Iran appears headed for a potentially dangerous confrontation with the west, particularly America, following its refusal to freeze sensitive nuclear activity by Wednesday's deadline, set by the UN Security Council. The head of the UN nuclear watchdog agency warned this week that Iran could be as little as six months away from being able to enrich uranium on an industrial scale. That could give it the capacity to produce fuel for generating electricity or for making nuclear weapons.
China and other major Asian economies are watching the situation with mounting concern because much of their oil is imported from the Persian Gulf. Iran's leaders have recently warned that if their energy-rich nation is attacked by the US, it will strike back at American and allied interests. Yet both sides face constraints.
The Bush administration, facing a sceptical Congress and public opinion at home - and opposition from China and Russia to tougher UN sanctions on Tehran - plays down the possibility of a US strike on Iran. But, for the first time since the US-led invasion of Iraq in 2003, Washington has sent a second aircraft carrier and escorting warships to the Gulf region.
The US has also sent new minesweepers, and missiles that shoot down other missiles, to the Gulf. Iran has the largest ballistic missile arsenal in the Middle East and an impressive array of other weapons. It has recently tested missiles, mines and torpedoes in military exercises near the shipping lanes of the Strait of Hormuz.
The main US dispute with Iran has long been over its nuclear programme. Tehran insists it is for peaceful purposes, but Washington says it's designed to produce nuclear weapons. Also, Iran supported Hezbollah, the militant Shiite movement in Lebanon, when it triggered a six-week war last year with Israel. The Bush administration has accused Tehran of giving arms and training to groups it backs in Iraq, intensifying the sectarian conflict and increasing the number of US casualties.
The US military in Iraq has been authorised to hunt for Iranian agents aiding Shiite militias. Some suspects have already been arrested, prompting protests from Tehran. The biggest risk in such a tense situation is an armed conflict triggered by miscalculation or a minor incident that flares into a broader war.
Both the US and Israel have contingency plans for air strikes to try to cripple Iranian nuclear facilities if diplomacy fails. But Iran is generally assessed to be at least two or three years away from being able to build a nuclear bomb. Moreover, air strikes, particularly if carried out without convincing evidence of Iran's nuclear-weapon-making capacity, would further damage America's international standing.
Tehran, too, faces painful choices. It could probably close the Hormuz Strait to commercial shipping, at least temporarily. However, that would cause an international outcry against Iran, which also needs the strait to export its own oil and gas.
If Iran's inaccurate ballistic missiles were fired at US bases or allies in the Gulf, or at Israel, they would probably cause mainly civilian casualties. That would strengthen anti-Iranian fears in Sunni-ruled states elsewhere in the Middle East.
Michael Richardson is a security specialist at the Institute of Southeast Asian Studies in Singapore. This is a personal comment