March 8 (Bloomberg) -- The United Nations' nuclear agency cleared the way for the Security Council to weigh possible sanctions against Iran after three years of inspections failed to declare the Islamic Republic's atomic work peaceful.

The Security Council will call on Iran to cooperate fully with IAEA inspectors ``as a first step,'' the U.S. ambassador to the International Atomic Energy Agency, Gregory Schulte, said in a statement delivered to the agency's board today. ``Iran will face consequences if it does not meet its obligations.''

Javad Vaeidi, Iran's chief IAEA delegate, later told reporters the U.S. may face action over the Security Council referral. ``The U.S. may have the power to cause harm and pain, but it is also susceptible to harm and pain,'' he said without elaborating. ``If the U.S. wishes to choose that path, let the ball roll.''

The Security Council may debate Iran ``later this month,'' according to a statement from France, Germany and the U.K., the so-called EU-3, which have led the European Union's negotiations with Iran over the country's nuclear plans. The U.S. says the program is aimed at making an atomic bomb, while Iran maintains the program is intended to generate electricity.

The IAEA can't ``conclude that there are no undeclared nuclear materials or activities in Iran,'' IAEA Director General Mohamed ElBaradei said in a report to diplomats at the agency today. The Vienna-based IAEA voted Feb. 4 to report Iran to the UN Security Council pending ElBaradei's latest assessment.

`Military Dimension'

``Maybe for the next few weeks, few months there will be some division of labor,'' ElBaradei told reports after the meeting. The IAEA ``will continue to do the verification here, the Security Council will continue to deliberate on the global political picture to make sure that we can get Iran to cooperate.''

The three EU nations said they believe that Iran's nuclear program has a ``military dimension,'' adding that there is a ``crisis of confidence'' over Iran's intentions.

``Warmongers in Washington'' are undermining Iran's right to develop nuclear energy, the country's IAEA ambassador, Ali Asghar Soltanieh, told reporters. Iran will continue to abide by the nuclear Non-Proliferation Treaty and allow inspections of declared nuclear sites, he said.

``The leadership in Tehran has thus far chosen a course of flagrant threats and phony negotiations,'' Schulte told reporters after the meeting. Iranians shouldn't be allowed to master the ``know how'' to enrich uranium, he said. Iranians still ``deserve nuclear energy,'' according to Schulte.

ElBaradei urged the U.S. and Iran to ``tone down'' their rhetoric. The two countries, who severed diplomatic relations after the Iranian revolution in 1979, may need to re-start direct talks to solve the problem, which adds to instability in the Middle East.

``Once we get to security issues, the U.S. should be engaged in the dialogue,'' ElBaradei said.

Iran, holder of the world's second-largest reserves of oil and gas, said it has the right to produce enriched uranium. The material can be used in nuclear reactors and bombs.

The 25-nation EU ``deplored'' Iran's resumption of enrichment work, saying ``the Security Council should now put its weight behind the board's requests,'' according to the EU-3's statement.

Won't Restrict Oil

Iran will not immediately retaliate by restricting oil exports, Vaeidi said. The country will evaluate its oil policy and ``conform to the new situation,'' he told Reuters TV.

Iranian Oil Minister Kazem Vaziri-Hamaneh said his country has no intention of reducing oil exports. Iran is planning to raise output capacity to 5.2 million barrels a day from 4.2 million, he said at a meeting of the Organization of Petroleum Exporting Countries in Vienna.

``Oil flow is continuing, and the exports will not be stopped,'' Vaziri-Hamaneh said, speaking through a translator. ``So far, there is no reason to change our position. We have no intention to reduce our exports.''

Crude oil today declined 78 cents, or 1.3 percent, to $60.80 a barrel at 10:46 a.m. on the New York Mercantile Exchange. OPEC is keeping oil production near a two-decade high because of the Iran atomic crisis and the conflict in Nigeria.

Oil Market

``The oil market is paying a high price for a very aggressive U.S. foreign policy,'' said Rafael Ramirez, Venezuela's oil minister, speaking to reporters during an OPEC meeting in Vienna today. ``As long as there is pressure on oil-producing countries, there's not going to be stability in the market.''

The U.S. and Russia told Iran to obey international demands to limit its nuclear program yesterday, with Vice President Dick Cheney warning of ``meaningful consequences'' for defiance of IAEA requests to cease uranium enrichment.

``The threat posed to the United States by Iran is as great in our judgment as any foreign policy challenge our country faces,'' the U.S. State Department's political-affairs chief, Nicholas Burns, told the House International Relations Committee today.

To contact the reporters on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net; Andrea Dudikova in Prague at adudikova@bloomberg.net.

Last Updated: March 8, 2006 12:46 EST