With the international community working to prevent a fragile truce in Lebanon from unraveling, remarks by Iran's supreme leader Monday that the country has made up its mind on its uranium enrichment work has shifted market focus to the oil-rich Islamic republic.

At 11:25 am (0325 GMT), New York's main contract, light sweet crude for September delivery was four cents higher at 72.49 US dollars a barrel from its close of 72.45 dollars in US trades on Monday.

The October contract, which is due to take over as the next benchmark, was at 73.24 dollars a barrel.

Brent North Sea crude for October delivery rose 11 cents to 73.49 dollars a barrel.

"I think the Iran issue is the key issue in the market," said Mark Pervan, an energy analyst with Daiwa Securities based in Melbourne.

"The market concern is over the supply of Iranian oil and the possible disruption in the Middle East."

Industry publication Energy Intelligence said on its website Iran's defiance of the UN would add to tensions in the oil-producing Middle East.

"The nuclear standoff adds to growing tensions in the Middle East, following a fragile ceasefire in Lebanon between Israel and Hezbollah militants in a conflict widely viewed as a proxy war between the US and Iran," it said.

"The launch of Iranian war games near the Iraqi border doesn't help," it said, referring to the manoeuvres during which Iran test-fired a short-range missile.

Iran's supreme leader Ayatollah Ali Khameini was quoted as saying on state television Monday his country will not bow to western pressure to halt its nuclear research programme, believed to be a mask to develop nuclear weapons.

"The Islamic republic has made up its mind and on the nuclear programme and other issues it will continue on its path with strength, with God's help," said Khamenei, who has the last word on key policy issues.

His remarks were made on the eve of a Tuesday deadline for Iran to formally respond to an offer by major powers proposing a package of incentives in return for a suspension of uranium enrichment.

The comments prompted Washington to repeat a call on the United Nations to move swiftly to impose sanctions against Iran if it refuses to stop nuclear enrichment activities by an August 31 deadline set by the Security Council.

Fears about OPEC member Iran's confrontation with the West have stoked oil prices on concerns UN-backed sanctions could prompt Tehran to block the strategic Strait of Hormuz and disrupt oil supplies from the region.

Iran, which has insisted its nuclear programme is geared for peaceful purposes, is the world's fourth-largest crude oil producer.

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