The president said he made the decision after determining world markets have enough crude oil that such sanctions would not hurt U.S. allies.
“There is a sufficient supply of petroleum and petroleum products from countries other than Iran,” the president said. “I will closely monitor this situation to assure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran."
Obama got the authority to impose the sanctions through the National Defense Authorization Act.
The sanctions aim to further isolate Iran's central bank, which processes nearly all of the Islamic Republic's oil purchases, from the global economy.
U.S. officials hope ratcheting up economic pressure will push Iran to abandon its disputed nuclear program and convince Israel to give sanctions time to take hold before pursuing a military strike on Iran's nuclear facilities. The U.S. and allies suspect Iran of pursuing a nuclear bomb. Iran denies that.
The congressionally mandated sanctions target foreign financial institutions that do business with Iran's central bank -- barring them from operating in the U.S. to buy or sell Iranian oil.
The penalties are to take effect at the end of June, around the same time Europe's embargo on Iranian oil kicks in. Countries can still avoid the sanctions if they take steps to significantly reduce their imports before then.
Under a sweeping defense bill Obama signed at the end of December, the president had until Friday to determine if there was enough oil supply on the world market to allow countries to cut their oil purchases from Iran. A formal White House statement was expected later Friday.
A congressional source briefed on Obama's determination spoke to the AP on condition of anonymity ahead of the formal White House announcement.
Domestic and foreign policy concerns have complicated the administration's decision to pursue the oil sanctions.
Many of the countries that buy oil from Iran are U.S. allies, including several European Union nations, Japan, South Korea and India. In order to provide flexibility to countries friendly to the U.S., the sanctions bill allows the U.S. to grant waivers to nations that significantly reduce their purchases of Iranian oil.
Even before Friday's decision, the State Department announced that it would grant waivers to 10 European Union countries and Japan because of steps they have already taken to cut back on Iranian oil. An E.U. oil embargo, approved in January, is set to take effect in July.
The United States has not said what constitutes a significant reduction in Iranian oil purchases, and analysts think the administration could use different metrics for different countries.
With oil prices already rising this year amid rising tensions over the nuclear dispute between Iran and the West, U.S. officials have sought assurances that pushing countries to stop buying from Iran would not cause a further spike in prices.
That's particularly important for Obama in an election year that has seen an increasing focus on gas prices.
Administration officials say a February report from the Energy Information Administration shows there is excess oil supply on the global market. But the report also showed that prices are high.
The Associated Press contributed to this report.