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The British government has not let go of "the eye" on the seizure of a British-flagged oil tanker in the Gulf on Friday, the Chancellor told the BBC.
Philip Hammond said the UK was working closely with its US and European partners in response to Iran's actions.
But former Conservative Party leader Iain Duncan Smith said the capture of Stena Impero was a "major failure" for the UK.
The Iranian Foreign Minister said that "prudence and foresight" would reduce tensions between Iran and Britain.
This follows the emergence of a recording of radio exchanges between a Royal Navy frigate and Iranian armed forces ships, moments before the seizure of the tanker.
In the registration, an Iranian ship tells HMS Montrose that he wants to inspect the Stena Impero for safety reasons.
What do British politicians say?
Speaking under the BBC's Andrew Marr program, Hammond said the UK would follow "all possible diplomatic channels" to resolve the situation.
He said that sanctions, including financial, against Iran were already in place and that it was not clear what could be done more.
Hammond, who announced his intention to resign if Boris Johnson became Prime Minister, added: "We are looking at all the options, of course."
But Mr Duncan Smith told the BBC that there were questions to be asked about the behavior of the British government.
He said that holding an oil tanker carrying Iranian oil two weeks earlier should have served as a warning regarding the protection of British ships in the Gulf.
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The MP said he understood that the United States had offered the United Kingdom "badets" to support its shipments and they were not used.
"This is a major failure and the government must respond to this accusation very quickly."
Defense Minister Tobias Ellwood told Sky that the Royal Navy was too small to manage UK interests around the world without neglecting the protection of its ships.
Foreign Minister Jeremy Hunt said earlier that Iran saw this as a "total situation", but added that "nothing could be further from the truth".
Petty Justice Minister Richard Burgon said the UK should avoid becoming Donald Trump's "acolytes" and warned that a US-backed conflict with Iran could be worse than the war in Iraq.
What happened?
On Friday, the Stena Impero was seized by the Iranian Revolutionary Guard in the Strait of Ormuz, after Tehran declared that it "violated international maritime rules".
A second British tanker, the Mesdar, was also embarked by armed guards, but was released.
The video published Saturday by the Fars affiliate, affiliated with the Revolutionary Guards, appeared to show the moment the tanker was raided.
HMS Montrose was alerted but was too far away to stop the seizure.
The Iranian state-run IRNA news agency IRNA said the oil tanker was captured after hitting a fishing boat and did not respond to calls from smaller boats.
But Hunt said he was seized in Omani waters in "flagrant violation of international law," and then forced to visit the port of Bandar Abbas in Iran.
The owner of the tanker, Stena Bulk, announced that she had formally requested to be able to visit the 23 crew members, of Indian, Russian, Latvian and Filipino origin.
The seizure of Stena Impero comes two weeks after the Royal Marines helped seize the Iranian oil tanker Grace 1 off Gibraltar, citing evidence that it was carrying oil to Syria in violation of sanctions imposed by the United States. EU.
Hunt said Grace 1 was legally detained, but Iran called it "piracy" and threatened to seize a British oil tanker in retaliation.
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What did Iran say?
Iran's Foreign Minister Javad Zarif tweeted that the United Kingdom "must cease to be an accessory to the #Terrorism of the United States".
He said Iran guaranteed the security of the Gulf and the Strait of Ormuz and insisted that its action "respect international maritime rules".
The ambbadador of Iran in London warned the UK against escalating tensions.
Hamid Baeidinejad said in a tweet"It's quite dangerous and unwise at a sensitive time in the region." "Iran is however firm and ready for different scenarios."
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What is the context of the tensions in the Gulf?
Relations between Iran and the United Kingdom and the United States have deteriorated.
In April, the United States reinforced the sanctions they had imposed on Iran after withdrawing from the 2015 nuclear deal.
The United States has accused Iran of attacking oil tankers since May, which Teheran denies. Friday, the United States claimed to have destroyed an Iranian drone in the Gulf.
The British government remained committed to this agreement, which curbs Iran's nuclear activities in exchange for the lifting of sanctions.
However, help from the United Kingdom during the seizure of the Iranian tanker Grace 1 has angered Iran.
Last week, the UK said the Iranian boats had also tried to prevent a British tanker from going into the area before being warned by HMS Montrose, but Iran has denied this statement.
International reaction
The White House said Friday 's incident was the second time in more than a week that the UK was "the target of growing violence" on the part of the United States. Iran.
The United States Central Command stated that it was developing a multinational maritime effort in response to the situation.
The Pentagon said US troops were deployed in Saudi Arabia to defend US interests in the region against "emerging credible threats."
France and Germany have called on Iran to release the Impero Stena.
The European Union's foreign affairs office, which represents 28 member states, has expressed "deep concern".
The diplomatic solution "will be complicated"
A diplomatic solution to this crisis will be complicated, especially because Britain's relations with its traditional partners – the United States and the Europeans – are tense.
Diplomatic pressure – action at the UN or severe economic sanctions – requires the formation of a coalition.
Remember the collective action against Moscow following the murder of a British woman by Russian agents in Salisbury.
The United States and European and British European allies have all expelled Russian diplomats in an impressive show of solidarity.
But will the same solidarity be shown to Tehran?
France and Germany have provided rhetorical support to London. President Trump stands alongside his British ally.
But the United States and the European Union are fundamentally at odds over the fate of the nuclear deal with Iran and what many European capitals see as a barely disguised US policy that seeks to change regime in Tehran.
Read more badysis here.
How is the oil tanker British?
Ships must fly the flag of a nation-state, says Richard Meade, editor-in-chief of the marine intelligence publication Lloyd's List.
But it does not have to be the same country as its owners, crew or cargo, he says.
The Stena Impero belongs to Sweden and has on board Indians, Russians, Latvians and Filipinos.
But it's the British flag that has a symbolic importance, he says. "Historically, this means that the UK must protect the ship."
"The United Kingdom has political responsibilities towards everything that is reported, and that is why it's much more serious than it just happened to be a British captain aboard . "
He added that the impact on trade in the region had been minimal up to now, but warned that if the international community began to consider the Strait of Hormuz as a dangerous place, it could create a "very different" scenario.
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