Senior U.N. inspectors arrived in Iran on Monday to push for transparency about its disputed nuclear programme and several European states halted purchases of Iranian oil as part of Western moves to pile pressure on a defiant Tehran.
Iran denies Western allegations that it is covertly seeking the means to build nuclear weapons and has again vowed no nuclear retreat in recent weeks, but also voiced willingness to resume negotiations with world powers without preconditions.
The five-member International Atomic Energy Agency team, led by chief IAEA inspector Herman Nackaerts, planned two days of meetings in another attempt to get answers from Iran regarding intelligence suggesting it is trying to develop atomic bombs behind the facade of a declared civilian nuclear programme.
Nackaerts said on departure from Vienna that he wanted "concrete results" from the talks. His delegation was expected to seek, among other things, to question Iranian nuclear scientists and visit the Parchin military base believed to have been used for high-explosive tests relevant to nuclear warheads.
But Foreign Minister Ali Akbar Salehi dampened speculation about increased IAEA access when he told the student news agency ISNA that the agency officials would not be going to any nuclear sites. "No. Their work has just begun," Salehi said.
Diplomats doubted that the talks would bring a breakthrough.
"I believe most are rather sceptical concerning the outcome because, well, Iran had a chance at the last meeting and didn't seize it," a senior Western official said, referring to the last trip by the senior IAEA team to Tehran at the end of January.
Referring to last week's announcements by Iran of new nuclear advances, he said: "They send out the wrong signals that Iran is really willing to cooperate... We will wait and see what will come out of this meeting but we should be prepared that Iran might try some technical steps ... to appear cooperative without really providing the necessary cooperation."
The outcome of the discussions will have diplomatic repercussions because it could either deepen a stand-off that has stoked fears of war or provide scope to reduce tensions.
In a sign of Iranian concern about possible, last-resort air strikes by arch-enemies Israel or the United States, Tehran on Monday began a four-day military exercise in protecting its nuclear sites, according to Iranian media.
"(It) will practice coordination between the Revolutionary Guards and regular army and air defence units in establishing a defence umbrella over our vital centres, particularly nuclear facilities," the labour news agency ILNA said.
The European Union enraged Tehran last month when it decided to slap a boycott on its oil from July 1. On Monday, the European Commission said Belgium, the Czech Republic and the Netherlands had already stopped buying Iranian oil, while Greece, Spain and Italy were cutting back on their purchases.
In retaliation for oil sanctions, Iran, the world's fifth-largest crude exporter, has threatened to close the Strait of Hormuz, conduit for a third of the world's seaborne oil, and the United States signalled it would use force to keep it open.
On Sunday, Iran's oil ministry announced a retaliatory halt in oil sales to French and British companies, although that step will be largely symbolic as those firms had already greatly reduced purchases of Iranian crude.
The spiking tension has put upward pressure on oil prices.
Deputy Oil Minister Ahmad Qalebani suggested the Western crackdown would backfire, saying that in targeting Iranian oil the West had achieved only a surge in crude prices from $103 a barrel to $120, "and it will reach $150".
In remarks carried by the official news agency IRNA on Monday, Qalebani also said that if other EU states continued "their hostile behaviour towards Iran, we will cut our oil exports to those countries ... Fortunately demand for Iran's crude has not decreased. Instead it has increased."
But the EU could cope with an abrupt halt by Iran of its oil exports as buyers of Iranian oil are already adjusting to the EU's forthcoming ban on Iranian shipments, an International Energy Agency (IEA) official said on Monday.
China, in rare criticism of one of its major oil suppliers, rebuked Iran over the move to bar sales to Britain and France.
"We have consistently upheld dialogue and negotiation as the way to resolve disputes between countries, and do not approve of exerting pressure or using confrontation to resolve issues," Foreign Ministry spokesman Hong Lei told a news briefing when asked about the matter.
China buys around 20 percent of total Iranian oil exports.
Debt-ridden Greece is most exposed to Iranian crude disruption among EU countries.
Iran says its nuclear programme is wholly peaceful but its refusal to curb uranium enrichment, which can have both civilian and military ends, while shifting a key part of it to a remote mountain bunker protected from air strikes and continuing to restrict IAEA access, has raised suspicions.
The United States and Israel have not ruled out using force against Iran if diplomacy and sanctions fail to rein it in, and there has been intense public discussion in Israel about whether it should attack Iran to stop it "weaponising" enrichment.
The top U.S. military officer said on Sunday that a military strike would be premature as it remained unclear whether Tehran would put its nuclear capabilities to developing a bomb, saying he believed the Tehran government was a "rational actor".
Chinese Foreign Ministry spokesman Hong said using force would be the wrong answer. "Attacking Iran militarily would only worsen the confrontation and lead to further upheaval in the region," he said.
Israeli Deputy Prime Minister Dan Meridor, who also holds the intelligence portfolio, said the sanctions regime had been toughened to the point of causing "hysteria" in Iran.
"All this shows the pressure which this regime is under, but they have not yet decided to shut down their nuclear effort, so the struggle is on," Meridor told reporters in Jerusalem. "I think there is a chance of success (for sanctions) if it they are done with determination, persistence and leadership."
The West has expressed some optimism at the prospect of new talks with Tehran, particularly after it sent a letter to EU foreign policy chief Catherine Ashton last week promising to bring "new initiatives" to the table with six world powers without stating preconditions.
"In these negotiations, we are looking for a way out of Iran's current nuclear issue so that both sides win," Iranian TV quoted Foreign Minister Salehi as saying on Sunday. The last round of talks collapsed in January last year.
Oil is a pillar part of Iran's export revenues and an important lifeline for its increasingly isolated economy. Tehran has little refining capacity and must import about 40 percent of its gasoline needs for domestic consumption.
Tighter sanctions, combined with high inflation, have squeezed the ability of working-class Iranians to feed themselves and their families, and this uncertainty will cloud a parliamentary election on March 2.
"Everything's become so expensive in the past few weeks," said Marjan Hamidi, a shopper in Tehran. "But my husband's income stays the same. How am I going to live like this?" (Additional reporting by Ramin Mostafavi in Tehran, Susan Cornwell in Washington, Fredrik Dahl in Vienna and Crispian Balmer in Jerusalem; Editing by Mark Heinrich)