Iran angry over EU unity on oil embargo

"If they increase pressure on our country, we can use the Strait of Hormuz as a tool to decrease the pressures and closing the strait is one of the options," Mr. Fallahian said today. Most analysts doubt Iran could keep the Strait closed for long, given the overwhelming military superiority of the US and allies who would view closing the sea lane as an act of war.

In recent weeks, other senior Iranian officials have warned that they would close the strait – through which much of Iran's own oil exports flow – if the EU embargoed Iranian oil.

First Vice President Mohammad Reza Rahimi, a loyalist of President Mahmoud Ahmadinejad who has been embroiled in financial scandals, warned last month that Iran would not allow "even one drop of oil" to pass through Hormuz if oil sanctions were imposed.

The Revolutionary Guard backed away from that threat over the weekend. But Mohammad Kassari, deputy head of Iran's parliamentary foreign affairs committee, said today the Strait of Hormuz "will definitely be closed" if there is "any disruption" to the sale of Iranian oil.

Upcoming election

US and European officials have long said sanctions only target regime officials and entities linked to Iran's nuclear, missile, and other programs. But the most recent measures against Iran's central bank and oil deals are unprecedented in their scope, and will further complicate the lives of countless ordinary Iranians.

From freezing bank accounts abroad – thereby making it more difficult to pay for foreign schooling for Iranian kids, for example – to blocking refueling for Iran's national airline at some European airports, Iranians have been affected. 

The potentially crippling sanctions for Iran come as conservative factions are locked in political battle ahead of a March 2 parliamentary vote – the first nationwide election since June 2009, when Ahmadinejad's official reelection was challenged by millions of Iranians taking to the streets.

The president has made no comment on the fall of the currency, prompting media connected to the powerful Revolutionary Guard to say the divisive president was "hibernating."

"People are starting to blame Ahmadinejad, but they are also attributing part of the pressure on the sanctions," says the Iranian analyst, adding that his own efforts to buy a new laptop computer and refrigerator have been thwarted by daily price rises.

The president forced down interest rates at the end of last year. And liquidity in the economy – due in part to reforms that have replaced some key subsidies with government payments into personal bank accounts – is double what it was in before Ahmadinejad came to office in 2005, says the analyst.

"Mismanagement started the downward spiral; the sanctions are now fueling it ... even though they are trying to present a brave face," says the analyst.

Less maneuverability

As Iran's economic maneuverability has been curtailed, with US officials leading the charge to cut off banking, credit, and insurance lines worldwide, its defiant statements have become increasingly threadbare.

One measure of Iran's difficulties is evident in the request Iran made to India to use Japanese yen to pay for part of its $9.5 billion annual crude trade, according to a report today by Bloomberg.

India last week proposed to Iran, its second-biggest oil supplier, to pay in rupees. A Turkish bank which handled transactions until now has "told Indian refiners it may no longer be able to act as an intermediary," Bloomberg reported.

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