JNN 8^th Jan 2012 : Oil prices could spiral out of control and potentially herald deeper economic hardship for Europe if the European Union joins the U.S. in banning Iranian oil imports, analysts warned.

EU officials said on Wednesday that European governments agreed in principle to ban imports of Iranian oil.

But several countries within the EU are heavily reliant on oil imports from Iran, and none more so than economically struggling Greece, which currently imports 30 percent of its domestic oil from the country, according to the International Energy Agency (IEA).

Greece to collapse 

Greece’s economy is already mired in deep recession and could feasibly collapse entirely if the sanctions were imposed, Paul Stevens, economist and emeritus professor at Dundee University in Scotland, told CNBC.

Were that to happen, the Greek economy could take its European neighbors down with it. But the likelihood would be that Greece would have to ignore the import ban and that the EU would have to allow it to in order to avert economic disaster.

“Let’s assume the European Union is stupid enough to go along with the U.S. in imposing sanctions on Iran. That would only mean 250,000 barrels of heavy sour oil not coming into the EU,” Stevens said.

“But the impact that would have on countries like Italy and Greece would be enormous, and the Greeks are not going to slit their own throats for the sake of an EU sanction when Iran is the only country willing to offer them oil on favorable terms. It would utterly destroy the Greek economy.”

On Thursday Saudi Arabia announced that it was ready to fill any gaps in the oil supply if needed, but market-watchers cast doubt on that possibility.

Analysts from Commerzbank said such a move by the Saudis would use up virtually all of that country’s spare capacity. The last time that happened, in 2008, oil prices climbed to almost $150 a barrel.

And Stevens recently questioned Saudi Arabia’s continued ability to fill gaps in the oil supply in the future, predicting in a report for the UK foreign affairs think tank Chatham House, that its own domestic oil consumption could threaten its position as the world’s largest oil exporter and consequently pose a threat to the global economy.

Jeremy Batstone-Carr, director of private client research at investment house Charles Stanley, told CNBC it was very hard to get an accurate assessment of what the world’s oil reserves currently are.

“At the moment, it is impossible to make accurate predictions about anything. Even people I speak to in the oil industry don’t know what the oil price will be at the end of the year. A friend of mine who works for an oil company said his best guess was that, by and large, the price of oil would be the same as it is now,” he added.

Stevens said any such conflict in the Middle East between Iran and the U.S. would have a catastrophic effect on oil prices.

“If the U.S. [were to] escalate tensions with Iran, and if there is any military engagement, all bets will be off. Pick any number and then double it, as soon as the first missiles are launched, and that will be the oil price,” he said.