No oil via strait if sanctions applied: Iran

No oil will be permitted to pass through the key oil transit Strait of Hormuz if the West applies sanctions on Iran's oil exports, Iranian Vice President Mohammad Reza Rahimi warned on Tuesday.

The threat was reported by the state news agency IRNA as Iran conducted navy wargames near the Strait of Hormuz, at the entrance of the oil-rich Gulf.

"If sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz," Rahimi was quoted as saying.

"We have no desire for hostilities or violence... but the West doesn't want to go back on its plan" to impose sanctions, he said.

"The enemies will only drop their plots when we put them back in their place," he said.

The threat underlined Iran's readiness to target the narrow stretch of water along its Gulf coast if it is attacked or economically strangled by Western sanctions.

More than a third of the world's tanker-borne oil passes through the Strait of Hormuz.

The United States maintains a navy presence in the Gulf in large part to ensure that passage remains free.

Iran is currently carrying out navy exercises in international waters to the east of the Strait of Hormuz.

Ships and aircraft dropped mines in the sea Tuesday as part of the drill, according to a navy spokesman.

Although Iranian wargames occur periodically, the timing of these is seen as a show of strength as the United States and Europe prepare to impose further sanctions on Iran's oil and financial sectors.

The last round of sanctions, announced in November, triggered a pro-regime protest in front of the British embassy in Tehran during which Basij militia members overran the mission, ransacking it.

London closed the embassy as a result and ordered Iran's mission in Britain shut as well.

Tehran in September rejected a Washington call for a military hotline between the capitals to defuse any "miscalculations" that could occur between their militaries in the Gulf.

An Iranian lawmaker's comments last week that the navy exercises would block the Strait of Hormuz briefly sent oil prices soaring before that was denied by the government.

While the foreign ministry said such drastic action was "not on the agenda," it reiterated Iran's threat of "reactions" if the current tensions with the West spilled over into open confrontation.

Oil price above $100

The price of oil climbed above $100 a barrel in light holiday trading on growing consumer confidence and prospects for stronger demand.

Benchmark crude rose $1.22 on Tuesday to $100.90 per barrel in late morning trade in New York. Brent crude rose 83 cents to $108.79 a barrel in London.

Prices have risen in the past week as encouraging U.S. economic news pointed to stronger future demand. A private survey released Tuesday showed consumer confidence this month surged to levels not seen since April and was near a post-recession peak. The New York-based Conference Board its Consumer Confidence Index rose almost 10 points from November, to 64.5. The increase was surprisingly strong, with most analysts expecting a reading of 59.

Higher confidence is in line with retail reports of a decent holiday shopping season. Retailers saw a surge of shopping the week before Christmas as consumers took advantage of better discounts. The National Retail Federation now expects a 3.8 percent increase in holiday sales, up from its original forecast of 2.8 percent made in September.

Consumer spending accounts for about 70 percent of the U.S. economy, so an uptick in spending could boost growth and demand for oil. Consumers have cut back in recent years because of uncertainty about the economy, fed by a weak jobs market and a stagnant housing market. Gasoline demand has been steadily declining since spring.

Tensions in the Middle East have also boosted oil prices. Sectarian violence in Iraq and a diplomatic standoff over Iran's nuclear ambitions have stoked worries about crude supplies in the region.

Iran is the world's fourth largest oil producer, according to the Energy Department, and Iraq ranks 12th. Disruptions of supplies from either source could lead to higher prices, although crude continues to flow from both countries. Much of the oil in both countries is sold to customers in Asia.

In other energy trading on the Nymex, natural gas rose 5.5 cents to $3.114 per 1,000 cubic feet. Heating oil rose almost 2 cents to $2.8907 a gallon, and gasoline futures were up 5 cents at $2.6872 a gallon.