LONDON: Oil prices rose to near $111 on Monday after EU foreign ministers agreed to ban imports of Iranian oil from the start of July, eliciting further threats from Iran to close the key shipping channel the Strait of Hormuz.
Brent crude oil futures were up $1.11 at $110.97 a barrel by 1248 GMT. US crude was up $1.05 to $99.38 a barrel.
Both contracts rose after threats from an Iranian member of parliament to close the Strait of Hormuz, a key shipping channel, if Iran’s exports are blocked.
The Iranian MP was responding to the EU agreement for an immediate ban on all new contracts to import, purchase or transport Iranian crude oil and petroleum products.
However, EU countries with existing contracts for Iranian oil and petroleum products will have until July 1 to complete those contracts.
"In spite of the delay to full implementation, prices have moved higher," said Christopher Bellew, a trader at Jefferies Bache. "It may never be fully implemented. Heaven knows what will happen between now and the first of July."
Oil prices were also supported by a weaker dollar, which means that commodities priced in dollars appear cheaper for those using other currencies.
The dollar was down 0.52 percent against a basket of currencies at 1218 GMT.
"Crude oil is finding strong support from a weaker dollar, or rather a stronger euro on the back of rising hope that some sort of solution might be reached with creditors on Greece’s debt," said analysts at Standard Bank.
Greece faces a key repayment date on March 20, when 14.5 billion euros ($18.7 billion) is due.
French Finance Minister Francois Baroin said on Monday the euro zone economy was showing signs of stabilization and that a deal with private sector investors about resolving Greece’s debt crisis was taking shape.
The deal is key to avoiding a chaotic default that could threaten the entire currency bloc.
"Investors are a little bit optimistic that there’ll be some form of agreement today on private sector involvement," said Michael Hewson, an analyst at CMC Markets.
EU governments also agreed to freeze the assets of Iran’s central bank and to ban all trade in gold and other precious metals with the bank and other public bodies, officials said.
However, it will review the measures before May 1 to assess whether EU states are able to find sufficient alternative sources of crude. Europe is Iran’s second-largest oil customer after China.
Hewson questioned how struggling economies such as Greece, Italy and Spain would cope without Iranian oil.
Bellew said Syria would be next on the market’s radar.
"As usual there are more reasons for the market to go up than for it to collapse," he said.
Syria has rejected a request by Arab League foreign ministers that President Bashar Al-Assad hand over power to a deputy and set up a new unity government, saying the plan was part of a "conspiracy against Syria." –Additional reporting by Manash Goswami in Singapore and Ikuko Kurahone and Yeganeh Torbati in London