Oil Prices Rise on Iran Sanction Concerns

Oil prices ratcheted up on Monday morning on concerns that tension between Iran and Western countries could lead to an oil distribution disruption and a potential shortage.

Brent crude futures rose to $111 on Monday morning after countries called on Iran to receive further sanctions on oil production. Light, sweet crude futures also rose to $101.66 a barrel - a .69 percent gain on the day.

The United States has already placed a ban on Iranian oil imports, while the European Union is considering adopting a similar mandate. German Chancellor Merkel and French president Sarkozy are expected to meet later on Monday to discuss the eurozone crisis, which could have an impact on prices.

Iranian officials have already warned countries that further sanctions and/or bans could lead to massive increases in oil prices - sometimes as much as double the current price. One official said on Sunday that if countries seriously consider further sanctions it would cause oil prices to skyrocket to $250 a barrel.

One oil trader with Jeffries Bache agreed with Iranian officials that further sanctions could have a big impact on the oil market.

If Iranian exports were suspended that would be very significant as the market is tight already, Christopher Bellew told Reuters.

Oil traders have already factored in sanction concerns when dealing with Iran and Syria, which has also faced sanctions, but that prices could still see significant increases if more production was cut.

Oil traders are pricing in a 20 percent chance of a military conflict with Iran, which could push prices above $200, so they're buying insurance now, Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong, told Reuters.

The impact of Iranian sanctions is significant because Iran is the world's fourth largest oil producer and second biggest exporter in the Organization of the Petroleum Exporting Countries (OPEC).

The potential loss of such a major oil producer could have a big impact on the market, but one analyst believes that Saudia Arabia could up its production to make up the difference.

In the unlikely situation that oil exports were cut off then I still don't buy the argument that oil prices would double. Saudi Arabia would step in and increase production to cover for that. In theory, they could make up the entire loss of Iranian exports. Robin Mills, an analyst at Manaar Energy Consulting, told Gulf News.