European Union governments are expected to finalize new economic sanctions against Iran over its nuclear programme on Monday, including plans to phase in an oil embargo.

The sanctions follow financial punishments signed into law by the United States on New Year's Eve and will mainly target the oil sector, which accounts for some 90 per cent of Iranian exports to the European Union. Europe is Iran's second-largest oil customer after China.

"We want them to think, 'This is really getting very, very serious now'," one European diplomat told Reuters.

Ahead of Monday's meeting in Brussels, French and British warships joined a US carrier group and passed through the Strait of Hormuz, the narrow passage between Iran and Oman, which Iran has threatened to close, thus imperiling much of the world's oil supply.

The maneuver was meant "to underline the unwavering international commitment to maintaining rights of passage under international law," a spokesman from the UK defence ministry said.

Western countries believe Iran's uranium enrichment programme is part of an effort to build a nuclear bomb, but Tehran says its nuclear programme is to generate electricity.

Grace period

Other than the oil embargo, the EU measures are also expected to include sanctions against the Iranian central bank and a ban on trading in gold with the government, diplomats say.

Dorsa Jabbari with reactions from Iranians on the proposed sanctions

But EU sanctions are likely to take effect slowly. During weeks of negotiations among the EU's 27 members, Greece and other southern European states pushed hard for a lengthy grace period to limit their own economic costs.

Greece imports nearly a quarter of its oil from Iran and has argued that it needs time to find alternative sources.

EU foreign ministers meeting in Brussels are expected to agree to phase in the embargo, allowing existing contracts to be fulfilled for several months after the ban is imposed.

EU diplomats say the grace period will likely end on July 1, but ministers will also debate the idea of setting up a review beforehand to assess the impact and costs of the ban.

They will also reassure Athens that it will still be able to buy oil on reasonable terms after the ban goes into effect.

Greece, which relies on financial help from the EU and the International Monetary Fund to stay afloat, now gets Iranian crude on preferential financing terms.

"The financial situation of Greece at the moment is not the brightest one, and rightly they are asking us to help them find a solution," a senior EU official told reporters on Friday.

With a significant part of EU purchases of Iranian oil covered by long-term contracts, the grace period will be an important factor in the efficiency of EU measures.

The unprecedented effort to take Iran's 2.6 million barrels of oil per day off international markets has kept global prices high, pushed down Iran's rial currency and caused a surge in the cost of basic goods for Iranians.

A diplomatic push is underway, officials say, to secure supplies from other producers. Saudi Arabia, the world's top producer, said this month it would increase production by about 2 million barrels per day.

PHOTO CAPTION

Iranian foreign minister Ali Akbar Salehi (L) has warned neighbours ally with the United States.

Aljazeera