WRAPUP 7-U.S. reimposes Iran sanctions, Tehran decries 'bullying'

(Adds analyst comments)

* GRAPHIC-Iran's crude exports, output https://tmsnrt.rs/2CRTM0h

* Iran says will sell oil in breach of curbs

* Main target is ordinary Iranians -Rouhani

* Oil customer China regrets U.S. move

* Iran holds air defence drills

WASHINGTON/DUBAI, Nov 5 (Reuters) - The United States on Monday restored sanctions targeting Iran's oil, banking and transport sectors and threatened more action to stop its "outlaw" policies, steps the Islamic Republic called economic warfare and vowed to defy.

The measures are part of a wider effort by U.S. President Donald Trump to curb Tehran's missile and nuclear programs and diminish the Islamic Republic's influence in the Middle East, notably its support for proxies in Syria, Yemen and Lebanon.

Trump's moves target Iran's main source of revenue, its oil exports, as well as its financial sector, essentially making 50 Iranian banks and their subsidiaries off limits to foreign banks on pain of losing access to the U.S. financial system.

The return of the sanctions was triggered by Trump's May 8 decision to abandon the 2015 Iran nuclear deal, which was reached with five other world powers during Democratic President Barack Obama's administration. That agreement had removed many U.S. and other economic sanctions from Iran in return for Tehran's commitment to curtail its nuclear program.

Trump frequently denounced the deal because of time limits on some of Iran's nuclear activities, as well as for its failure to address other Iranian activity that the United States does not like.

In abandoning the agreement and imposing sanctions that it had lifted as well as adding new ones, the United States is betting the economic pressure will force Iran to change its behavior and agree to a new, much more restrictive deal.

"The Iranian regime has a choice: it can either do a 180-degree turn from its outlaw course of action and act like a normal country, or it can see its economy crumble," U.S. Secretary of State Mike Pompeo told reporters.

"We hope a new agreement with Iran is possible."

Speaking before Pompeo detailed the U.S. sanctions, Iranian President Hassan Rouhani accused the United States of targeting ordinary Iranians and said the Islamic Republic would find a way to "continue to sell our oil ... to break sanctions."

"The enemy is targeting our economy ... the main target of sanctions is our people," he said. "This is an economic war against Iran."

"BULLYING"

Some analysts are skeptical Iran will knuckle under to U.S. pressure, at least in the short term.

"The increasing pressures on Iran will not change the behavior of the regime any time soon," said Dennis Ross, a former U.S. official now at the Washington Institute for Near East Policy. "They will want to show that as we pressure them more, they can also put pressures on us or more likely our friends.

"The only thing that would change for the Iranians is if the oil-related sanctions create much more pressure internally. Then the regime might look for a way out."

Iranian Foreign Minister Mohammad Javad Zarif said U.S. "bullying" was backfiring by making Washington more isolated, a reference to other world powers opposed to the initiative.

The sanctions are designed, in part, to force Iran's major customers to stop buying its oil. However, the United States gave temporary exceptions to eight importers - China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea - allowing them to keep buying from Iran.

The sanctions also cover 50 Iranian banks and subsidiaries, more than 200 persons and vessels in its shipping sector, Tehran's national airline, Iran Air, and more than 65 of its aircraft, a U.S. Treasury statement said.

Howard Mendelsohn, a former U.S. Treasury acting assistant secretary for intelligence and analysis, said the sanctions sent a tough message that anyone dealing with Iran will face consequences even if a company or individual is not sanctioned.

"This looks very disruptive," said Mendelsohn, chief client officer for Kharon, a sanctions data and analytics firm. "It looks like a very serious, very comprehensive action."

EUROPEAN OPPOSITION

European powers that continue to back the nuclear deal said they opposed the reapplication of sanctions and major oil buyer China said it regretted the move.

Switzerland said it was holding talks with the United States and Iran about launching a humanitarian payment channel to help food and drugs keep flowing to Tehran.

U.S. sanctions permit trade in humanitarian goods such as food and pharmaceuticals but measures imposed on banks and trade restrictions could make such items more expensive as well as more difficult to pay for.

The Belgium-based SWIFT financial messaging service said it is suspending some unspecified Iranian banks access to its messaging system in the interests of the stability and integrity of the global financial system.

The head of Iran's Central Bank, Abdolnassr Hemmati, said the country has taken necessary banking measures to continue trade with its partners after the U.S. move, Iranian state TV said.

Trump announced in May his government was withdrawing from what he called the "worst ever" agreement negotiated by the United States. The other parties to the deal - Britain, France, Germany, China and Russia - say they will not leave.

The European Union, France, Germany and Britain said they regretted the U.S. decision and would seek to protect European companies doing legitimate business with Tehran.

Diplomats told Reuters last month that a new EU mechanism to facilitate payments for Iranian oil exports should be legally in place by Nov. 4 but not operational until early next year.

On Monday, international benchmark Brent crude oil futures were up nearly 0.6 percent to $73.24 a barrel and U.S. crude futures were up 0.4 percent at $63.40.

Prices rallied to near four-year highs in early October on expectations the imposition of sanctions would create a global supply shortage. However, news of the waivers last week sent prices lower as top buyers would continue to import Iranian oil.

The curbs come as the United States is focused on U.S. congressional and gubernatorial elections on Tuesday. Campaigning in Chattanooga, Tennessee, on Sunday, Trump said his "maximum pressure" against Iran was working.

"Iran is a much different country than it was when I took office," he said. "They wanted to take over the whole Middle East. Right now they just want to survive."

Graphics

Iran's nuclear programme https://tmsnrt.rs/2D0wdT3

Iran's crude exports 1975-2018 https://tmsnrt.rs/2CUMBnT

Iran's crude exports, production https://tmsnrt.rs/2CRTM0h

(Writing by William Maclean and Arshad Mohammed Editing by Jon Boyle, Richard Balmforth and Bill Trott)