Iran delayed promised long-range missile tests in the Gulf today and Tehran signalled it was ready for fresh talks on its disputed nuclear programme.
Iran's state media initially reported early today that long-range missiles had been launched during naval exercises, a move that may irk the West concerned over threats by Tehran to close off a vital oil shipping route in the Gulf.
But deputy navy commander Mahmoud Mousavi later went on the English language Press TV channel to deny the missiles had in fact been fired.
"The exercise of launching missiles will be carried out in the coming days," he said.
Ten days of Iranian naval drills have coincided with increased tension over Tehran's nuclear programme with Washington and its allies. The European Union said it was considering a ban - already in place in the United States - on imports from the oil producer.
The European Union said it is open to meaningful talks with Tehran provided there are no preconditions on the Iranian side.
Earlier, Iran's semi-official Mehr news agency quoted a senior official as saying that Iran's nuclear negotiator Saeed Jalili will write to the EU's foreign affairs chief to express Tehran's readiness for fresh nuclear talks with major powers.
EU foreign policy spokesman, Michael Mann, said that Catherine Ashton wrote to Jalili in October and had not yet had a response.
"We continue to pursue our twin-track approach and are open for meaningful discussions on confidence-building measures, without preconditions from the Iranian side," he said.
Tehran threatened on Tuesday to stop the flow of oil through the Strait of Hormuz if it became the target of an oil embargo over its nuclear ambitions, a move that could trigger military conflict with countries dependent on Gulf oil.
Iranian oil minister Rostam Qasemi said imposing sanctions on Iran's oil exports would lead to a leap in prices.
"Undoubtedly the price of crude will increase dramatically if sanctions are imposed on our oil ... It will reach at least over $200 per barrel," the Aseman weekly quoted Mr Qasemi as saying.
Reports on Iran threatening to close the strait of Hormuz by Iran were enough to send tremors through oil markets and spike the price of oil.
Iran's show of military might in the Gulf was reflected in the scale of the exercises, which Iranian media said were greater than previous war games. However, Iran test-fired its surface-to-surface Shahab-3 missile during 2009 exercises. It is thought to be capable of striking Israel and US bases in the Middle East.
Washington has expressed concern about Tehran's missiles, which include the Shahab-3 strategic intermediate range ballistic missile with a range of up to 1,000 km, the Ghadr-1 with an estimated 1,600 km range and a Shahab-3 variant known as Sajjil-2 with a range of up to 2,400 km.
Iranian media have given a massive coverage to the drill, with state television broadcasting live in an apparent attempt to strike a patriotic chord among ordinary Iranians concerned about a military strike.
The United States and Israel have not ruled out a military option if diplomacy fails to resolve Iran's nuclear dispute.
The Strait of Hormuz, a crucial route for 40 per cent of the world's oil shipment, is in Iran and Oman's territorial waters. However, under international maritime law it is considered as open to international navigation and shutting it down would we seen as an act of war.
The US Fifth Fleet said it would not allow any disruption of traffic in the world's most important oil route, which connects the biggest Gulf oil producers, including Saudi Arabia, with the Gulf of Oman and the Arabian Sea. At its narrowest point, it is (34 km) across.
Analysts say choking off the strait will hurt Iran's oil-dependent economy, particularly when Opec member Saudi Arabia has pledged to compensate for any shortages in Iran's crude exports to Europe.
Russia and China, Iran's main allies that have protected it from stronger UN sanctions, also have no interest in seeing the oil traffic disrupted in the Gulf and favour resolving the nuclear dispute through talks.
Talks between Iran and the five permanent members of the UN Security Council, the United States, Russia, China, Britain and France, plus Germany (P5+1) stalled in January.
Iran has to date ignored UN Security Council demands to halt its sensitive nuclear work, and the threat to close the strait has been seen as a clear sign of the clerical establishment's concern over the prospect of harsher sanctions. Tehran has in the past threatened to close the waterway only if attacked by the United States and Israel.
"Raising the volume on threats by Iranians clearly shows that they are worried about losing petrodollars on which the country's economy depends on by more than 60 per cent," said a senior western diplomat in Tehran, who asked not to be named.