Saudi Arabia on Monday expressed doubts over Iran's claim it could block the main oil shipping route out of the Gulf and made clear it was ready to pump more oil after sanctions threatened to cut Iranian sales of crude.
Brent crude rose above $111 on concerns about global oil supplies if sanctions freeze OPEC's second biggest producer out of the market or push it towards military conflict, while Saudi Arabia said it would work to stabilise the price at $100.
Israel, which has often said it could strike Iran to stop it developing nuclear weapons, called for tough new sanctions against Tehran to stop its nuclear programme.
But it said that for sanctions to work effectively, all countries must join in - a subtle swipe at Russia and China which oppose the latest Western moves.
Iran must be stopped and the good news is that Iran can be stopped with economic and diplomatic means once the entire international community gathers together with effective sanctions, Deputy Foreign Minister Danny Ayalon told the BBC.
Tehran has been under a growing array of U.N. and unilateral sanctions for years, but a U.S. bill that President Barack Obama signed into law on New Year's Eve went far further than previously, aiming to stop countries paying for Iranian oil.
The European Union - Iran's second biggest oil customer after China, buying some 450,000 barrels per day of its 2.6 million bpd exports - is also expected to agree to embargo Iranian oil at a foreign ministers meeting on January 23.
The measures go far further than U.N. sanctions agreed by China and Russia and have helped cause a currency crisis in Iran where dollars are now a scarce commodity for Iranians seeking a safe haven for their vulnerable rial-denominated savings.
The new sanctions prompted Iran to threaten to close the Gulf to oil trade if it was prevented from selling its oil and Supreme Leader Ayatollah Ali Khamenei's senior military adviser reiterated Iran would act decisively to protect itself.
Iran would use any tools to defend its national interests, if it was exposed to any dangers, Major-General Yahya Rahim-Safavi said, according to the semi-official Mehr news agency.
Israel - reputed to have the Middle East's only nuclear arsenal - said such talk was more evidence of the need to act quickly against Tehran.
A nuclear Iran would mean a new world order where a very dangerous terroristic regime has impunity and also can control oil flow and oil prices, Ayalon said.
U.S. Joint Chiefs of Staff Chairman General Martin Dempsey is to make his first visit to Israel on Thursday. Israeli media say he will try to persuade his hosts not to surprise Washington on Iran.
Saudi Arabia, Iran's main rival for influence in the Middle East which would play a key role in replacing Iranian oil in he event of an embargo, played down Tehran's talk of closing the Strait of Hormuz, the vital shipping lane for Gulf exports.
I personally do not believe that the Strait, if it were shut, will be shut for any length of time.
I don't think all these pronouncements are helpful to the international oil market or to the price of oil. It's really disturbing.
Our wish and hope is we can stabilise this oil price and keep it at a level around $100, Naimi said.
The leader of China, Iran's biggest oil customer was in Abu Dhabi on Monday, on a six-day tour of the region where he hopes for greater access to its huge oil and gas reserves.
Although Beijing opposes further international sanctions on Iran, it has already cut its purchases of Iranian oil by more than half for the first two months of this year.
A senior Iranian oil official denied reports that Iran's exports to Asia were already suffering due to the intensified sanctions pressure, saying contracts were bring renewed on schedule.
In addition to the confrontation with the United States over sanctions, Iran has accused it of being behind the latest murder of a nuclear scientist, blown up by a bomb attached to his car last in Tehran week, a charge Washington denies.
Parliament speaker Ali Larijani said some people have been arrested in connection with the assassination, the fifth such killing in the last two years.
Larijani gave no further details but told state-run Arabic language al Alam TV Tehran was ready to deal with sanctions.
We are prepared for oil sanctions and have different scenarios, but we would not announce them in order to avoid alerting our enemies, he said.
(Additional reporting by Peter Griffiths in London; Writing by Robin Pomeroy; Editing by Giles Elgood)