G8 vows to supply markets despite Iran oil embargo

G8 leaders sent a strong message to Iran on Saturday that tough energy sanctions would be firmly applied, vowing to ensure oil markets are well supplied to prevent crude prices soaring.

The move increased pressure on Iran before its next round of nuclear talks with global powers starting in Baghdad on Wednesday, and came ahead of the imposition of a European Union oil embargo on July 1.

President Barack Obama, leading the Group of Eight summit at his Camp David retreat, meanwhile said that he was "hopeful" that the talks would be productive, and stressed major powers were "unified" against Iran.

In what one official called an "unusual" statement, G8 leaders said they would keep a close watch on oil supplies and would ask the International Energy Agency to take action if needed.

There was however no specific mention the powers would tap strategic oil reserves, a step some analysts had said was possible.

There have been concerns that a dearth of Iranian oil could send prices soaring, harm economic growth, further destabilize reeling European economies in Greece and Spain, and send gasoline prices soaring in the United States.

The leaders noted that there had been increasing disruption to supplies in recent months, posing a substantial risk to economic growth, and said major producers had upped output as a result.

"Looking ahead to the likelihood of further disruptions in oil sales and the expected increased demand over the coming months, we are monitoring the situation closely and stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied," said a joint G8 communique.

Obama is trying to navigate the showdown with Iran at a moment of political vulnerability as he runs for a second White House term in November.

White House officials are also trying to head off a possible Israeli strike against Iranian nuclear sites, which they fear could spark a wider regional war and sow chaos in the global economy, harming Obama's reelection prospects.

Obama struck an unusually upbeat note on the talks with Iran in Baghdad, saying world powers were "hopeful" and were agreed on how to tackle the crisis, in an implicit contrast to Iran's deepening isolation.

"We're unified when it comes to our approach with Iran," Obama said, surrounded by leaders of the Group of Eight rich nations club in his Laurel Lodge cabin at the wooded presidential retreat in Maryland.

The US leader also warned that Iran's inability so far to convince the world its nuclear program was peaceful was "of grave concern to all of us."

Washington says it is committed to a peaceful resolution to the nuclear crisis, but has warned that all options, including possible military action, are on the table.

Iran had earlier offered a possible hint that punishing US and European-led sanctions may be having an impact, a factor boosting hopes among foreign powers that the Islamic Republic may take a more conciliatory approach in talks.

Foreign ministry spokesman Ramin Mehmanparast told state media that "no one in Iran is happy about the sanctions" and that they "may cause problems."

He insisted, however, that the measures have no legal basis and "do not really have a significant effect," as he demanded they be lifted.

Iran is due to meet representatives of the so-called P5+1 group, comprising five permanent UN Security Council members plus Germany, in Baghdad for the second round of talks revived in April after a 15-month impasse.

The New York Times reported that US negotiators were allowing themselves to hope, after years of painstaking and fruitless diplomacy with Iran over its contested nuclear program.

"They're nervous enough to talk. Whether they're nervous enough to act, we don't know yet," the paper quoted a senior Obama administration official as saying.

Tehran denies Western allegations its nuclear program may have a military component to develop weapons.

The European Union embargo is already having an impact, as several major customers of Iranian crude, including India, Japan and Turkey, have announced a reduction in imports.

The G8 club of developed nations includes Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

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