The European Union tightened sanctions against Iran on Thursday and laid out plans for a possible embargo of its oil in response to mounting Western suspicions that Tehran plans to build nuclear weapons.
China, the biggest buyer of Iranian crude, stepped in to warn against emotionally charged actions that might aggravate the row over the storming of Britain's embassy in Tehran.
Top U.S. officials said they wanted to sanction Iran's central bank in a calibrated manner to avoid roiling oil markets or antagonizing allies. Their approach clashes with that of U.S. lawmakers pushing for faster action.
In Iran, diplomats said protesters had devastated parts of the British embassy complex in Tehran. A commander in an Iranian militia which joined Tuesday's ransacking said he was tired of decades of British plotting against Iran.
EU foreign ministers meeting in Brussels said Iran's energy, financial and transport sectors might be targeted in response to a report from the U.N. nuclear watchdog body which suggested Iran has worked on designing an atom bomb.
They added 180 Iranian people and entities to a blacklist that imposes asset freezes and travel bans on those involved in the nuclear work, which Tehran says is for peaceful purposes. But they appeared to postpone decisions on a ban on oil imports.
Ministers said a decision would be taken no later than their next meeting in January. EU member states take 450,000 barrels per day of Iranian oil, about 18 percent of the Islamic Republic's exports, much of which go to China and India.
European Energy Commissioner Guenther Oettinger said all 27 EU states would need to back any embargo. We need a common position of all European Union member states, he told Reuters.
French President Nicolas Sarkozy proposed the embargo and won backing from Britain, but resistance persists. An import ban might raise global oil prices during hard economic times and debt-strapped Greece has been relying on Iranian oil, which comes with an attractive financing offer.
French Foreign Minister Alain Juppe said the EU could aim to offset any crude oil shortfall if a ban were imposed.
U.S. Under Secretary of State Wendy Sherman told the Senate Foreign Relations Committee the Obama administration wanted properly designed and targeted sanctions against the central bank of Iran.
U.S. officials made clear they opposed an amendment sponsored by Senator Robert Menendez, a Democrat, and Senator Mark Kirk, a Republican, that would allow the U.S. president to sanction foreign banks found to have carried out a significant financial transaction with the Central Bank of Iran.
The Senate was to vote on the amendment later on Thursday.
Italy said it was recalling its ambassador from Tehran for consultations and considering closing its embassy, the latest of several European countries to make similar moves.
Britain has shut down Iran's embassy in London after pulling out its own diplomats from Tehran. It said the storming could not have taken place without the consent of Iranian authorities.
I stress that the measures I hope we will agree today are related to the Iranian nuclear programme. These are not measures in reaction to what has happened to our embassy, Foreign Secretary William Hague told BBC radio.
There is more work to be done on what we will do in the energy sector, he said. So I think it would be going too far to say an embargo has been agreed.
Hague argued previous measures had held up Iran's nuclear work. The EU made very clear that it will not bow to Iran's intimidation and bullying tactics, he said.
We want Iran to come to the table and negotiate meaningfully about its nuclear programme. Despite events this week we still want a diplomatic solution.
The uneasiness in Britain's relations with Iran dates from long before the 1979 Islamic Revolution.
Brigadier General Mohammad Reza Naqdi of the Basij militia, which participated along with hardline students in the embassy incident, said Iranians were tired of decades of London's plots against Tehran, the official IRNA news agency reported.
EU diplomats who visited the embassy told Reuters of severe damage. I saw two rooms where you couldn't see what they were. There was just ashes ... It was devastating to see, one said.
You could tell the action was coordinated, he added.
The incident has bared a rift within Iran's ruling elite, with conservative hardliners pushing Iran towards global isolation as they manoeuvre for the upper hand over President Mahmoud Ahmadinejad ahead of elections in 2012.
CHINA URGES RESTRAINT
Beijing issued an appeal for cool heads. China hopes that the relevant parties can remain rational, calm and restrained, to avoid emotionally charged actions that could intensify the dispute, a Foreign Ministry spokesman said.
Russia warned against cranking up a spiral of tension, saying it undermined the chances Iran would cooperate with efforts to ensure it does not build nuclear arms.
Russia and China have approved four rounds of U.N. Security Council sanctions against Iran over its nuclear programme, after working together to blunt tougher Western proposals.
Iran's seaborne trade is already suffering, with shipping companies scaling down or pulling out as the Islamic Republic faces more hurdles in transporting its oil.
U.S. Vice President Joe Biden told Reuters during a visit to Iraq the storming of Britain's embassy showed Iran's isolation.
I don't have any indication how and or if it was orchestrated, Biden told Reuters in an interview. But what I do know is that it is another example to the world and the region that these guys are basically a pariah internationally.
In Jerusalem, Defence Minister Ehud Barak said an Israeli attack was not imminent but all options remained open to stop what Israel sees as an Iranian bid to develop nuclear weapons.
India's navy said it was monitoring an Iranian cargo ship, with armed men on board, moored off India's southern coast.
Shipping data showed the ship MV Assa was owned and operated by Islamic Republic of Iran Shipping Lines, a company facing sanctions from the United States and the EU.
(Additional reporting by Michael Martina in Beijing, Hashem Kalantari in Tehran, Vladimir Soldatkin in Moscow, David Brunnstrom, Ilona Wissenbach and Sebastian Moffett in Brussels, Jeffrey Heller in Jerusalem and Tim Castle in London; Writing by Andrew Roche; Editing by Jon Boyle)