US and Britain target financial ties in attempt to undermine nuclear funding – but critics say it is collective punishment

The US and Britain are leading a new wave of international sanctions targeting Iran's banks and oil industry following the International Atomic Energy Agency's report earlier this month that said Tehran worked for many years to develop nuclear weapons and may still be doing so.

Britain has used counter-terrorism powers to order its financial sector to cut all ties with Iranian banks in an attempt to undermine funding of the nuclear programme. The US announced measures intended to limit Tehran's ability to refine its own fuel as well as targeting Iran's Revolutionary Guards' financial interests.

The French president, Nicolas Sarkozy, wrote to European leaders as well as the US and Japan calling for "unprecedented" sanctions against Iran, including a halt to buying its oil.

But the measures are expected to have a limited impact in the face of resistance from China and Russia to strengthening global sanctions against Iran through the United Nations security council.

Britain went the furthest by, for the first time, cutting an entire country's banking system off from London's financial sector. It said that Iranian banks "play a crucial role in providing financial services to individuals and entities within Iran's nuclear and ballistic missile programmes".

The foreign secretary, William Hague, said the measures are part of increasing pressure on Iran to engage with the IAEA and foreign governments about its nuclear programme.

"The IAEA's report last week provided further credible and detailed evidence about the possible military dimensions of the Iranian nuclear programme," he said. "Today we have responded resolutely by introducing a set of new sanctions that prohibit all business with Iranian banks.

"We have consistently made clear that until Iran engages meaningfully, it will find itself under increasing pressure from the international community. The swift and decisive action today co-ordinated with key international partners is a strong signal of determination to intensify this pressure."

British diplomats said the Iranian central bank plays a direct role in procuring equipment for its nuclear programme and added that the sanctions were also intended to punish Tehran for its refusal to compromise over its enrichment of uranium, which can produce reactor fuel or fissile material for a bomb, despite a series of UN security council sanctions calling on it to do so. They said that denying Iran access to the international financial hub in London would raise the cost and hassle for the Iranians of doing business with the rest of the world.

Canada took a similar step against Iran's central bank.

In Washington, President Obama said additional US sanctions are intended to discourage business with Iran's petrochemical industry, which traditionally has produced plastics and similar products but has increasingly been used to refine petrol because international sanctions have hit Tehran's refineries.

"New sanctions target for the first time Iran's petrochemical sector, prohibiting the provision of goods, services and technology to this sector and authorising penalties against any person or entity that engages in such activity," Obama said. "They expand energy sanctions, making it more difficult for Iran to operate, maintain, and modernise its oil and gas sector.

"As long as Iran continues down this dangerous path, the United States will continue to find ways, both in concert with our partners and through our own actions, to isolate and increase the pressure upon the Iranian regime."

Washington designated Iran a territory of "primary money-laundering concern" in the expectation that it will discourage foreign banks from doing business with Iranian financial institutions.

However, Washington continues to avoid directly targeting Iran's central bank because if Tehran is unable to carry through financial transactions necessary to sell its oil, that could force the cost of petroleum up and hit the US economy.

The US secretary of state, Hillary Clinton, called the measures a "significant ratcheting-up of pressure" on Iran and said other countries will follow in the days ahead.

In his letter, Sarkozy said that Iran's nuclear programme represents a "serious and urgent threat to peace". He called for a halt to purchasing Iranian oil and for the assets of Iran's central bank to be frozen. EU foreign ministers are also expected to consider further measures at a meeting on 1 December.