Iran says EU sanctions could hurt nuclear diplomacy

By Parisa Hafezi and Fredrik Dahl

TEHRAN (Reuters) - Iran said on Tuesday new sanctions imposed on it by the European Union over its nuclear plans could hurt diplomatic efforts to resolve the row.

The standoff between the West and the Islamic state has sparked fears of a military confrontation that would disrupt oil supplies. Last week a U.S. newspaper report said Israel had practiced for a possible strike against Iran's nuclear sites.

But a senior Iranian official denied rumors on Tuesday of an Israeli attack on his country, which sent stocks lower and oil prices higher.

"No attack against Iran's nuclear facilities has taken place," the official said. In Jerusalem, an Israeli army spokesman said: "We are not aware of any such incident in Iran."

Israel, widely believed to have the Middle East's only atomic arsenal, has described Iran's nuclear program as a threat to its existence.

Following the market rumor, commander-in-chief of Iran's elite Revolutionary Guards Corps Mohammad Ali Jafari warned the "enemy" over the consequences of any attack on Iran.

"If the enemy makes a strategic mistake (by attacking), the Revolutionary Guards are fully prepared to give a severe answer to the enemy," the official IRNA news agency quoted him as saying.

The Corps is in charge of Iran's most advanced missile systems like the Shahab-3 with a range of 2,000 km (1,250 miles), which analysts say can reach Israel.

Western powers suspect Iran, the world's fourth-largest oil exporter, wants to make nuclear arms but Tehran denies this.

On Monday, the 27-nation EU agreed new punitive measures targeting businesses and individuals the West says are linked to Iran's nuclear and ballistic programs.

The latest sanctions include an asset freeze on the largest bank, Bank Melli, and visa bans on senior officials like the Revolutionary Guards' chief Jafari, Defense Minister Mostafa Mohammad Najjar and Gholamreza Aghazadeh, Iran's top atomic official.

Foreign Ministry spokesman Mohammad Ali Hosseini condemned the move by the EU, still an important economic partner for Tehran even if trade volumes have declined, as "illegal" and made clear it would not slow Iran's nuclear activities.

OIL WINDFALL

Hosseini said the sanctions would strengthen the determination of Iranians "to establish their obvious rights and will not help to create an appropriate atmosphere to resolve the issue through diplomatic channels".

He was referring to separate proposals put forward by Iran and by six world powers intended to defuse the dispute that has helped push up oil prices to record highs.