In an audio recording of the conversation between the Iranian Revolutionary Guard and a nearby Royal Navy frigate, shortly before the seizure, the Iranians can be heard saying they want to inspect the Stena Impero oil tanker for security reasons, adding "if you obey, you will be safe".
The seizure of the Stena Impero is thought to be in retaliation to the seizure earlier this month of by Gibraltan forces, after it was believed to be heading to a Syrian oil refinery in breach of European Union sanctions.
What has happened so far?
The US Navy rushed to assist, with American President Donald Trump blaming Iran for the incidents.
Iran denied involvement in the tanker attacks and accused America of promoting an "Iranophobic" campaign.
An American military drone worth £78 million was downed by Tehran, with Iran’s president Hassan Rouhani claiming it had violated their airspace.
The move marked a new high in the rising tensions between the two countries, as Iran’s naval commander warned his forces would not hesitate to down more US drones if they entered its airspace.
Mr Trump then pulled back from the brink of retaliatory military strikes on Iran after he was told 150 people could die.
He has since signed an executive order targeting Iran’s supreme leader Ali Khamenei and his associates with financial sanctions.
Royal Marines from 42 Commando were involved in an operation to seize a supertanker off Gibraltar suspected of carrying oil destined for Bashar al-Assad’s Syrian regime.
They boarded the ship by descending on ropes from a Wildcat helicopter and by using rigid inflatable boats.
In response, Iran’s revolutionary guard warned a British oil tanker could be seized in retaliation.
It is understood the tanker was making passage out of the Gulf through the Strait of Hormuz when the ship was approached by the Iranian vessels. HMS Montrose was nearby and proceeded to come in between.
Warnings were given but no shots were fired and then the Iranian vessels turned around and left.
The arrest was made after authorities seized documents and electronic devices from the vessel.
Two days later the force said the captain, chief officer and two second officers of the vessel had been conditionally bailed without charge.
In a telephone call with Iranian foreign minister Mohammad Javad Zarif, Foreign Secretary Jeremy Hunt offered to facilitate Grace 1’s release in return for guarantees from Tehran that it would not breach EU sanctions on the Assad regime in Syria.
Mr Hunt attended a Brussels meeting of EU foreign ministers on the issue of the Iran nuclear deal.
Mr Hunt said there was a “small window” of hope for preventing the international agreement, aimed at stopping Tehran gaining nuclear weapons, from unravelling.
Both he and Tory leadership rival Boris Johnson later ruled out supporting Mr Trump should he pursue military action in the Gulf.
Iran's Supreme Leader Ayatollah Ali Khamenei called the seizure of the Grace 1 tanker “piracy” and vowed to retaliate.
He said: “God willing, the Islamic Republic and its committed forces will not leave this evilness without a response.”
US officials said they suspected Iran had seized a Panamanian-flagged oil tanker from the United Arab Emirates as it travelled through the Strait of Hormuz.
The tanker had turned off its tracker three days before as it entered Iranian waters.
Iran later said its Revolutionary Guard had seized a foreign oil tanker and its crew of 12 for smuggling fuel out of the country.
US President Donald Trump said the USS Boxer had shot down an Iranian drone that came within 1,000 yards of the warship and ignored calls to stand down.
Iranian military officials denied one of its drones had been lost in the Strait of Hormuz
Two oil tankers are reported to have been seized by Iranian authorities in the Persian Gulf.
The Stena Impero, registered in the UK, was seized by the Iranian Revolutionary Guard in the Strait of Hormuz for “violating international maritime rules”, the semi-official Fars news agency said.
A second oil tanker, the Liberia-flagged Mesdar, managed by Glasgow-based firm Norbulk Shipping UK, appeared to veer off course towards the Iranian coast.
The Mesdar's operator said the ship was boarded by armed guards but the crew were left "safe and well" and allowed to continue their voyage.
Mr Hunt called the ships' seizure "unacceptable" and attended a meeting of the Government's emergency committee Cobra.
The Foreign Secretary said the seizure of the Stena Impero raised "very serious questions" about the security of British and international shipping in the region following a meeting of the Government's emergency committee Cobra.
Giving details on a phone call with his Iranian counterpart, Mr Hunt said Mr Zarif saw the situation as "tit for tat" following the detention of the Grace 1.
Mr Hunt said MPs would be updated about what "further measures" the Government will take on Monday, adding that the threat level had been raised to three.
What is the situation as it stands?
Tensions between the United States and Iran have ratcheted up several notches in recent weeks, with Washington dispatching warships and bombers around the Persian Gulf, and Tehran announcing it would break uranium stockpile and enrichment limits set by its nuclear deal with world powers.
These increased strains come a year after Mr Trump withdrew from Iran’s 2015 nuclear accord with world powers and restored crippling sanctions.
In turn, this prompted Iran to say it would not negotiate another deal with Washington.
Foreign Secretary and Tory leadership hopeful Jeremy Hunt has previously said Britain is urging all sides in the dispute to "de-escalate" in order to avoid a slide into armed conflict.
Why is the Strait so important?
Its size belies its importance as one of the most strategic waterways in the world, linking the Middle East’s crude oil producers with key markets around the globe.
The Strait falls between the southern coast of Iran and the most northerly tip of Oman, a distance of around 20 miles at these pinch-points.
It has two shipping lanes, each around two miles wide. Between one-fifth and one-sixth of the world’s oil moves through the strait – around 17 million barrels per day – a significant quantity of the valuable commodity.
Any impasse on oil leaving the Strait could have wide-ranging consequences – including soaring prices and disruption to world supplies.
Will more British troops be sent to the region?
There is a joint base at Ducm in Oman, with a Combined Maritime Forces base in Manama, Bahrain.
HMS Montrose has been in the region since April as part of a three-year deployment supporting counter-terror and anti-smuggling work.
The Royal Navy has had a presence in the region for more than 30 years following the Iran-Iraq war in 1980 in what is known as Operation Kipion.
Ships from both the Royal Navy and Royal Fleet Auxiliary have been on patrol in the Gulf for 24 hours a day, seven days a week and 365 days a year, according to the Royal Navy.
What about US troops?
Following the attacks on American tankers in June, the US said it would increase its military presence in the region.
Acting Defence Secretary Patrick Shanahan said an additional 1,000 troops would be deployed to "ensure the safety and welfare of our military personnel working throughout the region to protect our national interests".
No further details were given on where the additional troops would be deployed.
The June announcement came after President Donald Trump announced an extra 1,500 troops would be sent in May.
Are we heading for war?
Both of the UK's potential new prime ministers have said they have no desire for war with Iran, nor would they back the US if it launched military action.
However, both Mr Shanahan and US Secretary of State Mike Pompeo have reiterated that the US has no desire to go to war, as has Iran.