The United States won key support from Japan on Thursday for tough oil sanctions against Iran over a nuclear programme that the West suspects is geared to developing atomic bombs.
Japan pledged to take concrete action to cut Iranian oil imports after visiting U.S. Treasury Secretary Timothy Geithner urged Tokyo, a major importer, to help deprive Iran of vital oil revenues. In Iran, sanctions are biting, with the rial currency losing 20 percent of value against the dollar in the past week.
Escalating tensions over Iran's enrichment of uranium for nuclear energy, which has shifted to an underground mountain bunker better protected from possible air strikes, has raised fears for the flow of world oil supplies and even war.
An Iranian nuclear scientist was blown up in his car by a motorbike hitman on Wednesday. Tehran blamed Israeli and U.S. agents but insisted this would not derail its nuclear activity. Washington denied involvement in the attack and condemned it, while Israel declined comment.
The morning rush-hour bombing - the fifth daylight attack on technical experts in two years - killed 32-year-old Mostafa Ahmadi-Roshan. The chemical engineer's driver was also killed, Iranian media said, and a passer-by was slightly hurt.
The attack came in a week of heightened tensions.
Iran has launched an underground enrichment plant and sentenced an American to death for spying, while Washington and Europe have stepped up efforts to cripple Iran's oil exports for its refusal to halt work the West says betrays an ambition to build nuclear weapons. Iran says its aims are entirely peaceful.
Tehran has threatened to choke the West's supply of Gulf oil if its exports are hit by sanctions, drawing a U.S. warning that its navy is ready to open fire to prevent any blockade of the strategic Strait of Hormuz, through which 35 percent of the world's seaborne traded oil passes.
In Tokyo, Geithner welcomed Japanese cooperation in tightening the screws on Iran, a positive sign for Washington after China and Russia rebuffed sanctions on Iranian oil exports.
China, Japan and India are Iran's top three buyers, taking more than 40 percent of its crude exports. The European Union, which collectively buys another fifth or so of Iran's exported crude, has committed to banning imports of oil from Tehran, an OPEC member and the world's No. 5 crude exporter.
EU diplomats said on Wednesday they were advancing toward agreement on banning imports of crude after a six-month grace period and banning petrochemical products after three - provisions similar to U.S. new legislation. It was likely, however, that EU firms could continue to take Iranian oil in payment for outstanding debts.
Japanese Prime Minister Yoshihiko Noda said he shared serious concerns about Iran's nuclear capabilities but expressed concern that the sanctions could seriously affect the Japanese and world economies, depending on how they were implemented.
President Barack Obama's administration has also announced that it would freeze out financial institutions that deal with Iran's central bank out of U.S. markets.
We are exploring ways to cut Iran's central bank off from the global financial system. We are in the early stages of consulting with Japan and our other allies, Geithner told reporters after the talks with Japanese leaders.
On a visit to Cuba on Wednesday, Iranian President Mahmoud Ahmadinejad said nothing about the bomb attack but flashed the victory sign and said Iran had done nothing to warrant enmity from its enemies.
Have we assaulted someone? Have we wanted more than we should have? Never, never. We have only asked to speak about and establish justice, said Ahmadinejad.
Analysts saw the latest assassination, which would have involved considerable expertise, as less a reaction to recent events than part of a longer-running, covert effort to thwart Iran's nuclear development programme that has also included suspected computer viruses and mystery explosions.
While fears of war have forced up oil prices, the region has seen periods of sabre-rattling and limited bloodshed before without reaching all-out conflict. But a willingness in Israel, which sees an Iranian atom bomb as a threat to its existence, to attack Iranian nuclear sites, with or without U.S. backing, has heightened the sense that a crisis is coming.
Israel, whose military chief said on Tuesday that Iran could expect to suffer more mysterious mishaps, declined comment on Wednesday's bomb attack.
While Israeli or Western involvement seemed plausible to independent analysts, a role for local Iranian factions or other regional interests engaged in a deadly shadow war of bluff and sabotage could not be ruled out.
The Atomic Energy Organisation of Iran, which has failed to persuade the West that its quest for nuclear power has no hidden military goal, said the killing of Ahmadi-Roshan would not deter it. We will continue our path without any doubt ... Our path is irreversible, it said in a statement carried on television.
The heinous acts of America and the criminal Zionist regime will not disrupt our glorious path ... The more you kill us, the more our nation will awake.
Iran's leaders, preparing for the first national election since a disputed presidential vote in 2009 brought street protests against 32 years of clerical rule, are struggling to contain internal tensions. Defiance of Israel and Western powers plays well with many who will vote in March.
In Washington, White House spokesman Tommy Vietor said: The United States had absolutely nothing to do with this (bombing) ... We strongly condemn all acts of violence, including acts of violence like what is being reported today.
Israel, which has a history of covert killings abroad, declined comment, though army spokesman Yoav Mordechai wrote on Facebook: I don't know who settled the score with the Iranian scientist, but I am definitely not shedding any tears.
Analysts say that killing scientists - especially those whose lack of personal protection suggests a relatively junior role - is unlikely to have much direct impact on Iran's nuclear programme, which Western governments allege is seeking to enrich enough uranium highly enough to let it build weapons.
Sabotage - like mysterious reported explosions at military facilities or the Stuxnet computer virus widely suspected to have been deployed by Israel and the United States to disrupt nuclear facilities in 2010 - may have had more direct effects.
However, assassinations may be intended to discourage Iranians with nuclear expertise from working on the programme.
Bruno Tertrais from France's Strategic Research Foundation said: It certainly has a psychological effect on scientists working on the nuclear programme.
Trita Parsi, a U.S.-based expert on Iran, said the killing might, along with the heightened rhetoric of recent weeks, be part of a pattern ahead of a possible resumption of negotiations on Iran's nuclear programme; some parties may want to improve their bargaining position, others may see violence as a way of thwarting renewed negotiations altogether, Parsi said.
Last month, Iran signalled a willingness to return to a negotiating process which stalled a year ago, though Western officials say a new round of talks is far from certain yet given that Iran has said enrichment will not be up for negotiation.
Iran's decision to carry out enrichment work deep underground in the once undeclared plant at Fordow, near the holy Shi'ite city of Qom, could make it harder for U.S. or Israeli forces to carry out veiled threats to use force against Iranian nuclear facilities. The move to Fordow could reduce the time available for diplomacy to avert any attack.
The announcement on Monday that enrichment - a necessary step to turn uranium into atom bomb fuel - had begun at Fordow has given added impetus to Western efforts to impose an oil export embargo intended to pressure Tehran to halt enrichment.
Iran, a signatory to the treaty banning the spread of nuclear weapons, says it is entitled to conduct peaceful research and denies any military nuclear aims. Its adversaries say its failure to take up their offers of help with civilian technology undermine the credibility of its position.
Oil prices have firmed 5 percent since Obama moved on New Year's Eve to block bank payments for oil to Iran.
(Additional reporting by Robin Pomeroy and Mitra Amiri in Tehran, Stanley White and Tetsushi Kajimoto in Tokyo and David Brunnstrom and Julien Toyer in Brussels; Writing by Ralph Gowling; Editing by Mark Heinrich)