Even as Western officials try to tamp-down the drums of war with Iran amid spiking oil prices, Saudi Arabia says it is ready to go to war to defend its interests.

Former Saudi intelligence chief Prince Turki al-Faisal told delegates at a Gulf Cooperation Council conference that Riyahd will use "all available options" to defend itself against Iranian "threats" that might trigger "unwanted military confrontation."

Al-Faisal's comments to the conference in Bahrain late on Tuesday came after Tehran demanded Riyadh rethink its offer to make up for any oil lost to world markets as a result of threatened curbs on Iranian exports.

"Any threat to our interests or security will force us to use all available options to defend our interests, and national and regional security," Faisal was quoted as saying by the Al-Arabiya news channel.

"The mounting escalation and persistent tensions might end up in an adventure with unpredictable consequences or in an unwanted military confrontation."

Iran has warned Western governments that it will close the strategically vital Strait of Hormuz at the mouth of the Gulf, a strategic choke point for much of the world's oil supplies, if they press ahead with sanctions against its key crude exports.

"Iran must not fuel this conflict and must not threaten us when we commit to international decisions," Faisal said. "It must safeguard the security of the Strait of Hormuz and that of the world energy supply."

But Iran, "our partner in achieving the objective of security across the region, based on peaceful foundations, has chosen a different policy that constantly undermines regional security and provokes foreign interventions, which it claims it is trying to get rid of," he said.

Sanctions against Iran stem from Tehran's drive for nuclear weapons. Iran denies the charge, but the International Atomic Energy Agency filed a report saying Tehran has sought - and continues to seek - nuclear technology that only has military applications.

The report, combined with Iran's repeated refusal to allow IAEA inspectors access to its nuclear sites under the Nuclear Non-Proliferation Treaty, has led to concern among Western nations, Saudi Arabia and its Gulf Arab allies, and Israel over Iran's nuclear ambitions.

Nevertheless, US president Barack Obama who is now entering a re-election cycle is keen to avoid a confrontation in the Persian Gulf and skyrocketing oil prices.

Obama said in a letter this week he was ready to enter talks with Iran over its nuclear program despite there having been no direct diplomatic ties between Tehran and Washington, but cautioned that closing the Strait of Hormuz would be crossing a 'red line.'

The Bahrain-based US Fifth Fleet has said any such move would be "an act of war."

NATO officials indicated on Wednesday the alliance has no intention of intervening militarily in the Persian Gulf. NATO is presently planning to open a liaison office with the Gulf Cooperation Council in Kuwait City.

Also on Wednesday, Israeli Minister of Defense Ehud Barak said an Israeli strike on Iran's nuclear program was 'very far off.' However, Barak has also said there are red-lines, such as Tehran reaching high levels of uranium enrichment, which would force Israel to strike.

Nonetheless, al-Faisal's comments now mean the Obama administration has two potential wild cards to deal with - both Israel and Saudi Arabia - as he prepares for an election against a field of Republican challengers competing to prove they are the toughest on a regime Washington has long regarded as a pariah state.