"We would never want to use oil as a weapon or take any illegal actions," he told a press conference here, adding: "but if America takes any action against us we will know how to reply."

Fear that a US attack on Iran could lead the Islamic Republic to stop its oil exports or block key shipping channels for oil tankers in the Straits of Hormuz is one of the factors that has driven oil prices to record highs in recent years.

He predicted however that hostilities would not break out.

"My prediction is that no war will break in the region," he said. "Our assessment is that this region will not witness a war. There is no cause for concern ... America and its allies are incapable of launching a strike against us."

"If they (the US) commit a new mistake, all the region will become an unsavoury place for them. They will have no place in the region whatsoever," he added.

The Iranian president said the Gulf oil monarchies, among the region's closest US allies, will not assist any US war on his country.

"We are brothers. All of them have said they will not allow the use of their territory against Iran"

Ahmadinejad was speaking on the sidelines of a meeting of leaders of the Organisation of Petroleum Exporting Countries.

"The politics of the US in my part of the world are ineffective. All the policies of the current US administration to control the Middle East, more specifically the oil resources of the region, have completely failed," he added.

Ahmadinejad said a proposed plan by the United States and its Western allies to toughen sanctions against Iran will be ineffective.

"I openly declare today, that America is incapable of imposing any pressure on the Iranian people ... By imposing sanctions on us, America will be boycotting itself only"

He said Tehran was prepared to study "positively" a proposal to enrich uranium in the neighbouring Gulf states, but insisted Iran will not abandon the enrichment at home.

"We welcome any constructive proposal, especially when it comes from our brothers. We will study it in a positive way," he said.

"(But) I want to reaffirm here that, for us, the Iranian nuclear file is over (not for negotiation) ... America should accept this reality."

Ahmadinijad also talked of his politically-charged plan for oil exporters to abandon the US dollar as the currency they use to price and sell their oil exports.

"The meeting decided to direct our ministers of finance and oil to talk about this and later produce their findings," he said.

Iran has already moved away from collecting payment for its oil in dollars and instead is paid in local currency from customers.

But benchmark prices for crude are priced in the US currency, which has declined sharply in value against other currencies recently, reducing the oil revenues of oil exporters.

"The dollar is falling, all heads of state were upset today because of the dollar. The value of their (financial) reserves has dropped," he said.

"All leaders taking part in the meeting were willing to convert the pricing of oil into a currency other than the dollar," he said.

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