But analysts and diplomats say the Iranian economy, which is already struggling to create enough jobs despite surging oil revenues, would be vulnerable particularly to restrictions on gasoline imports, European financing and industrial components.

But Iran may be betting it will not face any severe penalties soon because divisions at the United Nations may delay the process and limit sanctions to asset freezes or travel bans on officials -- steps the world's fourth largest oil exporter feels it can handle.

"If we are put under sanctions, we will be under pressure but the pressure will not harm us," Alireza Sheikh-Attar, deputy foreign minister for economic affairs, was quoted as saying by the official IRNA news agency.

Iranian President Mahmoud Ahmadinejad has also shrugged off the threat and insists Iran will not halt uranium enrichment, which the West says Iran is using to make atomic bombs. Tehran says it wants to build nuclear energy plants, not weapons.

"Our nation is a strong nation. A nation that has been able to attain the nuclear fuel cycle with its bare hands can solve any other problems," the president said on Wednesday.

Economists say some of Iran's confidence may be well placed because it has learnt to cope with almost a decade of U.S. sanctions which have encouraged greater self-sufficiency.

"We haven't joined the global economy and because of this we will not die under potential economic sanctions," said economic analyst Saeed Laylaz but he added that this did not mean sanctions could be brushed off as lightly as officials suggest.

"It will be difficult, harmful and expensive for the economy of Iran. Even now, only because of the U.S. sanctions, we are losing between $10 billion to $15 billion per year," he said.

 Economists say restrictions on financing from European banks, Iran's main trade financiers which are already treading warily because of the nuclear dispute, would hike borrowing costs for Iranians and make it tougher to import equipment.

For now, Iran's coffers are brimming with petrodollars, so the central bank is able to help businesses which need hard currency for trade. Iran's oil revenue is forecast to reach $54 billion in the Iranian financial year to March 2007.

But even with this windfall, economic growth of 5.5 percent has missed forecasts and unemployment officially still runs at 12 percent. Unofficial estimates suggest it is much higher.

Iran is also being forced to dip into reserves meant for use when oil prices tumble. The central bank, which has few tools to soak up the extra liquidity in the market, has already warned the government that priming the economy will push up prices.

"The (reserve) cushion is not a real cushion, it is also a danger. If the government continues to pump oil money into the economy, you will have more inflation," said a Western diplomat.

Inflation is now running at a little more than 10 percent and economists say major price rises would mostly hurt the poor -- the president's core constituency which he promised to help.

Iran is also heavily dependent on imported gasoline because its refineries cannot produce enough to meet demand which has grown rapidly because of subsidies that keep prices at just 9 U.S. cents a litre (34 U.S. cents a gallon). This makes Iran vulnerable to fuel import restrictions.

But major powers may be wary of such a step because it could hurt the public more than the government and spark social volatility in a country where cheap abundant fuel is considered a national birthright, analysts say.

The government has itself backed away from rationing fuel in part for fear of the social impact, analysts add.

If sanctions are imposed, Iran has said it could possibly cut oil supplies, driving already high international oil prices higher still. But such a step would be costly for Iran because oil exports account for about 80 percent of its export earnings.

However, any punitive measures may be some way off, diplomats say, because Russia and China, both big trade partners with Iran which hold veto powers in the U.N. Security Council, have shown no sign of backing sanctions.