Europe is edging towards an Iranian oil embargo despite worries a ban would hit enfeebled euro zone members hardest, propel global crude prices higher and only hurt Iran by obliging it to rely on China to buy more crude at discounted prices.

As the political heat rises, Italy and France are pressing their oil companies to consider abandoning purchases from Iran, officials say.

Traders and analysts say a prerequisite for action is that the European Union gets Saudi Arabia on board to fill any gap from Tehran.

The slowdown in Europe's economy at least means fuel demand growth is not an issue for Brussels as it calculates the economic impact of a French-led push towards further isolating Iran because of its nuclear ambitions.

"Quite honestly if a European recession scenario materialises, we can afford losing Iranian oil," said a top executive from a major oil company. That is key because the politicians will want reassurance from the oil industry before pressing ahead.

Washington has long forbidden imports of Iranian oil. EU foreign ministers at a December meeting will consider tougher sanctions, possibly including oil, to press Tehran to abandon what Brussels says is a nuclear weapons programme.

"This is not problem," EU Energy Commissioner Guenther Oettinger told Reuters this week. "It can be substituted by OPEC and others."

While Asian buyers led by China are Iran's biggest customers, Europe imports significant volumes with EU members taking about 450,000 bpd -- 18 pct of Iran's 2.6 million bpd of exports.

About the same amount again goes to non-EU European buyers led by Turkey which takes 200,000 bpd.

The EU portion accounts for less than four per cent of its imports and half of what Europe lost when civil war halted supplies from Libya earlier this year.

Oil at $107 a barrel is already a problem for global growth and the calculation may be that with Libyan supplies coming back onstream the impact on prices may not be too severe.

Iraq is also increasing output of Basra crude, similar in quality to Iran's main export grade Iranian Heavy.

"The question would be how would the EU source its new crude -- would the Greeks, Spanish and Italians be willing to pay a premium? Who's going to sell to the Greeks on credit?" said a Western diplomat involved in the work on new sanctions.

Debt-laden Greece has increasingly turned to Iran this year as supplier of last resort, importing 110,000 bpd in the second quarter of the year, or 23 pct of its oil imports.

Italy said it was looking to persuade oil firms to stop buying Iranian fuel and its oil industry lobby said the move looked inevitable.

SAUDI HELP NOT CERTAIN

Diplomats say consultations are needed with OPEC heavyweight Saudi Arabia, which has difficult relations with Tehran, to ensure it can reroute crude to Europe from Asia, a more important strategic market for Riyadh in the long-term.

A significant hole in supply could be met by a release of stocks from the International Energy Agency, whose industrialised members include most European Union members.

Traders and analysts are unanimous that should the EU-wide ban go ahead, China and other Asian buyers would emerge as beneficiaries because Iran would need to sell more oil at lower prices to them.

South Korea said on Friday it might ban Iranian petrochemical products but not oil.

"Leaky sanctions on Iraq after the first Gulf War showed that if oil is priced cheaply enough you will find a buyer," said analyst Lawrence Eagles of JP Morgan.

India has already faced major problems in paying for Iranian crude this year amid pressure from Washington, leaving China as Tehran's leading outlet for displaced crude.

China might be happy to swallow as much as Iran can throw at it, at a cost to Tehran of lower revenues from discounted crude.

"Finding new customers for Iran and the refineries finding their crude oil is usually not a cost-free process," said Bassam Fattouh from the Oxford Institute for Energy Studies.