Im pretty sure it would be able to. Without the pump running gravity would push the water from the top down the tube to the pump and then back up the other side just like a manometer tube. When you switched the pump on it would only have to circulate the water and overcome the flow resistance of the tubing. It wouldent have to put any extra energy in to attualy rasing the water up to the top as that energy would come from gravity pulling the water down on the otherside of the loop.
Afterall the head pressure required to pump water up 3.5m would be the same pressure you would get at the bottom of a tube of water 3.5mm high would it not??
Your right if the pump was pumping from one tank to another buti think its differant in a closed loop tubing system.
Makes sence to me, hope im right