The chance of a military strike on Iran has roughly tripled in the past year, the senior geopolitical risk analyst at Barclays Capital said on Thursday.
New York-based analyst Helina Croft, writing in a note titled 'Blowback: Assessing the fallout from the Iranian sanctions', said even increased sanctions without an all-out military strike was increasing the risk of a spike in oil prices.
"We still contend that the risk of either an Israeli or US strike on the Iranian nuclear facilities remains low, but it has risen, in our view, from 5-10 percent last year to 25-30% now," Croft said.
"In terms of supply-demand balances for the oil market, an oil embargo or sanctions on the Iranian central bank would essentially lead to a dislocation in trade flows, rather than lost outright production... However, the effect on oil prices could be significantly different."
Croft said increased sanctions from the U.S. and European Union targeting Iran's oil sector and central bank would likely, initially, have the primary effect of driving its oil exports east to Asia.
"If EU sanctions on Iranian oil were aimed at significantly reducing the flow of revenues to Tehran, they would perhaps seem no more likely to be successful than U.S. sanctions have been since 1988," the note said.
"An inevitable knock-on effect of an EU embargo would be to push more Iranian oil eastward, without removing Iran's ability to market all its crude available to export. In other words, the concentration of Iran's buyers would increase, but the total volume would not be affected."
Croft and Sen argued European refiners in the Mediterranean would be hardest hit by an increase in sanctions as they would be forced to scramble to find alternative sources of crude. Greece, in particular, has found the National Iranian Oil Company (NIOC) one of the few suppliers willing to provide it with crude on "open credit".
On Thursday U.S. President Barack Obama said the United States was considering all options on Iran and would work with allies, including Israel, to prevent Tehran from acquiring a nuclear weapon.
Iran says its nuclear program is only to meet energy needs, and is not aimed at acquiring nuclear weapons.
(Reporting By David Sheppard; Editing by David Gregorio)