With Wednesday’s assassination of an Iranian nuclear scientist – widely seen as the latest strike in a broader covert war – and impending sanctions targeting Iran’s oil industry, tensions between the Islamic Republic and the West have escalated to their highest pitch in years.

The assassins remain unknown, but Iran is vowing to strike back against the US and Israel for the killing of Mostafa Ahmadi Roshan.

Iran’s hard-line Kayhan newspaper stated that retaliation is “legal under international law,” and that “assassination of Israeli officials and military members are achievable. One Iranian intelligence official was quoted by the hard-line Rajanews warning that “Iran’s reactions will extend beyond the borders [of Iran] and beyond the region.”

The fevered rhetoric is further proof, analysts say, that what began as a US-led carrot-and-stick policy designed to goad Iran into dropping any aspirations of developing nuclear weapons has turned into a purely punitive approach that leaves Iranian leaders little reason to cooperate.

“They have very few tools in their tool kit right now, and in a sense we have pushed them into a corner with sanctions,” says Anoushiravan Ehteshami, an Iran specialist at Durham University in England.

“So what else do [Iranian leaders] have to lose? If they retaliate, they can change the game a bit, and that’s what they are doing,” says Mr. Ehteshami. “Of course, when you start changing the game a bit, you don’t quite control how much you change. You can unleash all kinds of forces.”

Indeed, the stage appears set for a highly volatile year, as both the United States and Iran prepare for important elections, Tehran faces key decisions on its nuclear program, and an Iranian-American convicted of spying sits on death row in Iran.

Vow to answer 'threats with threats'

When Iran’s supreme religious leader looked out on his nation’s strategic landscape in mid-November, he saw many gathering storm clouds.

Enemies were readying tougher sanctions – perhaps to embargo oil, Iran’s economic lifeblood. They were killing Iranian nuclear scientists. They had sent the computer virus Stuxnet to disrupt Iran’s uranium enrichment. Their agents were reportedly inside Iran, replacing street signs and bricks in buildings with new ones equipped with radiation detectors.

And the United Nations nuclear watchdog had just published details of alleged “systematic” nuclear weapons-related work by Iran through late 2003, and declared of “particular concern” more episodic work as recently as 2009 – prompting fresh global opprobrium.

So Ayatollah Ali Khamenei issued a warning that Iran would “answer threats with threats.”

“Iran is not a nation to sit still and just observe threats from fragile materialistic powers which are being eaten by worms from inside,” Khamenei told military college students in Tehran on Nov. 10. “Iran will respond with full force to any aggression or even threats in a way that will demolish the aggressors from within.”

Since then, Khamenei has stayed true to his promise. When the US and Israel staged or announced military exercises in the neighborhood, so did Iran, unveiling new rocket and missile capabilities.

When the Obama administration said it would target Iran’s central bank and oil flows with fresh sanctions, some Iranian officials warned they would respond by closing the Straight of Hormuz – the most important single chokepoint for global oil supplies. (Senior Iranian military officers later backtracked.)

Dangerous assumptions

And as the US, Israel, and the European Union (EU) stepped up the pressure and sanctions began to bite, Iran repeated that its goal was producing peaceful energy – not bombs – and then enhanced its efforts earlier this month, when it not only began enriching uranium at a new, deeply buried facility, but produced its first prototype fuel rod.

“[Khamenei] has made very clear that he’s not going to back down,” says Farideh Farhi of the University of Hawaii. In recent days Iran’s sacred “guide” stated that Iran was engaged in a crucial battle, comparing it to those of centuries ago when Muslims fought nonbelievers.

She says hard-line Iranian leaders are operating on the basis of dangerous assumptions.

“Threatening to close Hormuz may sound insane, but attacking Iran by the United States or Israelis is even more insane, so they operate on the presumption that this will not happen,” says Ms. Farhi, who has closely followed Iranian politics for decades. Other assumptions: that Iran can withstand any attack; that the US is weak; and that the economically weak EU is also politically weak.

The Obama administration has also held to its own premise that Iranians don’t give in to pressure unless it is a lot of pressure. The US has “operated under that assumption without realizing that we have reached a point where the policy of sticks and carrots has become only a policy of sticks,” says Farhi. “There is absolutely no incentive for Khamenei to do anything else. At this point, what do they get out of compromise?”

That is the question Iran’s leaders will be asking themselves ahead of fresh global nuclear talks – the first in a year – expected soon in Turkey.

“There is a danger: You can actually talk war into happening,” says Ehteshami, coauthor of “Iran and the Rise of its Neoconservatives.”

This year is full of uncertainties that are shaping the agenda, he says. Iran’s March parliamentary election – the first since the 2009 presidential election that sparked mass protests, has been described by some as the “most important” since the 1979 Islamic revolution.

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And in the US presidential election, where being tough on Iran is a no-lose policy, Republican candidates are openly talking of war.

“It is how these have come together in such an unfortunate fashion,” says Ehteshami, “that makes the situation very volatile and dangerous.”