REUTERS - Iran's government banned on Thursday all imports of products made in Saudi Arabia, Iranian student news agency ISNA reported.
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The decision was made in a cabinet meeting chaired by President Hassan Rohani, it said.
The deputy head of Iran's powerful Revolutionary Guards (IRGC) told Saudi Arabia it would "collapse" in coming years if it kept pursuing what he called its sectarian policies in the region.
Saudi Arabia, Bahrain, Sudan and Djibouti broke off ties with Iran this week, the United Arab Emirates downgraded its relations and Kuwait and Qatar recalled their ambassadors after the Saudi embassy in Tehran was stormed by protesters.
Saudi Foreign minister Adel al-Jubeir told Reuters on Monday the kingdom was halting air traffic and trade links with the Islamic republic, although none of the few Saudi companies with interests in Iran has yet announced changes to their operations.
Savola, the kingdom's largest food products company, which earns some 13 percent of total revenues from Iran, said on Tuesday it plans to maintain its investments there despite the standoff. But it and the few other Saudi companies doing business in Iran faced increasing public pressure over the course of the week, as consumer and business groups called for boycotts of Iranian products.
Chamber of commerce leaders told local daily newspaper al-Riyadh that Saudi businesses should replace Iranian goods with alternatives from other Arab and Islamic countries. A trade boycott would cause the kingdom little economic harm, they said, noting that imports from Iran mainly consist of pistachio nuts and pickles.
Consumer activist group Mogatah also urged Saudi businesses to remove Iranian goods from their shelves, posting photos of Iranian products for sale in Saudi Arabia on social media along with calls to support the government's policy.
The group scolded Swedish home goods retailer Ikea for selling a Persian carpet with a "made in Iran" label at its stores in Saudi Arabia, and applauded a local Riyadh-based carpet shop chain for deciding to end sales of Iranian rugs.
Tensions between Shi'ite Muslim power Iran and the conservative Sunni kingdom have spiraled since Saudi Arabia on Saturday executed cleric Sheikh Nimr al-Nimr, an opponent of the ruling dynasty who demanded greater rights for Saudi Arabia's marginalised Shi'ite minority.
"The policies of the Saudi regime will have a domino effect and they will be buried under the avalanche they have created," the IRGC's second-in-command, Brigadier General Hossein Salami, was quoted as saying by the Fars news agency.
"If the Saudis do not correct their path, their regime will collapse in coming years."
Salami compared Saudi policies with those of Saddam Hussein, the Iraqi president overthrown by U.S. forces in 2003.
"The path the Saudi regime is taking is like the one Saddam took in the 1980s and 90s. He started a war with Iran, executed prominent clerics and top officials, suppressed dissidents and ended up having that miserable fate."
Saddam, a Sunni, was hanged in 2006 after being convicted of crimes against humanity for the killing of 148 Shi'ite villagers after a failed assassination bid in 1982.
Salami called Riyadh's decision to cut ties with Iran "irrational and hateful" and said the violence in Iraq and Syria were "the direct results of Saudi's sectarian policies in the region."
Iran has accused Saudi Arabia of using the attack on the embassy as an excuse to sever ties and increase sectarian tensions.
The IRGC promised "harsh revenge" against the Saudi royal dynasty for Nimr's death, saying it would "cost Saudi Arabia dearly."