Iran said yesterday it tested a new medium-range missile during war games near a vital Gulf oil transit channel, hours after US President Barack Obama signed a law tightening sanctions against Tehran over its nuclear programme.

A military spokesman also announced that Iranian ships and submarines will today carry out manoeuvres designed to allow them to shut the strategic channel, the Strait of Hormuz, if Tehran so wishes.

The show of military muscle underlined a threat by Iran to shut the narrow strait – a throughpoint for 20 per cent of the world’s oil – if more Western sanctions were applied over its nuclear programme.

The potential for that scenario, and possible open confrontation with US warships that patrol the Gulf, was given impetus when Mr Obama on Saturday signed tough new sanctions targeting Iran’s central bank and financial sector.Under the measures, foreign firms will have to choose between doing business with the Islamic republic or the economically mighty United States.The aim is to put the squeeze on Iran’s crucial oil revenues, most of which are processed by the central bank.

Iran has said such sanctions, and a possible oil embargo being mulled by the EU, could push it to close to the Strait of Hormuz. “From tomorrow morning (today), a vast majority of our naval units – surface and underwater, and aerial – will implement a new formation,to make the passage of any vessel through the Strait impossible if the Islamic Republic of Iran’s navy so chooses,” said navy spokesman Commodore Mahmoud Mousavi.