By LAURENCE NORMAN and BENOIT FAUCON
European Union member states agreed in principle to press ahead with an oil embargo on Iran over its nuclear program, diplomats said Wednesday, in a move that pushed oil prices higher.
However, significant differences remain over details of the plan, including the timing for implementing the measures, the diplomats said.
"There is a political deal in principle," one EU diplomat said of the plan.
EU foreign ministers said in early December they were mulling a broad extension of Iran sanctions aimed at "severely affecting" Iran's financial, energy and transport sectors.
Diplomats said there was no deal yet on another measure under study - slapping an asset freeze on Iran's central bank. A decision is due by end-January.
The European Union imports nearly 600,000 bpd of Iranian crude, the International Energy Agency said in its latest monthly oil-market report.
An oil embargo would be the latest step in international efforts to isolate Tehran economically over concerns Iran is trying to develop nuclear weapons.
On Dec. 31, US President Barack Obama signed into law a bill which sanctions financial institutions that deal with Iran's central bank.
The oil embargo was proposed by France in December and had backing from the UK and Germany, but Greece had openly opposed the plan and some other member states were said to be cautious about moving too quickly.
But early Wednesday, a Greek government source told Dow Jones Newswires Athens wouldn't stand in the way of an embargo.
But diplomats said there are still significant issues to be agreed, including when the embargo would start and what to do about existing contracts.
One person said to win the backing of those who were opposed, the EU would likely agree that all existing contracts would be allowed to run to maturity.
However, others said that was still being debated and one diplomat called such a long implementation period as a "no-go."
European benchmark Brent jumped to a two-month high of $113.97/bbl after the announcement, while Nymex crude traded at its highest since May.
However with the deal lacking details, the front-month February Brent contract on London's ICE futures exchange was 62 cents, or 0.6%, higher at $112.75/bbl in mid-afternoon.
Some of the European doubts about an embargo come from fears it would push up oil prices for some of Europe's most fragile economies. Greece, Italy and Spain import significant amounts of crude from Iran.
Italian Prime Minister Mario Monti said last week he would back further sanctions as long as they exclude oil supplies to Italy's biggest energy company which constitute repayment for work the firm has carried out in the Islamic republic.
Italian oil company Eni has said it is owed nearly $2 billion by Iran to be repaid in oil cargoes.
An Iranian oil official said Wednesday the move would be detrimental to Europe and Tehran could find new outlets for its exports.
Europe is "falling into a trap that is not for the benefit of the European people," he said.
But the official admitted "it will be a bit more difficult to dispose of these barrels."
Indeed, experts say the embargo would hurt Iranian oil revenues, while the EU diplomats said Brussels is working with the US on plans to find alternative crude supplies.
If Europe implements an embargo, "there will be 600,000 barrels a day looking for a new home, and it's not going to Korea or Japan," said Trevor Houser, a partner at New York-based economic research firm Rhodium Group.
In that case, Iran "would have to offer discounts to get Chinese or Indian refineries to buy the additional crude," Houser said.
Meanwhile, diplomats said member states haven't yet agreed in principle on whether to push ahead with sanctions on Iran's central bank.
An options paper from the EU's foreign service unit lays out three basic approaches, a diplomat said - a complete asset freeze on the bank, further sanctions on non-central bank financial institutions, and a third option which would ban certain transactions with Iran's central bank.
Dow Jones Newswires