The toughest sanctions yet imposed on Iran will be unveiled by the European Union on Monday amid warnings it could be the last chance to resolve the nuclear stand-off before military strikes are considered.
The punitive measures will include embargoes on oil, the country's central bank and financial institutions, with the aim of driving the Tehran regime to the negotiating table as it faces its revenue lifeblood being choked off.
Failure to persuade Iran to halt its nuclear weapons programme through the EU's sanctions, alongside similar moves by the US, would inevitably lead to pressure by Israel for air strikes. General Martin Dempsey, Chairman of the US Joint Chiefs of Staff, was in Tel Aviv yesterday to discuss the unfolding scenario and, according to diplomatic sources, dissuade Benjamin Netanyahu's government from taking pre-emptive action.
Details of the economic offensive show the extent to which Europe and the US intend to put Iran in a trade stranglehold while, at the same time, revealing the problems in enforcing the measures. The EU countries which buy 25 per cent of Iran's oil output are also the ones affected the worst by the eurozone crisis – Greece, Portugal and Spain. They will have to pay more for alternative supplies and also to modify refineries, but there are, at present, no plans by other member states to bail them out.
There is also apprehension that the embargo may end up by creating an oil shortage which will drastically push up prices, actually helping the beleaguered Iranian regime. China, a large-scale purchaser of Iranian fuel will, it is believed, continue with existing contracts, while other major buyers such as India, Japan and South Korea have indicated they will have to find alternative sources of supply before jettisoning Iranian oil.
The uncertainties have forced the EU to put a review system in place to monitor the effect of the sanctions. Iranian clients such as Greece will be given an extended time period, of between three and eight months, to find replacement for Iranian supplies.
The policy will be reassessed if it appears to be backfiring, with the price of oil rising steeply and the weakened economies going into tailspins.
Intense negotiations have been held with other members of OPEC (Organisation of the Petroleum Exporting Countries) to try to persuade them to raise production. Western diplomats insist there are strong signs that Saudi Arabia and producers in the Gulf, fierce Sunni rivals of Shia Iran, will help. The issue was discussed during a visit to Bahrain by Prince Turki al-Faisal, the highly influential former head of Saudi intelligence, earlier this week.
The UK's trade links with Iran are small, with only 0.7 % of oil, worth £147m out of a total import bill of £19.4bn, coming from the country. Exports of goods and services from Britain in 2010 amounted to £414m – a fall of around 41 per cent from the previous year. Import of goods from January to September last year were around £178m.
Information obtained by The Independent shows there are six Iranian companies operating in the UK – Bank Saderat, Bimeh Iran Insurance, Bank Sepah, Melli Bank, NPC and the National Iranian Oil Company. Some of these may be on the sanctions list being drawn up over the weekend. Five British companies – Shell, BP, Rio Tinto, BAT and Clontarf – continue to operate in Iran and will be affected by both the EU oil sanctions and the US regulations on counties trading with Tehran.
The Central Bank of Iran will be on the sanctions list and there will be a freeze on the movement of the country's gold reserves held abroad, putting further strain on trading activities and triggering what President Ahmadinejad complained was "the heaviest economic onslaught on a nation in history".
The value of the national currency, the rial, has fallen to an all-time low of 18,000 to a dollar, a drop of 6,000 in a month. With fresh tightening of the screw to come, the foreign minister, Ali Akber Salehi, warned Gulf states against putting themselves in a "dangerous position" if they sided with the West and raised production. The minister claimed, at the same time, that the US, in particular, was "playing a two-faced game". "They are flexing their muscles in public but also secretly saying 'come and talk with us'," he said.