U.S.-Iran Thaw Hinges on Nuclear Discussions

WASHINGTON — On Saturday the U.S. will hold its highest-level contacts with Iran since 1979, a marked thaw in the two countries’ troubled relationship. At the same time, the U.S. is fine-tuning a package of new financial penalties against Iran that target everything from gas imports to the insurance sector.

U.S. and European officials said they will intensify efforts to impose these penalties should their diplomatic drive fail to induce Iran to freeze its nuclear program. The sanctions effort could also include measures to impede Iran’s shipping operations in the Persian Gulf and its banking activities in Asia and the Middle East, said these officials.

As a result, the weekend talks in Geneva are shaping up to be a potential turning point — one way or the other — in the long standoff between Iran and the West.

The five permanent members of the United Nations Security Council, plus Germany, are offering Iran economic and energy assistance, security assurances and enhanced diplomatic ties in exchange for concessions on its nuclear program. Tehran’s chief nuclear negotiator, Saeed Jalili, is scheduled to present his country’s response to this initiative in a meeting Saturday in Geneva.

The international community’s delegation will be headed by the European Union’s foreign policy chief, Javier Solana. U.S. Undersecretary of State for Political Affairs Williams Burns, Washington’s No. 3 diplomat, will also attend, marking the highest-level American exchange with Iran since the 1979 Islamic revolution in Tehran.

Bush administration officials said they decided to send Mr. Burns due to growing signals from Tehran that it might be willing to freeze the expansion of its uranium-enrichment activities in exchange for the international community suspending the imposition of any new sanctions.

American officials said Mr. Burns’s attendance will also make it easier for the U.S. to compel its negotiating partners to impose tougher measures should this “freeze-for-freeze” approach fail.

A number of Western diplomats and strategists acknowledge there is significant risk in the Bush administration’s decision to directly engage Iran on the nuclear issue. For one, they say the Iranians could use the negotiating process as a means to divide the Europeans and Americans over sanctions while continuing to enrich uranium. Under Mr. Solana’s offer, Iran would be required to stop expanding its nuclear work, while not initially freezing it all together.

Associated Press

William Burns is the highest-level U.S. official to meet with Iran since the 1979 Islamic revolution. Mr. Burns’s participation is the result of signals from Tehran it may be willing to comply with international demands.

These officials also said the negotiating track could allow Tehran simply to wait out the Bush administration, while seeing if a new U.S. president takes an even more conciliatory line towards Iran. Some analysts estimate that Iran could have produced enough fuel for a nuclear bomb by late next year.

“They might accept a 60-day suspension to examine the seriousness of the proposal,” said David Wurmser, a former Middle East adviser to Vice President Dick Cheney. “They’ll do that for 60 days and move ahead with their program.”

The talks are part of a complex diplomatic game being played out in the region, the outcome of which is impossible to predict. In addition to the talks on nuclear proliferation, the Israelis are talking indirectly to the Syrians about a possible peace deal and have also entered into agreements with Islamic militant groups Hamas and Hezbollah. Some senior U.S. analysts worry these overtures could be a prelude to an Israeli attack on Iran’s nuclear facilities.

Still, the Bush administration has signaled it is prepared to accelerate the diplomatic embrace of Tehran if this weekend’s talks prove successful. In addition to the economic incentives outlined in Mr. Solana’s proposal, U.S. officials have also said they are considering opening a small diplomatic mission in Tehran in the coming months if the Iranians are receptive. And Washington has been seeking to accelerate other interpersonal exchanges between groups such as Olympic athletes, doctors and students.

“We are also devoting time, resources and energy to trying to connect directly with the Iranian people,” said State Department spokesman Sean McCormack Thursday. “It’s a great people…We only hope that they — on Saturday, they do make the right choice and agree to the conditions that have been laid out.”

If Iran balks, a principal focus of any new penalties would be the country’s imports of refined petroleum products, particular gasoline, said U.S. and European officials.

“There seems to be a consensus that more needs to be done” if talks fail, said a senior U.S. official developing the penalties on Iran.

This week, the Treasury Department’s point man on Iran, Undersecretary for Terrorism and Financial Intelligence Stuart Levey, has been meeting government and private-sector officials in Italy, Spain and France to lobby American allies about the risks of doing business with Tehran.

Because of a lack of refining capabilities is forced to import roughly 40% of its gasoline from European, Indian and Venezuelan companies. In 2006, Iran paid roughly $5 billion for gasoline, making it the second-largest importer after the U.S. The Iranian government was forced to ration gasoline last year due to financial and supply pressures, setting off unrest in some areas of the country.

United Kingdom Prime Minister Gordon Brown publicly pushed EU ministers last month to consider targeting Iran’s oil and natural-gas industry, should talks stall. France’s Total SA pulled out of a $10 billion natural gas project last month to develop Iran’s South Pars field, citing political risk. Royal Dutch Shell PLC and Spain’s Repsol YPF have also pulled back from gas projects due to political pressure.

Among European firms still supplying Iran with the bulk of its gasoline imports, however, are Swiss companies Vitol Group, Glencore International AG and Ocean Energy GmbH, and the London-based trading firm, Trafigura. European diplomats said talks among the EU states have commenced in recent weeks aimed at finding new ways to hurt Iran’s energy sector, including a possible investment ban, but that Spain and Italy have been reluctant to take such measures.

U.S. and Western officials said they are also considering targeting Tehran’s shipping abilities.

Included in a sanctions package passed by the U.N. Security Council in March is a call for member states to closely scrutinize the operations of Iran’s largest shipping company, the Islamic Republic of Iran Shipping Line, for its alleged support of Tehran’s nuclear industry.

U.S. officials said they could utilize this U.N. mandate to broaden a crackdown on Iran’s ability to ship products in and out of the country, should Tehran indicate this weekend that it intends to push ahead with its uranium-enrichment activities. In particular, the resolution could greatly increase the insurance premiums for companies shipping in and out of Iran.

U.S. and Western officials said they are preparing steps to widen a crackdown on Iran’s financial sector. Last month, EU states froze the assets of Iran’s largest commercial bank, Bank Melli, due to its alleged support of Iran’s nuclear program. And the U.S. Treasury has unilaterally barred U.S. companies from doing business with Melli and three other major state banks.

Iran responded by increasingly shifting assets to banks in the Middle East and Asia. In turn, the Treasury has sent missions to countries in the Persian Gulf and Southeast Asia to warn about the reputational risk of doing business with Iran.

The banking centers in Dubai, Bahrain and Kuala Lumpur are particularly being targeted. “We’re essentially trying to squeeze the balloon,” said a European official involved in the deliberations. “As Europe’s being closed off, the Iranians are moving elsewhere.”

Write to Jay Solomon at [email protected]

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