsari, deputy head of the parliament’s National Security and Foreign Policy commission.
“Iranian military action or domestic unrest could both disrupt global crude oil flows,” Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant, said in an e-mail. “As such, this means that there are rising additional upside risks to crude oil.”
Iran will sell its crude to non-Europeans if the European Union makes good on its decision to stop buying its oil, Kowsari said in the Fars report.
“In the long term, the Chinese and Indians are going to continue to purchase oil from Iran, so the embargo is more of a reshuffle of the cards,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
The EU bought 450,000 barrels a day of Iran’s oil in the first half of 2011, or 18 percent of its total exports, U.S. Energy Department data show. China accounted for 22 percent, Japan 14 percent and India 13 percent, the department said.
Ivo Daalder, the U.S. ambassador to the North Atlantic Treaty Organization, said international navies will keep the Strait of Hormuz open in the face of Iranian threats to close the shipping channel.
The U.K. and France have joined the U.S. in sending warships to the Strait of Hormuz, the U.K. Defence Ministry said in an e-mailed statement from London.
Mediterranean countries that import much of their crude from Iran, such as Greece, Spain and Italy, had argued for sanctions to be phased in over as much as a year. The three nations accounted for about 68 percent of EU imports from Iran in 2010, European Commission data show.
The EU’s decision today allows customers time to find other sources of crude, according to the International Energy Agency, the Paris-based adviser to 28 industrialized nations.
“The EU embargo may not impact upon actual physical supplies until around the middle of 2012, which gives existing customers of Iranian oil some time to line up alternative supplies,” the agency said in an e-mailed statement.
Oil also rose as the euro strengthened to an almost three-week high against the dollar after French Finance Minister Francois Baroin said negotiations between Greece and its private creditors are making “tangible progress.”
The European currency gained as much as 0.9 percent. A weaker dollar and stronger euro increase oil’s appeal as an investment alternative.
“We have the EU announcement and the stronger euro,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.
Oil volume in electronic trading on the Nymex was 379,121 contracts as of 3:58 p.m. in New York. Volume totaled 687,655 Jan. 20, 14 percent above the three-month average. Open interest was 1.34 million contracts.