Oil holds firm on Iran nuclear vow, Middle East war

SINGAPORE, Aug 7 (Reuters) Oil prices were steady on Monday, with anxiety over Middle East supply running high after Iran again invoked its oil exports for political leverage and Lebanon objected to a draft U.N. resolution meant to end the war between Israel and Hizbollah.

U.S. light, sweet crude oil was up 1 cent at .77 a barrel by 2321 GMT after dropping 70 cents on Friday, when fears over Tropical Storm Chris eased as the storm dissipated.

Early trading activity was thin as dealers slowly adjusted to the CME's Globex electronic trading platform, which replaced the out-of-hours ACCESS system from Monday.

''People had feared that Gulf storm activity would reorganise and could be a nightmare today,'' but that hadn't happened, said John Brady, a broker with ABN AMRO in New York.

''You've got Iran threatening to use their oil exports, but they do that every week.'' Iran, the fourth-largest oil exporter, vowed on Sunday to expand its atomic fuel work and warned of a harsh response if the United Nations imposed sanctions aimed at halting enrichment.

''If they do (impose sanctions), we will react in a way that would be painful for them. They should not think that they can hurt us and we would stand still without a reaction,'' said Tehran's chief nuclear negotiator, Ali Larijani.

[ID:nOLI627629] ''We do not want to use the oil weapon, it is they who would impose it upon us,'' he told a news conference. He also said Iran would expand the number of atomic centrifuges it was running.

Storm Chris, which at one point appeared set to become the season's first hurricane, has failed to regain any strength after being downgraded to a tropical depression late last week, posing little threat to U.S. Gulf oil infrastructure as it caused scattered showers just south of Florida.

''Environmental conditions are only expected to be marginally favorable for the remnants of Chris to redevelop over the next couple of days,'' the National Hurricane Centre said.

In the Middle East, Lebanon's rejection of a draft U.N.

resolution to end the nearly four-week-old war between Israel and Hizbollah -- which had its deadliest day for Israel on Sunday -- kept dealers on edge.

Hizbollah rockets killed 12 soldiers and at least three civilians in Israel on Sunday, while Israeli bombardment of southern Lebanon killed at least 19 civilians and a Lebanese soldier. [ID:nL069031] The foreign minister of Syria, a small crude oil exporter and ally to Hizbollah, said on Sunday his country's army had standing orders to respond immediately to any Israeli attacks on Syria. Oil traders fear the war may widen to involve neighbouring producers, particularly Syria or Iran.

Hopes to move forward on Monday with a draft U.N.

resolution to end the war were dashed after Lebanon asked the Security Council to call for a quick withdrawal of Israeli troops, dividing council members and pushing a likely vote back until Tuesday. [ID:nN06301126] Israel views the U.N. draft favourably as it allows Israel to respond to Hizbollah attacks and did not order it to withdraw its troops from southern Lebanon, a senior government official said.

Arab foreign ministers meet in Beirut on Monday.

REUTERS DH RK0545