Iran said it had delayed its promised long-range missile tests in the Persian Gulf on Saturday and signaled it was ready for fresh talks with the West on its disputed nuclear program.
Iran's state media initially reported early on Saturday that long-range missiles had been launched during naval exercises, a move likely to irk the West, which is concerned over threats by Tehran to seal 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.
Ten days of Iranian naval drills have coincided with increased tension over Tehran's nuclear program 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 major oil producer.
A representative of Germany's Foreign Ministry said Berlin was following events carefully, adding: Foreign Minister [Guido] Westerwelle is concerned that the verbal escalation of the last few days does not lead to a logic of actual escalation.
Analysts say the conflicting reports on the missile test were intended to make the West think twice about ratcheting up pressure on Iran over its nuclear work -- which the West claims, and Tehran denies, is aimed at building nuclear bombs.
The location and the timing of the drill were very shrewd ... then came reports on launching missiles that can target America's bases in the region and Israel, said analyst Hamid Farahvashian.
One of the messages was that you mess with Iran, then you stand to suffer from economic havoc, he said. Iranians have always used this method of carrot and stick ... first they used the stick of closing Hormuz and now the carrot is its willingness for talks.
EU foreign-policy chief Catherine Ashton wrote to Iran's nuclear negotiator Saeed Jalili in October and has not yet had a reply, a representative said. But the bloc was open to meaningful talks with Tehran, provided there were no preconditions.
We continue to pursue our twin-track approach and are open for meaningful discussions on confidence-building measures, without preconditions from the Iranian side, EU foreign-policy representative Michael Mann said via email.
Tehran threatened on Tuesday to stop the flow of oil through the Strait of Hormuz if it were hit by an oil embargo over its nuclear ambitions.
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 Qasemi on Saturday as saying.
Reports of Iran threatening to close the Strait of Hormuz briefly pushed up the price of oil.
'Drumbeat of War'
Iran has fired missiles in past exercises, as in 2009, when it fired the surface-to-surface Shahab-3 strategic ballistic missile, whose range of as far as 1,000 kilometers (620 miles) could enable it to strike Israel and U.S. bases in the Middle East.
Washington has expressed concern about Tehran's missiles, which include the Shahab-3, the Ghadr-1 with an estimated 1,600-kilometer range, and a Shahab-3 variant known as the Sajjil-2 with a range of as far as 2,400 kilometers.
Iranian media have given massive coverage to the drill, state television broadcasting live in an apparent attempt to strike a patriotic chord among ordinary Iranians concerned about a foreign military strike. The United States and Israel have not ruled out a military option if diplomacy fails to resolve the nuclear dispute.
I have already witnessed a war with Iraq in the 1980s ... I can hear the drum beating of the war. A misfired bullet can spark a serious war, said merchant Mohsen Sanaie, 62, glancing over newspaper headlines at a central Tehran newsstand.
He warily pointed at the headline of the Sharq newspaper, Power rally in the Strait of Hormuz.
The strait, through which passes 40 percent of the world's oil, is in the territorial waters of Iran and Oman, but under international maritime law it is considered open to international navigation and shutting it down would be seen as an act of war.
The U.S. Fifth Fleet said it would not allow any disruption of traffic along 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 only 21 miles across.
Analysts say choking off the strait would hurt Iran's oil-dependent economy, particularly when Organization of the Petroleum Exporting Countries member Saudi Arabia has pledged to compensate for any shortages in Iran's crude exports to Europe.
Carrot and Stick Policy
Russia and China, Iran's main allies, have protected it from stronger United Nations sanctions. They too have no interest in seeing oil traffic disrupted in the Gulf and favor resolving the nuclear dispute through talks.
Iranian media reported that Jalili would write to Ashton to express Tehran's readiness for fresh nuclear talks with major powers.
Jalili will soon send a letter to Catherine Ashton over the format of negotiations ... then fresh talks will take place with major powers, said Iran's ambassador to Germany, Alireza Sheikh Attar, the semiofficial Mehr news agency reported.
Talks between Iran and the five permanent members of the U.N. Security Council, the United States, Russia, China, Britain, and France, plus Germany (P5+1) stalled last January.
Iran has to date ignored U.N. 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 at 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 by more than 60 percent, said a senior western diplomat in Tehran, who asked not to be named.
Iranians concerned about a military conflict have shifted to gold and foreign exchange as a hedge. Iran's currency has nosedived in recent weeks because of withdrawals from savings accounts by ordinary Iranians.
The price of staples has increased by up to 40 percent in recent months, critics blaming President Mahmoud Ahmadinejad's economic and foreign policies for the hardship caused by the country's increasing isolation.
(Additional reporting by Hossein Jaseb, Hashem Kalantari and Ramin Mostafavi; Writing by Parisa Hafezi; Editing by Jon Boyle)