Europe's ban on Iranian oil, aimed at piling pressure on Tehran over its nuclear programme, may end up breathing new life into the country's ageing oilfields, according to Western and Iranian oil experts.

If Iran were forced to shut in any - or all - of some 500,000 barrels per day (bpd) of supply that would have gone to customers in the European Union, such a move would help rejuvenate, not harm, the country's oil reservoirs.

There is a widespread expectation among oil traders and shipping brokers that Tehran will float much of the displaced European oil on tankers, because it does not want to shut in output and wreck the reservoirs.

But in fact, slowing Iran's current production of 3.5 million bpd would be the best thing for its overworked reserves, say veteran geologists. And in the short term, the National Iranian Oil Company (NIOC) may end up doing just that while it works to re-route the oil.

"Iran can shut in 10 to 20 per cent of its production without damaging the reservoirs: in fact, it will do them some good," said Peter Wells of geological consultancy Neftex Petroleum. "If it's done properly, shutting in the oilfields should be beneficial as it allows the pressure to build back up."

Wells has first-hand knowledge of Iran's oilfields through his work with Lasmo, now part of Eni, which has invested in the country. He was confident that Iranian engineers would be up to the task, because they have closed down parts of their fields before for routine maintenance.

"If pushed, Iran could shut in about 500,000 bpd without doing any harm," said Mehdi Varzi of UK-based Varzi Energy. "But if a forced shut in were to drop output below 3m, there could be problems in certain fields," said the former NIOC official.

Although the EU embargo kicks in on July 1, buyers of Iranian oil already are scaling back, and big customers in Asia have also reduced purchases, leaving Tehran scrambling to find new homes for around 500,000 bpd starting from March.

Iran expects to place those barrels with relative ease and in any case would be loathe to turn down the taps, lose revenue and look as if it were caving in to sanctions. Its current output allows for exports of about 2.2m bpd.

Other Western oil experts with companies that have tapped Iran's reserves agreed with Wells. "Those fields are fairly flexible," said one of the executives. "You might find when you start them up again it's a bit easier."

Angola's state oil company Sonangol yesterday said it is withdrawing from a natural gas project in Iran due to international sanctions.

The company, which said that operations in Iran were no longer sustainable.

Sonangol has a 20pc stake in a project in Iran's South Pars natural gas field.

India, meanwhile, said its export guarantee agency has not stopped giving insurance cover to shipments to Iran and has only tightened criteria as part of a more cautious approach.

"We have been very cautious for the past six months and will try to keep our exposure to Iran at the minimal level," said a source at the Export Credit Guarantee Corporation, which covers the risk of Indian exporters selling on credit. "But we have not halted cover to Iran exports."

Japan's main shipping insurer said it will only provide a fraction of the coverage to tankers transporting Iranian oil.

Starting in July, European insurers and reinsurers will be prohibited from indemnifying ships carrying Iranian crude and oil products anywhere in the world as per sanctions on Tehran.

Although Japan's P&I Club, which provides insurance for shipping companies, does not directly fall under the sanctions regime, it is largely dependent on the European reinsurance market to hedge its risk.-Reuters