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Mon 2 Jan 2012 10:37 AM

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Iran fires test missiles in Gulf as sanctions loom

Persian state announces nuclear breakthrough after missile test, US tightens noose

Iran fires test missiles in Gulf as sanctions loom
Members of Irans elite Revolutionary Guard shown during military exercises in the Gulf

Iran announced a nuclear fuel breakthrough and test-fired a
new radar-evading medium-range missile
in the Gulf on Sunday, moves that could
further antagonise the West at a time when Tehran is trying to avert harsh new
sanctions on its oil industry.

US President Barack Obama signed a law on Saturday imposing
tougher financial sanctions to penalise Iran for a nuclear research programme
that the West suspects is aimed at developing nuclear weapons.

The move could for the first time hurt Tehran's oil exports,
and the European Union is due to consider similar steps soon.

As tensions have risen, Iran threatened last week to close
the Strait of Hormuz, a narrow Gulf shipping lane through which 40 percent of
world oil flows, if sanctions hit its oil exports.

At the same time, it signalled on Saturday that it was ready
to resume stalled international talks on its nuclear programme.

It says the programme is completely peaceful and, in what
Iranian media described as an engineering breakthrough, state television said
Iran had successfully produced and tested its own uranium fuel rods for use in
its nuclear power plants.

The rods were made in Iran and inserted into the core of
Tehran's nuclear research reactor, the television reported.

Iran is trying to develop its own nuclear fuel cycle to
power reactors without international help. Western countries are sceptical of
some of Tehran's engineering claims but say they fear Iran's enrichment of
uranium to make fuel could eventually lead to it producing a weapon.

In what has become part of a pattern of sabre-rattling in
recent weeks, Iran is finishing a 10-day Gulf naval exercise.

Deputy Navy Commander Mahmoud Mousavi told IRNA state news
agency it had successfully test fired a medium-range surface-to-air missile
equipped with "the latest sophisticated anti-radar technologies".

Iran has apparently delayed pre-announced plans to test its
long-range missiles during the drill, saying the weapons would be launched in
the next few days. Its long-range missiles could hit Israel or US bases in the
Middle East.

The United States and Israel say they have not ruled out
military action against Iran if diplomacy fails to resolve the dispute over its
nuclear programme.

Western analysts say Iran sometimes exaggerates its nuclear
advances to try to gain leverage in its stand-off with the West.

The UN Security Council has already imposed four rounds of
global sanctions on Iran, but Russia and China have refused to back sanctions
that would seriously affect Iran's oil industry, so the EU and United States have
taken measures on their own.

Just how far the latest US measures will go could depend on
how Obama decides to implement them.

The US defence funding bill, approved by Congress last week,
aims to reduce the oil revenues that make up the bulk of Iran's export
earnings. Obama signed it in Hawaii on Saturday, where he was spending the Christmas

If enforced strictly, the sanctions could make it nearly
impossible for most refiners to buy crude from Iran, the world's fourth biggest

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However, Obama asked for scope to apply the measures
flexibly, and will have discretion to waive penalties. Senior US officials said
Washington was consulting foreign partners to ensure the new measures did not
harm global energy markets.

Despite its missile tests, war games and threats to close
the Hormuz Strait, Iran has also made conciliatory gestures, saying it wants to
resume talks with major powers, stalled for a year, about its nuclear research

Western officials suggest the offer may be a stalling tactic
to avert sanctions and buy time for more nuclear progress.

Iranian media reported on Saturday that nuclear negotiator
Saeed Jalili would write to the EU foreign policy chief to say Iran was ready
for talks.

A senior Western diplomat in Tehran, who asked not to be
identified, said the stepped-up Iranian threats show "that they are
worried about losing petrodollars, on which more than 60 percent of the economy

The rising tensions are having an impact at home. Iran's
currency has nosedived in recent weeks as ordinary Iranians have moved money
from savings accounts into gold or foreign currency.

The price of staple foods has increased by up to 40 percent
in recent months and many critics have put the blame on increasing isolation
brought about by President Mahmoud Ahmadinejad's economic and foreign policies.

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