The United States and its allies are weighing focused sanctions against Iran's leadership rather than broad-based penalties that they fear could harm the protest movement, officials and diplomats said.
Increasingly frustrated by Iranian defiance over its nuclear program, the Obama administration has been crafting a "menu" of sanctions that could be imposed by the United Nations or in concert by the United States and its European allies.
US officials, congressional aides and Western diplomats said the administration has grown increasingly cool to broad-based sanctions targeting the oil sector with the aim of destabilizing the Iranian economy.
Such measures, while favored by a growing number of US lawmakers, would not only be a hard sell in the UN Security Council and Europe, but could have unintended consequences like undercutting Iranian public support for the opposition movement, officials and diplomats said.
"This is not about trying to bring Iran to its economic knees. It is about stopping the nuclear weapons program," said a Western diplomat. Broad-based sanctions aimed at destabilizing the overall economy "would just feed into Iranian paranoia" about the West, according to the diplomat, who spoke on condition of anonymity.
Eight people were killed in anti-government protests on Sunday, and Iran has expanded its crackdown on the groups, arresting at least 20 opposition figures.
US President Barack Obama has condemned what he said was the "iron fist of brutality" used to quell the protests and demanded the immediate release of detainees.
Iran has rebuffed the West's year-end deadline to accept an enrichment fuel deal aimed at calming international fears it is trying to build nuclear weapons.
A senior Obama administration official said Washington had given up hope of a breakthrough with Iran by Jan. 1, and played down the prospect of Western powers taking concrete steps against Tehran immediately after the deadline passes.
'Killing several birds with one stone'
The official said discussions over what sanctions to impose were unlikely to begin in earnest within the UN Security Council before mid-January.
Negotiations could take several months.
Support for tougher sanctions against Iran has increased in the US Congress, but Obama administration officials have privately told leading lawmakers that the White House does not at this time support legislation that would curb Iranian imports of gasoline and other refined oil products.
State Department spokesman Ian Kelly said the administration wanted to "ensure that any legislation that emerges preserves the necessary flexibility to pursue the president's policy."
Diplomats said Washington knows that there is little chance of garnering international support for sweeping economic penalties aimed at the broader economy, citing resistance from Russia and China for far more modest penalties.
The targeted sanctions being considered by the White House include expanding travel and other restrictions for individuals and institutions with close ties to the leadership and the Islamic Revolutionary Guard Corps, officials said.
Some European states favor more sanctions targeting the country's financial and insurance sector, diplomats said.
Officials and experts said the sanctions debate was prompted by the resilience of the opposition protests, which began when a June presidential election returned hard-liner Mahmoud Ahmadinejad to power.
"Up until now, the (US) administration thought of sanctions only in the context of altering the Iranian government's nuclear calculations. I think they're now thinking a lot harder about what types of punitive measures would be helpful and hurtful to the cause of democratic reform in Iran," said Karim Sadjadpour, an expert with the Carnegie Endowment for International Peace.
Imposing targeted sanctions against the Revolutionary Guard makes sense because it "potentially kills several birds with one stone," he said, referring to the Guard's oversight of the country's nuclear program, its contacts with militant groups across the region and its role reining in the protests.
"If the Obama administration can deprive them of the ability to sign billion-dollar deals with multinational corporations and turn them into an international pariah, I don't think many tears will be shed for them among the Iranian opposition," Sadjadpour added.