UPDATE 3-Western sanctions already disrupt Iran oil exports -EIA
* Iran oil shipments cut by lack of EU/US insurance
* Report could help Obama decide on sanctions waivers (Adds details on outages, background, paragraphs 4, 15)
By Rachelle Younglai and Timothy Gardner
WASHINGTON, Feb 29 (Reuters) - Western sanctions on Iran are disrupting its oil exports and further restrictions could tighten global oil markets already hit by a rash of outages in other countries, a report required by the recent U.S. sanctions law said on Wednesday.
With world oil prices soaring, U.S. and European insurance companies are failing to insure deliveries of Iranian oil even before the full Western sanctions go into effect, according to a report by the Energy Information Administration on Wednesday.
"There is emerging evidence that some shipments of Iranian crude oil under existing contracts are being curtailed due to the unwillingness of U.S. and EU insurance providers to cover them," according to the EIA.
While the report, which must be updated every two months, shed little new light on global oil markets, the emphasis on the limited spare crude capacity could give the Obama administration more leeway to offer waivers to Iran's biggest customers, including China, Japan and India.
The administration, concerned about soaring U.S. gasoline prices ahead of November elections, hopes to avoid inflaming global markets as it implements the sanctions.
"With oil inventories and spare OPEC production capacity running low, consumers don't have much buffer against additional disruptions in supply," said Trevor Houser, a partner at Rhodium Group and a former State Department adviser.
"That means the needle the administration has to thread to pressure Iran without raising oil prices has gotten even smaller."
The sanctions aim to cut funds to Iran's nuclear program by slashing revenues from its oil exports. Iran maintains the program is for peaceful purposes and denies it is trying to build nuclear weapons.
U.S. sanctions on foreign banks that are facilitating the Iranian oil trade are to begin taking effect on June 28.
The EIA survey, which looked at global oil output and prices over the last two months since President Barack Obama signed the law, said markets have become increasingly tight and could worsen if Iran shuts in oil.
It said global spare crude production capacity is "quite modest" by historical standards, especially in the context of global uncertainties not limited to Iran.
There could be a global supply gap of 1.6 million barrels per day if Iranian oil was completely taken out of the picture, the report said. Iran has threatened to retaliate against the sanctions by closing the Straight of Hormuz, which carries nearly 20 percent of the global oil trade.
A string of oil outages in Yemen, Syria, South Sudan, and the North Sea have added to supply worries.
The EIA said that while the North Sea outage at the Buzzard field is small, it could disproportionately hit the price for Brent crude oil traded in London.
Fortunately for oil consumers, Saudi Arabia, home to the world's biggest spare oil cushion, has also boosted production in the last two months.
The kingdom produced an average of 9.7 million bpd over the last two months, the EIA said, about 100,000 bpd less than a Reuters survey said on Wednesday. The EIA figure is up about 600,000 bpd from the same period last year.
The EIA, an independent arm of the Department of Energy, received input on the report from the Departments of Treasury and State and the Director of National Intelligence. (Reporting by Timothy Gardner, Rachelle Younglai, Ayesha Rascoe; Editing by Marguerita Choy, Russell Blinch, Lisa Shumaker and David Gregorio)
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