Tehran on Monday escalated its threats against the west after Europe struck at the Islamic republic's lifeblood by agreeing to impose an oil embargo on it.
Tehran threatened to respond by closing the strait of Hormuz, through which a fifth of global oil supplies pass, while a senior US official vowed that the west could use force to keep the route open.
The decision by EU foreign ministers in Brussels raised the stakes dramatically in the standoff between Iran and the west over Iran's nuclear programme.
The EU decided that there could be no further oil contracts struck between its member states and Iran, but existing oil delivery deals would be allowed to run until July.
Sharply escalating the sanctions regime against Tehran, the EU also froze the Iranian central bank's assets in Europe and banned gold, precious metals and diamond transactions.
While the sanctions take effect from Tuesday, it will be the summer before the full impact is felt. Senior Iranian figures promptly upped the war of words with the west.
"If any disruption happens regarding the sale of Iranian oil, the strait of Hormuz will definitely be closed," warned Mohammad Kossari, deputy head of the Iranian parliament's foreign affairs and national security committee. Closing the strait would choke off global oil supplies and send international tensions soaring.
Ivo Daalder, the US ambassador to Nato in Brussels, pledged that Washington and its allies would keep the waterway open to international shipping and the oil business.
"The strait of Hormuz needs to remain open and we need to maintain this as an international passageway," he told the BBC. "We will do what needs to be done to ensure that is the case."
Several EU countries shared reservations about the new sanctions, which have been in the pipeline for months, EU diplomats said. Greece was the trickiest problem since it imports a lot of Iranian oil on very favourable conditions.
Given the country's financial collapse, Athens was in a difficult position and sought compensating measures from the rest of the EU. The impact of the embargo on countries such as Greece is to be reviewed by May.
Iran is Opec's second biggest oil producer after Saudi Arabia, and about 20% of its oil exports go to Europe.
The oil embargo follows four rounds of escalating penalties against Iran by the EU. Senior EU officials conceded that the move could be risky and might send oil prices rocketing at a time of extreme economic difficulty in the west.
"We need to ensure this does not destabilise the entire global oil market," said a senior EU official.
Another EU diplomat said: "We need to see that EU countries have reliable energy supplies. But we don't want to allow Iran time to find alternative customers."
The Americans and Europeans are demanding countries such as South Korea and Japan also curb their imports of Iranian oil. The embargo's impact may hinge on how China, a large importer, reacts.
Brussels stressed that the punitive measures were aimed at forcing Iran back to the negotiating table over its suspect nuclear projects. Talks between Tehran and the EU collapsed last year.
EU officials say Iran has been sending signals about resuming talks in recent weeks, but no one takes the prospect seriously.
David Cameron, the German chancellor Angela Merkel, and the French president Nicolas Sarkozy, issued a joint statement calling on Iran to suspend its nuclear activities. "Our message is clear," it said. "We have no quarrel with the Iranian people. But the Iranian leadership has failed to restore international confidence in the exclusively peaceful nature of its nuclear programme. We will not accept Iran acquiring a nuclear weapon."
Catherine Ashton, the EU foreign policy chief, said: "Iran has the opportunity to come forward not just to talk, but to have some concrete issues to talk about. It is very important that it is not just about words. A meeting is not an excuse, a meeting is an opportunity and I hope that they will seize it."
That view was echoed by Daalder. The US ambassador said: "We are ready at any time to sit down and have a serious conversation with them to resolve this [nuclear] issue with negotiations. We have been trying to do this since 2006. Increasing pressure, increasing the isolation of Iran is designed to confront it with a fundamental choice, between either finding a way to co-operate and negotiate a resolution to this issue, which we are willing to do, or choosing a path of isolation."
He added: "These situations, the choices are very, very difficult. I have not looked at the exact military contingency plannings that there are … But of this I am certain: the international waterways that go through the strait of Hormuz are to be sailed by international navies including ours, the British and the French and any other navy that needs to go through the Gulf; and second, we will make sure that that happens under every circumstance."
While all 27 EU states signed up for the sanctions, the new regime was only agreed by EU ambassadors on Monday morning ahead of the foreign ministers' meeting, indicating the difficulties in striking a deal. Two meetings of the ambassadors last week failed to break a deadlock.
In addition to the oil embargo, the EU also decided to freeze the assets of the Iranian central bank, arguing that the aim was to choke off funding for the nuclear programme.
"The Iranian programmes are proceeding apace and represent a strategic threat," said the diplomat. "The aim is to have a big impact on the Iranian financial system, targeting the economic lifeline of the regime."
