Iran said on Monday it had successfully test-fired two long-range missiles during a naval exercise in the Gulf, flexing its military muscle to show it could hit Israel and US bases in the region if attacked.
In response to mounting Western pressure over its nuclear ambitions, Iran started a naval drill in the Gulf last week and warned that it could shut the Strait of Hormuz if sanctions were imposed on its oil exports, the country's main revenue source.
The 10 days of naval wargames and the warning over the Strait, a narrow Gulf shipping lane through which 40 percent of world oil passes, have rattled oil markets and pushed up crude prices.
Analysts say Iran's increasingly strident rhetoric is aimed at sending a message to the West that it should think twice about the economic cost of putting further pressure on Tehran.
"We have successfully test-fired long-range shore-to-sea and surface-to-surface missiles, called Qader (capable) and Nour (Light) today," Deputy Navy Commander Mahmoud Mousavi told state television.
Tehran denies Western accusations that it is trying to build atomic bombs, saying it needs nuclear technology to generate electricity.
The United States and Israel have not ruled out military action against Iran if diplomacy fails to resolve the Islamic state's nuclear row with the West.
Iran said on Monday it had no intention to close the Strait of Hormuz, but it has carried out "mock" exercises on shutting the vital waterway.
"No order has been given for the closure of the Strait of Hormuz. But we are prepared for various scenarios," state television quoted navy chief Habibollah Sayyari as saying.
The US Fifth Fleet, based in Bahrain, said it would not allow shipping to be disrupted in the strategic waterway.
Mousavi said observers from the country's closest Arab ally, Syria, would attend the last day of its 10-day naval exercise.
The European Union is considering following the United States in banning imports of Iranian crude oil. US President Barack Obama signed new sanctions against Iran into law on Saturday, stepping up the pressure with sanctions on financial institutions that deal with Iran's central bank.
If enforced strictly, the sanctions could make it nearly impossible for most refiners to buy crude from Iran, the world's fourth biggest producer.
The U.N. Security Council has already imposed four rounds of global sanctions on Iran over its refusal to halt sensitive nuclear activities.
Iran has so far shown no willingness to change its nuclear course but Iranian media reported on Saturday that nuclear negotiator Saeed Jalili would write to the EU foreign policy chief to say Tehran was ready for fresh talks on its nuclear programme.
Talks between Iran and six world powers - the United States, Russia, China, Britain, France and Germany - stalled in January.