Iran warns Gulf Arabs on oil

Iran warned Gulf Arab oil producers against boosting production to offset any potential drop in Tehran's crude exports in the event of an embargo affecting its oil sales, the latest salvo in the dispute between the West and the Islamic Republic over its nuclear program.

The comments by Iran's OPEC governor, published Sunday, came as Saudi Arabia's oil minister was quoted the same day denying that his country's earlier pledges to boost output as needed to meet global demand was linked to a potential siphoning of Iranian crude from the market because of sanctions.

World oil markets have been jolted over concerns that Iran may choke off the vital Strait of Hormuz in retaliation for sanctions hampering its ability to sell its oil. Saudi Arabia and other key Gulf Arab producers have recently said they are ready to provide stable and secure supplies of oil.

The U.S. recently imposed sanctions targeting Iran's central bank and, by extension, refiners' ability to buy and pay for crude. The European Union is also weighing an embargo on Iranian oil, while Japan, one of Iran's top Asian customers, has pledged to buy less crude from the country.

Mohammad Ali Khatibi, Iran's OPEC governor, was quoted Sunday by the pro-reform Shargh newspaper as saying that attempts by Gulf nations to replace Iran's output with their own would make them an "accomplice in further events."

"These acts will not be considered friendly," Khatibi said, adding that if the Arab producers "apply prudence and announce that they will not participate in replacing oil, then adventurist countries will not show interest," in the embargo.

The embargo concerns are linked to Iran's nuclear program. The West maintains Iran is enriching uranium for weapons purposes while Tehran says its program is for purely peaceful purposes such as generating electricity.

Saudi Arabia, the world's largest oil producer and a close U.S. ally, had said that it was ready to raise its output to accommodate global market needs. The country is the only member of the 12-nation Organization of the Petroleum Exporting Countries that has significant spare capacity, currently estimated at roughly more than 2 million barrels per day.

With concerns building amid the standoff between Iran and the West over Tehran's nuclear program, a string of Asian and Western officials have visited Saudi Arabia over the past week. While offering assurances that it could meet a shortfall in supply through its spare capacity, Saudi officials have also been careful to say that it was an internal matter if nations chose to abide by any sanctions.

Oil Minister Ali Al-Naimi appeared to try to further clarify the country's position in comments published Sunday in the daily Al-Ektisadiyah newspaper.

"We never said that Saudi Arabia is trying to compensate for Iranian oil in the case that sanctions (are enacted)," Al-Naimi was quoted as saying. "We said that we are prepared to meet the increase in global demand as a result of any circumstances."

The kingdom has a production capacity of 12.5 million barrels and is believed to be producing slightly over 9 million to 9.5 million barrels per day.

Iran's warning introduces a new layer of complication to an issue that has the potential for broad regional and global fallout.

"If the regional countries ... say no to what is harmful to the security of the region, then nothing will definitely happen," he said. But if the security of oil traffic in the Strait of Hormuz is violated, "all will be lost," he said.

"If these countries make a mistake and give the green light, this will be a historic green light," Khatibi said.

Saudi Arabia, the Arab world's largest economy, is widely seen as the main counterweight to Iran in the region. Any attempt by Iran to close the Strait of Hormuz, through which a sixth of the world's oil flows, would also affect the export abilities of the major Gulf producers, including Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Qatar.

While momentum appears to be building for the sanctions by the West, China, another major buyer of Iranian oil, has come out against the measures.

Chinese Premier Wen Jiabao was in Saudi Arabia on Saturday for meeting with officials in which the two countries "pledged to work together to further expand all-around exchanges and cooperation," according to China's Xinhua news agency

Wen said the two sides "should expand trade of crude oil and natural gas and energy-related cooperation as to deepen their energy partnership," Xinhua reported.

During the visit, Saudi state-owned oil giant Aramco and Chinese refiner Sinopec finalized an agreement to develop a 400,000 barrel per day joint venture refinery in the Red Sea city of Yanbu. The deal is just one between China and Gulf producers as the Asian powerhouse reaches out across the world to secure energy supplies for its booming economy.