If western sanctions shut down more than 1 million barrels a day of Iranian oil production, it would lead to a much tighter and more volatile oil market in the second half of this year, said the head of the International Energy Agency's oil markets division, David Fyfe, Friday.

The IEA expects that between 800,000 and 1 million barrels a day of Iranian oil will be taken off the market by July, due to a European Union embargo on Iranian crude imports and U.S. sanctions on countries that deal with Iran 's central bank, Fyfe said at the Platts Crude Oil Market conference in London .

However, Fyfe acknowledged that this estimate does not take account of the impact of EU sanctions that will block many ships from obtaining reinsurance if they trade with Iran . London is the world's largest market for shipping reinsurance, so EU sanctions could end up affecting many more shipments from Iran than would be directly covered by the embargo.

The IEA hasn't been able to quantify the precise impact of the reinsurance issue on Iranian oil shipments, but it could increase the amount of oil removed from the market, Fyfe said.

Analysts at Barclays said this week that, "the lack of availability of shipping reinsurance threatens the loss of a far greater volume of Iranian output." If as much as 1.5 million barrels a day of Iranian oil were to be taken off the market, oil prices could rise significantly, it said.

The EU's shipping insurance ban was finalized in April, but the U.K. won temporary exemptions to allow European companies to provide liability and environmental insurance on shipments of Iranian crude until July 1.

"If the shipping reinsurance becomes a part of the European sanctions, countries like Japan, Korea and even India that want to take oil, regardless of what they say to (U.S. Secretary of State) Hillary Clinton, are going the struggle," said Barclays analyst Amrita Sen. "Then we can see 1 million or 1.5 million barrels a day of loss of exports."

If as much as 1.5 million barrels a day of Iranian oil were to be taken off the market, oil prices could rise significantly, Barclays said in a research report earlier this week.

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