THE new year was less than one week old when Iran gave early notice that it has no intention of being intimidated by the rest of the world over its planned nuclear enhancement programme.

At the same time that the EU was debating the level of sanctions to be imposed on Iran's oil industry, Rear Admiral Ali Fadavi, naval commander of the Iranian Revolutionary Guards Corps, announced that the navy will mount a new set of exercises at the beginning of February in the strategically vital Strait of Hormuz which links the Gulf to the Arabian Sea and through which 20% of the world's sea-transported oil travels.

Fadavi added that "today the Islamic Republic of Iran has full domination over the region and controls all movements within it".

It is not the first time Iran has used this crucial waterway to put pressure on the West. During the war with Iraq in the 1980s, Iran showed its displeasure of US support for President Saddam Hussein by mining the Strait of Hormuz and attacking Western oil tankers. Eventually the US responded by using its naval superiority to clear the waters – its powerful Fifth Fleet is based in Bahrain – but since then Iran has developed a more powerful navy which it recently showed off to the world during a 10-day exercise.

Iranian officials also made it clear that if new sanctions include an oil embargo they will view it as an act of aggression and retaliate by closing the Strait of Hormuz to western shipping, by force if necessary. They have already warned the US navy that if further warships are deployed in the region they will be attacked, a threat made good during the exercises when three new anti-shipping missiles were test-fired.

While this rhetoric can be written off as a new round of sabre-rattling in the long drawn-out stand-off with the West over the country's alleged development of nuclear weapons, the heightened tensions have prompted fears that they could spark a naval war in the strait.

"I think all of us have an interest in not having any conflicts in the Gulf," said Qatari Prime Minister Hamad Bin Jassim Bin Jabr Al-Thani last week. "We have experienced military conflicts and we all know that there is no winner in such conflicts."

The US and Israel are also planning joint exercises next month mainly to evaluate missile defences and air defence systems. The war games will involve thousands of troops and large numbers of military aircraft. Sources in the Israel Defence Forces (IDF) say the objective will be to test air defences against missile attack using the newly developed Arrow anti-ballistic system, designed to intercept incoming missiles in the stratosphere.

Inevitably the revelation of the joint US-Israeli exercise has given substance to long-held rumours that Israel is planning an pre-emptive strike on Iranian nuclear facilities, perhaps with US collusion. That would help to explain why Iran has decided to go on the offensive but it is difficult to see which country would gain anything by a new conflict.

In a presidential election year, and a time of economic recession, the US has no interest in a fresh involvement in the Middle East. Last week the Pentagon announced a reduction in defence expenditure with a realignment of forces to address the threat posed by China in the Pacific. Iran, too, has nothing to gain by goading the US into action. It cannot afford a war it would almost certainly lose – one US Nimitz class aircraft carrier has more firepower than the entire Iranian air force – and its own economy is too dependent on oil exports for them to be halted for any length of time.

Israel's motives are always guided by what is best for the country. It has no liking for Iran, but there seems to be a growing acceptance among senior commanders that a war would not serve any immediate purpose and could cause a regional conflict. Former IDF head General Dan Halutz, a hard-line critic of Iran, has argued that the threat could be over-stressed.

"I don't think we should sit idly by, but I don't think Israel should be leading the issue," he said. "Israel should make sure it remains a high priority on the international agenda, but Iran is a global problem – not just Israel's."

Halutz believes the solution could lie in the economy. Iran is the second-largest exporter of oil to the West and while oil can be used as a weapon, especially at a time of financial crisis in Europe, traders are confident that the Strait will not be closed. It will still be possible for tankers to keep to the Oman side of the waters and, as one veteran trader said last week: "Even if there is a full-blown war, it will last for two weeks during which the US will kick the hell out of Iran and make sure all is fine in the Strait of Hormuz."