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 adequately supplied and to prevent soaring crude prices.

The move came days before the next round of nuclear talks between global powers and Iran over its nuclear program and ahead of the imposition of a European Union oil embargo against the Islamic Republic on July 1.

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

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

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 oil 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."

Obama struck an unusually upbeat note on the talks with Iran in Baghdad, emphasizing that world powers 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, facing a delicate diplomatic balancing act on Iran as he runs for reelection, 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."

He said all the leaders agreed that Iran had the right to a peaceful nuclear program, if it complied to international rules, and were "hopeful" about the talks in Baghdad.

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 on Wednesday 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 have hope going into the talks, 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 Iranian economy has taken a significant blow from the gradual tightening of the sanctions since 2010, despite official assertions that the sanctions have been so far ineffective, foreign experts say.

Sanctions on the banking sector have disturbed or slowed down imports, whose cost have increased on average by 20 percent, according to Iranian importers.

Sanctions have also led to late payments to Iran from its oil sales, sometimes forcing Tehran to accept payments in the form of gold or local currencies, or to sign barter contracts.

And 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.

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