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Iran: Tightening the screw

Gavin Hewitt | 08:20 UK time, Monday, 26 July 2010

South Pars gas field - constructionAs each month passes the moment draws closer. No one knows precisely when it will be, but the day is coming when either Iran abandons its uranium enrichment programme or it develops a nuclear bomb or it is attacked.

There is an urgency to events. The Russian President, Dmitry Medvedev, said recently, "it is obvious Iran is getting close to acquiring nuclear capability that can be used in theory to create nuclear weapons". The French President, Nicolas Sarkozy, said that Iran must be compelled to negotiate. It is the only way "to prevent a catastrophic alternative: the Iranian bomb or bombing Iran".

There is a new determination that the Iranian dance cannot continue. For years the ritual was the same. The West applied a little pressure. An Iranian negotiator hinted at compromise or talks, but nothing came of it and crucially Tehran gained time.

Now the European Union is expected to tighten the screw with a new sanctions package. European officials have described it as "by some way the most far-reaching sanctions adopted by the EU against any country". Considering the strong economic links that countries like Germany have with Iran it was thought agreeing to a tough package would be difficult. Officials have been pleasantly surprised as to how straightforward the talks were. "Now was the moment to send a very strong signal," said one.

The main target is the oil and gas sector, the backbone to the Iranian economy. The new sanctions will bar the "sale, supply or transfer of key equipment and technology for refining, liquefied natural gas, exploration and production".

New European investment in major sectors of the Iranian economy will be banned. More than 40 individuals and more than 50 companies will be blacklisted.

The ban on the sale of nuclear technology will be extended to dual-use goods that are also used in conventional weapons.

Any financial transfer from Europe to Iran above 10,000 euros will require notification with national authorities. Iranian banks will be prevented from setting up new branches in Europe.

There is the possibility that ships suspected of being involved in illegal activities will be stopped at sea.

Now the EU has chosen unilaterally to go further than the UN resolution of 9 June. It follows action taken by Washington against the Iranian energy sector.

So will it work? There is not much optimism out there, but there is agreement that serious sanctions have to be tried. The CIA director Leon Panetta says it could be a mere two years before Iran could develop a nuclear warhead. But on the key question of whether they can be dissuaded he is doubtful. "Will it deter them from their ambitions with regards to nuclear capability? Probably not," he concludes. Sanctions rarely bend the will of authoritarian regimes.

Many regimes might choose to compromise. The Iranian regime is still steeped in the mindset of revolution. It thrives on perceived plots. When under pressure they play the victim, arguing that outsiders are set on destroying the Islamic Revolution.

There are signs, however, that the squeeze may be hurting.

Tehran's ability to ship goods has been significantly reduced because Western insurance companies, under pressure from the US, won't insure Iranian shippers. Without insurance Iranian-flagged ships face problems using foreign ports. Lloyds has stopped underwriting gasoline exports to Iran.

Iran lacks refining capacity and is dependent on imports for 40% of its fuel needs. The United States has passed a law that authorises sanctions on "any entity that provides or helps Iran obtain refined petroleum, including supplies, shippers, banks, insurance and reinsurance companies..." The regime would fear the fall-out of petrol shortages.

There are reports that work on prestigious projects like the South Pars gas field is slowing without the relevant technology.

The International Atomic Energy Authority says that "longer term the development of (Iran's) oil and gas industry will clearly be adversely affected".

However, Iran still has access to Chinese technology. It may not be of the same quality as the Europeans provide but it can fill many of the gaps.

Already, and on the eve of the EU moves, there are hints that the Iranian negotiator Saeed Jalili might offer to talk as early as September. That is what the Europeans want, but they will be wary of being drawn into another inconclusive round of meetings. The bottom line for the international community is that Iran stops uranium enrichment.

As always it is difficult to read the Iranian leadership. At the same time as there are signals of new talks, the Iranian President, Mahmoud Ahmadinejad, has warned the EU against imposing unilateral sanctions. He said Tehran would react swiftly and cause remorse if its ships or planes were intercepted. He also appeared to be mocking his critics by saying "are you helpless, do you fear one Iranian atomic bomb?"

For the international community sanctions that target Iran's key energy sector are one of their best cards to play. Neither China nor Russia has joined them in this. If these sanctions fail then the Europeans might ratchet them up in six months' time. In the United States there are those who are talking of developing an "economic warfare strategy".

Others like the Saudis and the United Arab Emirates are quietly letting it be known "we cannot live with a nuclear Iran". Reports from Washington suggest that the policy of accepting and then containing a nuclear Iran is losing its appeal.

Much now rides on the slow choke of sanctions.

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