Lisa Holland, foreign affairs correspondent
Iran faces tough new sanctions from the European Union over its nuclear programme as foreign ministers are set to meet in Brussels to discuss an oil embargo.
Diplomats are expected to agree later on phasing in an oil and financial embargo against Tehran over a period of between five and eight months.
The sanctions follow fresh financial measures signed into law by US President Barack Obama on New Year's Eve - and will mainly target the oil sector, which accounts for some 90% of exports to the EU.
The Iranians have threatened to close the Strait of Hormuz - through which 35% of the world's tanker-borne oil exports pass - in retaliation.
But Britain joined the United States and France in sending a flotilla of warships through the sensitive strait on Sunday in a pointed message to the Iranian regime.
The Ministry of Defence confirmed that a Royal Navy Type 23 frigate, HMS Argyll, was part of the the US-led carrier group to pass through the waterway without incident.
Iran insists its nuclear activities are aimed at producing energy not arms.
But a senior British diplomat told Sky News: "There aren't any plausible peaceful reasons for the existence of Iran's 20% enrichment programme at Qom. It's extremely concerning."
"We're working 100% for a diplomatic solution. We want a diplomatic solution to this but all options remain on the table.
"We're doing this because we want Iran to engage on the key issue of their nuclear programme.
"The Iranians come to the table when they feel under pressure. They can stop the pressure. They know how to do so."
France's President Nicolas Sarkozy has accused Iran of lying and denounced what he called its "senseless race for a nuclear bomb", saying "time is running out" and "everything must be done" to avoid international military intervention.
EU countries have already agreed to sanction Iran's central bank, freezing assets used to finance its nuclear drive.
In December the EU broadened its sanctions against Iran to target 180 new individuals and organisations linked to the Islamic Republic's shipping line and the Revolutionary Guards Corp.
The EU imported some 600,000 barrels of Iranian oil per day last year, according to the International Energy Agency, making it a key market alongside China, which has refused to bow to pressure from Washington and India.
About 20% of Iranian oil goes to China. China's co-operation is critical if the West's plan to force Iran to stop uranium enrichment is to succeed.
Like many other non-EU countries China maintains normal co-operation with Iran in energy, economics and trade, which does not violate any of the four resolutions already adopted by the UN Security Council.
Iranian oil accounted for 34.2% of Greece's total oil imports, 14.9% of Spain's and 12.4% of Italy's in the first nine months of last year.
The problem for European governments has been to agree to implement an embargo that gives nations dependent on deliveries from Tehran time to phase out existing contracts.
Some countries, including Britain, France and Germany, wanted a three-month deadline, whereas financially-stressed nations such as Greece, Italy and Spain were requesting up to a year.
EU diplomats have said the grace period will likely end on July 1.
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