West sanctions Iran, crude goes up

US crude futures rose on Tuesday after three days of losses as US-led sanctions against Iran raised fears of regional instability.The euro gained against the dollar, supporting oil, after the International Monetary Fund said it would open more lending schemes to aid countries with sound policies but faced risk due to the euro debt crisis. Data showing that the US economy grew less than previously estimated in the third quarter at 2.0 percent, from 2.5 percent drove oil futures briefly lower in the morning. Crude advanced 1.1 percent after the US, the UK and Canada expanded measures aimed at thwarting Iran's peaceful nuclear program. The US, the UK and Canada targeted Iran's central bank and oil industry yesterday with sanctions aimed at cutting Tehran off from international financial transactions. The actions are in response to a Nov. 8 United Nations atomic agency report against Iran which was compiled by the IAEA chief on the basis of US speculations and without any proof or evidence. Not only Iran, but also Russia, China and the Non-Aligned Movement of 120 countries have all condemned the US-led move and censured the head of the UN atomic watchdog for his baseless and biased report. The new sanctions target companies that provide goods or services to Iran's oil and gas industries. Existing US laws have failed to force most international oil companies out of Iran. The new measures aim to stop it from obtaining technology and money from smaller foreign companies. Iran is the second-largest oil producer in the Organization of Petroleum Exporting Countries, pumping 4.25 million barrels a day last year, according to the BP Statistical Review. Saudi Arabia is the top producer. "Concern about the Iranian sanction seems to be supporting the oil market," said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. "People are just worried about potential military action, whether that happens or not." Iranian officials have dismissed US sanctions as inefficient, saying that they are finding Asian partners instead. A large number of Chinese, Indian and other Asian firms have negotiated or signed up to oil and gas deals with Iran. Following US pressures on companies to stop business with Tehran, many western companies decided to do a balancing act. They tried to maintain their presence in Iran, which is rich in oil and gas, but not getting into big deals that could endanger their interests in the US. Yet, after oil giants in the West witnessed that their absence in big deals has provided Chinese, Indian and Russian companies with excellent opportunities to sign up to an increasing number of energy projects and earn billions of dollars, they started showing increasing interest to invest or expand work in Iran. Some European states have also voiced interest in investment in Iran's energy sector after a gas deal was signed between Iran and Switzerland three years ago regardless of the US sanctions. The National Iranian Gas Export Company and Switzerland's Elektrizitaetsgesellschaft Laufenburg signed a 25-year deal in March 2008 for the delivery of 5.5 billion cubic meters of gas per year. The biggest recent deal, worth €100m ($147m, £80m), was signed by Steiner Prematechnik Gastec, the German engineering company, in 2009 to build equipment for three gas conversion plants in Iran. In December 2010, the New York Times reported that over the past decade, United States-based companies have done billions of dollars in trade with Iran despite sanctions and trade embargoes imposed on Tehran. One American company, the daily said, was permitted to do work on an Iranian gas pipeline, despite sanctions aimed at Iran's gas industry in particular.The transactions have been made possible by a 2000 law that allows exemptions from sanctions for companies selling food or medical products, the report added. Iranian officials have always stressed that the International and unilateral sanctions against Iran have had no result but inflicting damage on the European companies. Tensions in Egypt and Syria also continued to keep oil investors jittery. In Egypt, protesters gathered in Tahrir Square for a fifth day after deadly clashes between security forces and demonstrators spurred the Cabinet to offer to quit. "There are new sanctions on Iran and revolutionaries back on the streets of Cairo reminding us of the geopolitical risks that impact this market," said Michael Wittner, the head of oil- market research at Societe Generale SA in New York. "The geopolitical risks never went away, but had moved to the background and are now back in the forefront." Crude for January delivery gained $1.09 to settle at $98.01 a barrel on the New York Mercantile Exchange. Trading ranged from $96.55 to $98.70. After the close the American Petroleum Institute reported that crude-oil inventories fell 5.57 million barrels to 335.7 million last week. Distillate inventories fell 886,000 barrels to 138.1 million, the API's weekly report showed. Gasoline stockpiles gained 5.42 million barrels to 209.6 million. Crude was $97.74 a barrel at 4:38 p.m. Brent oil for January settlement on the London-based ICE Futures Europe exchange increased $2.15, or 2 percent, to $109.03 a barrel. The European contract was at a $11.02 premium to New York crude, widening from yesterday's $9.96. The spread reached a record $27.88 on Oct. 14.