Iran talks failure sparks confrontation fears By Fredrik Dahl and Parisa Hafezi VIENNA/TEHRAN (Reuters) - The U.N. nuclear watchdog's latest mission to Iran failed to budge a defiant Tehran over its disputed nuclear program, sending oil prices to a nine-month high over fears of an increasing risk of confrontation with the West. The United States criticized Iran on Wednesday over the collapse of the International Atomic Energy Agency's talks in Tehran, saying it again showed the Islamic Republic's refusal to abide by international obligations over its nuclear program. Expressing defiance, Supreme Leader Ayatollah Ali Khamenei said Iran's nuclear policies would not change despite mounting international pressure against what the West says are Tehran's plans to obtain nuclear bombs. "With God's help, and without paying attention to propaganda, Iran's nuclear course should continue firmly and seriously," he said on state TV. Pressures, sanctions and assassinations will bear no fruit. No obstacles can stop Iran's nuclear work. A team from the Vienna-based IAEA had hoped to inspect a site at Parchin, southeast of Tehran, where the agency believes there is a facility to test explosives. But the IAEA said Iran "did not grant permission." The failure of the two-day IAEA visit could hamper any resumption of wider nuclear negotiations between Iran and six world powers - the United States, China, Russia, Britain, France and Germany - as the sense grows that Tehran feels it is being backed into a corner. The standoff has rattled oil markets. On Wednesday, London-traded benchmark Brent crude for April delivery rose for a third day - up $1.24 a barrel at $122.90, a nine-month high. U.S. crude futures for April were up 3 cents at $106.28 a barrel. In Washington, White House spokesman Jay Carney said the United States was evaluating Iran's intentions. "This particular action (over the IAEA mission) by Iran suggests that they have not changed their behavior when it comes to abiding by their international obligations," Carney told reporters. As Western sanctions mount, ordinary Iranians are suffering from the effects of soaring prices and a collapsing currency. Several Iranian nuclear scientists have been killed over the past two years in bomb attacks that Tehran has blamed on its arch-adversary Israel. Major oil importer Japan was in final talks with Washington on an agreement for cuts in Iranian crude oil imports that could amount to a higher-than-expected 20 percent or more a year, a newspaper reported on Thursday. China, India and Japan, the top three buyers of Iranian oil, are all planning cuts of at least 10 percent. They buy about 45 percent of Tehran's crude exports. In response to Western pressure and sanctions, Iran has issued a series of statements asserting its right to self-defense and threatening to block the Strait of Hormuz, a vital oil tanker route. The collapse of the nuclear talks occurred as Iran seems increasingly isolated, with some experts seeing Tehran's defiance in response to sanctions against its oil industry and financial institutions as evidence that it is in no mood to compromise with the West. Parliamentary elections on March 2 are expected to be won by supporters of Khamenei, an implacable enemy of the West. In Jerusalem, Israel's Foreign Minister Avigdor Lieberman dismissed appeals by world powers to avoid any pre-emptive attacks against Iran's nuclear program. Lieberman said that "with all due respect I have for the United states and Russia, it's none of their business. The security of Israel and its residents, Israel's future, is the responsibility of Israel's government. The failure of the IAEA's mission may increase the chances of a strike by Israel on Iran, some analysts say. But this would be "catastrophic for the region and for the whole system of international relations," Russian Deputy Foreign Minister Gennady Gatilov said. Referring to Iran's role in the failure of the IAEA mission, French Deputy Foreign Ministry spokesman Romain Nadal said: "It is another missed opportunity. This refusal to cooperate adds to the recent statements made by Iranian officials welcoming the progress of their nuclear activities. In the view of some analysts, the Iranians may be trying to keep their opponents guessing as to their capabilities, a diplomatic strategy that has served them well in the past. "But they may be overdoing the smoke and mirrors and as a result leaving themselves more vulnerable," said professor Rosemary Hollis of London's City University. Iranian analyst Mohammad Marandi said providing the West with any more access than necessary to nuclear sites would be a sign of weakness. "Under the current conditions it is not in Iran's interest to cooperate more than is necessary because the West is waging a war against the Iranian nation," he told Reuters. Earlier, Iran's envoy to the IAEA, Ali Asghar Soltanieh, said Tehran expected to hold more talks with the U.N. agency, but IAEA Director General Yukiya Amano's spokeswoman said no further meetings were planned. Iran did not grant permission for this visit to take place," the IAEA said in a statement. We engaged in a constructive spirit, but no agreement was reached," Amano said. A Western official, who declined to be identified, said: "We think that if Iran has nothing to hide, why do they behave in that way?" Iran's refusal to curb sensitive atomic activities which can have both civilian and military purposes and its record of years of nuclear secrecy have drawn increasingly tough U.N. and separate U.S. and European measures. An IAEA report in November suggested Iran had pursued military nuclear technology. It helped precipitate the latest sanctions by the European Union and United States. Editing By Ralph Gowling