Nov. 23 (Bloomberg) -- Iran is testing an air defense system in the country’s largest military exercises to assess the ability to protect its nuclear plants, the government said.

The new anti-aircraft system will be on trial in operation “Modafean-e Aseman-e-Valayat 2,” state-run Press TV cited Defense Minister Ahmad Vahidi as saying in Tehran late yesterday, after the drills began.

The operation will last five days and cover about 600,000 square kilometers (240,000 square miles) in the northwest, west, south and southwest, Brigadier General Ahmad Miqani, commander of the air defense headquarters, told Press TV. The area used for the exercises totals more than a third of Iran’s territory.

Iran is under three sets of United Nations Security Council sanctions, the first imposed in December 2006, for its refusal to halt uranium enrichment for its nuclear program. The U.S. and its European allies suspect Iran of using the program to develop atomic weapons, while the government in Tehran says the technology is for peaceful use, such as electricity production.

Crude oil rose from a one-week low after military exercises by Iran, the world’s fourth largest producer, renewed concerns over Middle Eastern supply, while the weaker dollar heightened oil’s appeal as an inflation hedge. Gold jumped to a record in London and New York as a slumping dollar boosted bullion’s appeal as an alternative asset. Other precious metals gained. In recent weeks, some analysts have cited Middle East tensions as a factor in the rising gold price.

First Stage Completed

The first stage of the war games was completed today and involved the testing of several radar systems, the state-run Mehr news agency cited a spokesman on the exercises, General Ali Moghiseh, as saying.

The second stage has begun in which defending against “jamming and electronic war” will be exercised, the state-run Fars news agency reported, citing General Gholamhossein Mollaei.

A drill was conducted today to practice dealing with possible chemical, biological and nuclear attacks, the state-run Iranian Students News Agency reported.

The government said in September it had developed a system capable of identifying and destroying cruise missiles that use stealth technology.

Vahidi said Iran intends to conclude an agreement with Russia to buy the S-300 surface-to-air missile system. The deal, worth about $800 million, was signed in 2007, Press TV said. The defense minister this month criticized Russia for delays in concluding the accord, it said.

Israel’s Position

The Israeli government declined to comment today on the Iranian exercises.

In September, Israeli Defense Minister Ehud Barak told his U.S. counterpart Robert Gates that sanctions on Iran should not be open-ended and that Israel has not ruled out any option regarding the Iranian nuclear program.

Also in September, Israel’s Chief of Staff, Lieutenant- General Gabi Ashkenazi, said Israel has the right to defend itself and all options are on the table. Deputy Foreign Minister Danny Ayalon said Israel has not taken “any options off the table.”

The delivery of Russian-made anti-aircraft missiles would “dramatically” improve Iran’s air defense capability, the U.S. Defense Department said a year ago.

Iran has successfully tested surface-to-surface missiles, including a firing in September of its Shahab-3, which the military says has a range of 2,000 kilometers (1,240 miles), a distance that would put Israel within reach.

Target Tel Aviv

Iran will target the city of Tel Aviv in the event Israel begins a military attack, Press TV cited Mojtaba Zolnour, the representative in the elite Revolutionary Guards Corps of Supreme Leader Ayatollah Ali Khamenei, as saying two days ago.

“If the enemy tries its luck and fires a missile into Iran, our ballistic missiles would zero-in on Tel Aviv before the dust settles on the attack,” Zolnour said, according to the report on Press TV’s Web site.

Israel said in August it expected the international community to take “substantive and prompt steps to halt Iran’s nuclear program.”

“Israel’s F-15 and F-16 fighter jets would be trapped in our defense system,” the state-run Islamic Republic News Agency cited General Amirali Hajizadeh, the Revolutionary Guards’ aviation commander, as saying yesterday. “If a jet accidentally escapes, the base it flew from would be hit by our destructive missiles before the plane lands.”

It’s possible that Israel would start such a war, but finishing it would not be up to Israel, Hajizadeh said.

Iranian Submarines

General Habibollah Sayyari, a navy commander, was cited by the state-run Fars news agency as saying that the country will put two light submarines into operation soon.

Iran’s “primary” right to nuclear technology isn’t negotiable, President Mahmoud Ahmadinejad said last week. The West must cooperate with the government in Tehran or face a stronger Islamic republic, he said.

“Cooperating with Iran is in the interest of the West,” Ahmadinejad said. “Their disapproval will make Iran more powerful and more advanced.”

President Barack Obama has said time is running short for Iran to accept a deal offered by international negotiators.

Iran has yet to respond to the UN-brokered proposal under which the country would ship most of its stockpile of low- enriched uranium abroad for further processing into fuel for a medical research reactor in Tehran.

While Iran is the world’s fourth-largest oil producer, limited refining capacity forces it to import about a third of its gasoline.

To contact the reporters on this story: Paul Tighe in Sydney at ptighe@bloomberg.net; Ali Sheikholeslami in Dubai at alis2@bloomberg.net.

Last Updated: November 23, 2009 08:46 EST