Britain will support an embargo on Iranian oil imports following the deterioration of relations between the two countries, diplomatic sources told Reuters, as France tried to rally support for new sanctions within the EU.

Britain shut down the Iranian embassy in London and expelled all its staff on Wednesday, saying the storming of the British diplomatic mission in Tehran could not have taken place without some degree of consent from Iranian authorities.

"Now that the UK has downgraded diplomatic relations with Iran, it will support increased sanctions ... and would likely go ahead with those sanctions unilaterally or with France and Germany," said a diplomatic source, referring to the ban on Iranian crude oil imports.

A British government source said Britain was "broadly supportive" of further energy sanctions on Iran when asked about the proposal for an Iran embargo.

Britain imposed sanctions on Iran's central bank last week after a report by the UN's International Atomic Energy Agency suggested Iran may have worked on developing a nuclear arsenal.

US sanctions already forbid imports from the Opec member and the European Union is considering new sanctions against Iran - which may include oil - to press Tehran to abandon its nuclear activity.

But diplomats said earlier this week that the French proposal for an embargo is being met with resistance from some EU capitals, which could shrink the pool of backers.

Britain has not recently imported Iranian oil but France and Germany have, according to the International Energy Agency.

About 450,000 barrels per day of Iranian oil is exported to European Union, where Italy is the biggest buyer with 183,000 bpd or 13 percent of its needs, Spain with 137,000 bpd (13 percent) and France with 49,000 bpd (4 percent), according to the latest US data.      

Industry sources told Reuters EU countries could negotiate with the world's top oil exporter Saudi Arabia with the aim of replacing some of Iran's main export grade Iranian Heavy with a similar grade Arab Light.

"Saudi Arabia would have to make up the deficit in supply because I really can't see Greece being happy if the oil market goes to $130 to $150 per barrel," said a senior trade source.

He said any decision on a ban could come with a three-month notice to allow refiners to switch to alternative suppliers.

China is seen as the most likely buyer of extra Iranian volumes in the event of a European ban, with discounting possible due to reduced competition for supplies. - Reuters