Foreign Secretary William Hague has told MPs the UK does not want a military conflict with Iran over its nuclear programme.
He said the aim of an EU oil embargo was to get Iran to return to negotiations over its nuclear plans.
Defence Secretary Philip Hammond says military reinforcements could be sent to the Gulf, if necessary.
Mr Hague said "all options remain on the table" but the UK did not "want to see a military conflict over this".
Tehran insists its nuclear programme is for energy purposes.
But the European Union agreed sanctions on Monday to ban all new oil contracts with Iran and freeze the assets of Iran's central bank in the EU. Iran said the embargo is "unfair" and "doomed to fail".
On Sunday the UK sent HMS Argyll as part of an international warship flotilla through the Strait of Hormuz - amid earlier suggestions from Iran that the route could be shut, if oil sanctions were imposed.
In total, 35% of the world's tanker-borne oil passes through the strait. The EU buys about 20% of Iran's oil exports.
In the Commons, Mr Hague questioned whether Iran would really make good on its threat - as 95% of its own oil exports passed through the strait.
He said the "routine movement" by HMS Argyll, a French vessel and US carrier group through the Strait of Hormuz "underlined the unwavering international commitment to maintaining rights of passage under international law".
But he was pressed by Conservative MP Robert Halfon, who asked if a new "nuclear dictatorship" was rising in the Middle East - and demanded to know: "What military action Britain and the allies are planning in the Strait of Hormuz?"
"No-one wants war but tragically it is looking increasingly possible," Mr Halfon said.
But Mr Hague said the sanctions were designed to prevent conflict.
"This is not a set of actions designed to lead to any conflict but to lead us away from any conflict by increasing the pressure for a peaceful settlement of these disputes."
But he added: "We have many contingency plans for many contingencies, including as the Defence Secretary said at our press conference this morning, for sending any further naval forces to that area.
"But we are not planning to take military action in the Gulf. We call on Iran to return to the negotiations which are at all times available to it."
Former Labour foreign secretary Jack Straw, who now co-chairs the all-party Parliamentary group on Iran, said: "We know there are strong demands in parts of the Israeli administration for unilateral action, this is running into the US presidential election."
He said the UK "should not in any way, including Diego Garcia, should not in any way participate in any kind of military action without the clearest legal base from the [UN] security council".
Mr Hague stressed: "We are not calling for or advocating military action. It's the job of our armed forces to prepare for many contingencies but we are not calling for that."
He said any future conflict, anywhere in the world, would be subject to a Commons vote - as was the case with Libya in 2011, a day after the first UK air strikes.