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By Claire Milhench
LONDON, Dec 5 (Reuters) - Oil prices rose on Monday with Brent crude futures up near $111, extending gains from last week as rising tensions between Iran and the West increased the risk of disruption to crude shipments by the world's fifth-largest oil exporter.
Iran warned the West on Sunday that any move to block its oil exports would more than double crude prices with devastating consequences for a fragile global economy.
Brent crude was up 89 cents at $110.83 a barrel by 1025 GMT, after posting a weekly gain of more than 3 percent, its best since mid-October. Earlier Brent had pushed to an intraday high of $111.22 a barrel.
U.S. crude was up 81 cents to $101.77 a barrel, having posted a gain of 4.3 percent last week.
Christopher Bellew, an oil trader with Jefferies Bache in London, said that worries about Iran and Syria were helping to buoy oil prices. "If Iranian exports were suspended that would be very significant as the market is tight already," he said.
The European Union is considering a ban - already in place in the United States - on Iranian oil imports. The storming of the British Embassy in Tehran last week has opened the door for tougher action against Iran which is thought to be working on a nuclear bomb.
"Oil traders are pricing in a 20 percent chance of a military conflict with Iran, which could push prices above $200, so they're buying insurance now," said Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong.
On Friday, U.S. defence secretary Leon Panetta made one of his most extensive arguments to date against any imminent military action against Iran over its nuclear programme, saying he was convinced sanctions and diplomatic pressure were working.
Israel has called a nuclear-armed Iran a threat to Israel. Iran says it is enriching uranium for peaceful purposes.
In Syria, EU sanctions are already biting with Royal Dutch Shell shutting down its activities there.
On Monday, Gulfsands Petroleum said it was reviewing the impact of the latest EU sanctions against Syria on its production activities and its contracts with the Syrian government and the General Petroleum Corporation (GPC).
"Syria was exporting about 400,000 barrels per day at the start of the year and it is probably exporting nothing at the moment," said Bellew.
Oil ministers from OPEC members Kuwait, Oman and Bahrain said that the market was well supplied, echoing similar comments by Qatar's energy minister and the OPEC Secretary-General Abdullah al-Badri at the weekend.
EUROZONE HOPES
The oil market is also eyeing developments in the eurozone which reach a critical phase this week as European leaders work towards a rescue plan to be unveiled at a crucial summit in Brussels on Friday.
German Chancellor Angela Merkel and French President Nicolas Sarkozy are meeting in Paris today to try to align their positions on centralising control of eurozone budgets .
"There will be a lot of volatility this week with all the European news," said Christophe Barret, global oil analyst at Credit Agricole CIB. "Prices can be expected to move significantly throughout - it's a big week for Europe."
Prime Minister Mario Monti is taking a 30 billion euro austerity package to Italy's parliament today after the cabinet approved the mix of tax rises, pension reforms and incentives to boost growth on Sunday.
CHINA SLOWS
The Chinese economy showed further signs of slowing, raising hopes that the central bank would take more action to support growth in the world's second largest oil consumer.
The HSBC Purchasing Managers' Index (PMI) for China's services sector fell to 52.5 from 54.1 in November, marking its slowest rate of growth in three months.
PMI data in the past week has shown that both domestic and export orders are weakening, helping explain the central bank's decision last week to cut reserve requirements for commercial lenders for the first time in three years. (Additional reporting by Francis Kan in Singapore; editing by Jason Neely)
