In a decision required by a sanctions law he signed in December, US President Barack Obama announced on Friday that he intended to proceed with severe sanctions against Iran, saying that the world market contained sufficient reserves to advance.

"I will closely monitor this situation to assure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran," he said in a statement.

The goal of the sanctions is to further isolate Iran's central bank, which handles the majority of Iran's oil traffic, and to persuade Tehran to abandon its nuclear program. Foreign investors will face punitive measures if they conduct oil business with Iran, under the sanctions scheme.

Cooperation and coercion

"Today, we put on notice all nations that continue to import petroleum or petroleum products from Iran that they have three months to significantly reduce those purchases or risk the imposition of severe sanctions on their financial institutions," sanctions legislation co-author Senator Bob Menendez said.

The US is working with nations that have shown significant effort to cut purchases from Iran and is offering these governments exemptions from penalties.

Part of his reasoning for proceeding with the plan, Obama said, was the state of emergency oil reserves. The mention of these stockpiles sparked speculation that major markets were considering dipping into their oil reserves.

The US sanctions are to take effect on June 28, while a European oil embargo begins in July.

sjt/pfd (Reuters/AP)