European Union foreign ministers have formally adopted an oil embargo against Iran over its nuclear programme.
The sanctions involve an immediate ban on all new oil contracts with Iran, while existing contracts will be honoured until 1 July.
Tehran denies that it is trying to develop nuclear weapons and says talks and not sanctions are the only way to resolve the dispute.
The EU currently buys around 20% of Iran's oil exports.
Meanwhile, the Pentagon said the US aircraft carrier USS Abraham Lincoln, as well as a British Royal Navy frigate and a French warship, have passed through the Straits of Hormuz at the entrance to the Gulf without incident in the wake of Iranian threats to block the trade route.
'Substantial impact'
Under the new deal, EU governments are expected to have to stop signing new contracts with Iran the moment the ban comes into place - which could be as soon as this week, Reuters news agency reports.
All existing contracts will have to be phased out by 1 July.
Extra restrictive measures on Iran's central bank are also expected to be agreed by EU ministers, although no further details have been given.
The BBC's Europe Editor Gavin Hewitt says it is one of the toughest steps the EU has ever taken.
EU foreign policy chief Catherine Ashton earlier said the sanctions were a way of persuading Iran to take part in talks.
"The pressure of sanctions is designed to try and make sure that Iran takes seriously our request to come to the table and meet," she said as she arrived at the meeting in Brussels.
She said world powers had yet to receive a reply to an offer made to Iran in October to hold new talks.
UK Foreign Secretary William Hague said, as he arrived for the meeting, that the measures were an important way of increasing "the peaceful legitimate pressure on the Iranian government to enter into meaningful negotiations with the international community".
In response to the embargo, one senior Iranian politician said Tehran should halt all oil sales to European countries immediately.
Ali Fallahian was quoted by the semi-official Fars news agency as saying that Iran should stop the export of oil before the 1 July deadline "so that the price of oil soars and the Europeans... have trouble".
Rising tensions
The BBC's Iran correspondent, James Reynolds, says oil is the country's most valuable asset and sales help to keep the Iranian government in money and power.
A decision by the EU to stop buying from Iran may damage the Iranian economy - but in itself it won't destroy it, our correspondent says.
Iran sells most of its oil to countries in Asia. The EU and the United States are now working to persuade Asian countries to reduce their purchases from Iran as well.
Iran has already threatened to retaliate over the sanctions by blocking the Strait of Hormuz at the entrance to the Gulf, through which 20% of the world's oil exports pass.
The US has said it would keep the trade route open, raising the possibility of a confrontation.
Late last year Iran conducted 10 days of military exercises near the Strait of Hormuz, test-firing several missiles.
Oil prices have risen already because of the increasing tension and the expected impact of an EU ban on oil supplies to Europe.
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