Oil edges higher as Iran defies UN

LONDON, Aug 31 (Reuters) Oil prices climbed higher on Thursday as Iran said it would never abandon its right to nuclear technology hours before a U.N. watchdog was expected to report Tehran had defied a deadline to halt atomic work.

This raises the risk of sanctions against Iran, the world's fourth biggest crude exporter.

U.S. oil prices climbed 61 cents to .64 a barrel after bouncing from a 10-week low of .65 on Wednesday, shaking off an unexpected rise in gasoline and crude stocks.

London Brent rose 60 cents to .78 a barrel.

''The Iranian nation will never abandon its obvious right to peaceful nuclear technology,'' state radio quoted Iranian President Mahmoud Ahmadinejad as saying in northwest Iran. ''Iran is determined to use peaceful nuclear technology.'' Later on Thursday the U.N. nuclear watchdog is likely to report that Iran has not complied with a U.N. demand to suspend its atomic fuel work, which the West fears is meant for building a bomb but Tehran insists is only for generating power.

Iran has reiterated it will not give up its right to nuclear power, although last week it indicated it could negotiate on the scope of the plans, reinforcing U.N. powers China and Russia's resistance to any immediate punitive measures.

''Initially, the diplomatic gridlock looks like it will generate little in the way of concrete actions. For the time being, prices will bounce around, but little else,'' said First Energy Capital analyst Martin King in a report.

MAJOR POWERS Major powers will begin discussing an Iran sanctions resolution at a meeting in Europe next week if Tehran continues to defy the U.N., the U.S. State Department said on Wednesday, but even ally Britain has played down any quick measures.

''It's going to be a battle between those that want sanctions and those that want to give the diplomatic route more time,'' said Craig Pennington, energy portfolio manager at Schroders in London. ''We are in a holding pattern right now.'' Still, dealers are anxious of the potential repercussions.

If Iran did retaliate by cutting its own production or interrupting Middle East exports through the Gulf of Hormuz, which carries a fifth of the world's oil supplies, the implications could be long-lasting.

''The impact could be similar in scope to the way the Venezuelan strikes and Nigerian outages of 2003 were still impacting the crude oil market more than one year afterward,'' King said.

Oil prices have eased below their all-time high in July as the summer driving season winds down and after Israel and Hizbollah agreed to a truce.

Nigerian oil unions decided on Wednesday to stage a ''warning strike'' on Sept. 13 lasting two or three days to protest a lack of security in the Niger Delta, a union leader said.

Violence against foreign oil companies has cut the OPEC member's output by about a sixth, or around 500,000 bpd.

Warning strikes typically have no impact on oil output.

REUTERS RS1933