New York's main contract, West Texas Intermediate crude for March delivery gained $1.25 to $99.58 a barrel after the widely-expected embargo was announced.

In London Brent North Sea crude for March climbed 72 cents to $110.58 a barrel.

After weeks of talks, the European Union Monday agreed to ban oil imports from Iran as part of a concerted effort with the United States to pressure Tehran to halt its alleged nuclear arms program. Tehran denies seeking nuclear weapons.

The EU also froze the assets of the country's central bank "while ensuring that legitimate trade can continue under strict conditions."

The impact on the markets of the well-telegraphed sanctions was limited. While they set an immediate ban on new imports of oil from Iran, existing contracts would be phased through July 1, a move designed to limit the impact on country's like Greece, which has depended heavily on Iranian oil.

"The import ban... will be implemented gradually over a period of several months, which should dampen its inflationary effect on the oil price," said Commerzbank analyst Carsten Fritsch.

Iran has been selling about one-fifth of its crude to EU nations, with Greece, Spain and Italy the top buyers.

"With a daily import volume of 450 thousand barrels and accounting for nearly 20 percent of total Iranian oil exports, the EU is the second-largest customer of Iranian oil," Fritsch noted.

Andy Lipow of Lipow Oil Associates said: "The hope for the EU is that Iran will sell less of its own crude, impacting revenues."

"Meanwhile, European Union countries who where purchasing Iranian crude will need to find alternative sources," he said, pointing to Saudi Arabia, which has increased its production, and Kuwait.

"Today the European Union decided to impose sanctions on Iran's oil exports," Netanyahu said at the start of a meeting of his ruling right-wing Likud party.

"I think it is a step in the right direction," he said, while indicating it was "impossible" to know what the result of these sanctions would be.

"It is necessary to pressure Iran very hard and very quickly and we must examine these sanctions in the light of their results. Until today, Iran continues to create nuclear weapons unhindered."

His remarks were made shortly after EU foreign ministers meeting in Brussels agreed to slap an embargo on Iran's oil exports as well as financial sanctions in a bid to put pressure on Tehran over its nuclear drive and push it to return to negotiations.

"This tightening of the sanctions and the tone adopted by the Europeans is important because it makes clear to the Iranians that it is unacceptable they continue their nuclear programme," Israel's Intelligence Minister Dan Meridor told army radio.

"Iran must understand that there is a determination to prevent it from acquiring nuclear weapons," said the senior cabinet minister who is also responsible for the atomic affairs portfolio.

"The Iranian regime is concerned about the impact of these sanctions, which have a chance of succeeding," he said.

But he said it would have been better for such sanctions to have been put in place "faster."

In order to be effective, such sanctions should also be applied by countries such as Japan and South Korea, which "continue to purchase oil from Iran and who must participate in the sanctions in order to raise the price" for the Islamic republic, he said.

The EU imported some 600,000 barrels of Iranian oil per day in the first 10 months last year, making it a key market alongside India and China, which have refused to bow to pressure from Washington to dry up Iran's oil revenues.

Top EU diplomats in Brussels on Monday agreed to tighten existing sanctions by banning imports of Iranian crude as well as targeting finance, petrochemicals and gold in a bid to pressure the Islamic Republic.

The measures come in the wake of reports by the UN atomic agency, the IAEA, that Tehran may be inching ever closer to building a nuclear bomb.

Israeli Foreign Minister Avigdor Lieberman, who is currently in Vienna, also welcomed the move as "an important step which expresses European understanding and willingness to deal with the biggest threat to world peace.

"We hope this decision will serve as a warning to the rulers of Iran and will cause them to change their policies regarding the achievement of nuclear weapons without the need for further difficult steps," a statement from his office said.

After weeks of fraught talks on the terms of an embargo expected to hurt financially-distressed EU-member states, ministers on Monday agreed on an immediate ban on oil imports and a gradual phase-out of existing contracts between now and July 1.

They also froze the assets of the country's central bank in the toughest steps yet to reduce Iran's ability to fund a nuclear weapons programme.

Israel fears a nuclear-armed Iran would pose an unacceptable threat to the Jewish state and has refused to rule out a pre-emptive military strike.

It has also been pushing for biting sanctions on Iran's oil and banking sectors in a bid to force Tehran to abandon its nuclear programme, which Israel and the West believe masks a drive to develop a nuclear bomb, an ambition which the Islamic Republic strongly denies.