June 13 (Bloomberg) -- Iran’s President Mahmoud Ahmadinejad, who heightened tensions with the West during his first four years in power, was set for a second term after he took an insurmountable lead in election vote counting.

Ahmadinejad, 52, had 64 percent of the vote in the presidential poll, compared with 32.6 percent for his main rival, former Prime Minister Mir Hossein Mousavi, 67, with 78 percent of the votes counted, state television cited the Interior Ministry as saying. The incumbent needs more than 50 percent to avoid a run-off second round of voting.

An Ahmadinejad victory over rivals who favored warmer relationships with the U.S. and Europe will complicate efforts by President Barack Obama to engage with the Persian Gulf country over its nuclear program, which the U.S. and Israel say is a cover for the development of nuclear weapons. Iranian leaders deny the charge, insisting the program is peaceful and designed to generate electricity.

Ahmadinejad’s re-election would be “a major obstacle to U.S.-Iran confidence building,” said Karim Sadjadpour, of the Washington-based Carnegie Endowment for International Peace. “He pushes the worst possible buttons; his diatribes toward Israel and his Holocaust denial make it far more difficult for any U.S. administration to acquiesce on enrichment of uranium” in Iran.

Former parliamentary speaker Mehdi Karrubi, 71, got 0.9 percent of the presidential vote, while 2.5 percent voted for Mohsen Rezai, 54, a former Revolutionary Guards commander. About 35 million of the 46.2 million eligible voters cast their ballots yesterday, the Interior Ministry said.

Nuclear Sanctions

Iran is under three sets of United Nations sanctions over its refusal to halt uranium enrichment, a process that can generate fuel for a nuclear power reactor or a weapon. The country increased uranium production during the last three months and continued to stonewall inspectors investigating whether it is concealing a weapons program, the UN’s nuclear agency said on June 5.

Mohammad Sahadatfar, a spokesman for Ahmadinejad’s campaign office in Tehran, said in a telephone interview he was not surprised by the vote.

“We had expected these results,” Sahadatfar said. Ahmadinejad’s last address on state television on June 10 “was instrumental in securing the votes. He stated all the facts clearly and countered accusations of lies that opponents had made against him.”

Voting Questioned

In a news conference held in Tehran after polls closed and before results were known, Mousavi claimed he was the clear winner and said he will “follow up” to investigate any fraudulent voting. His campaign had expected to capture 25 million votes, or 62.5 percent of the total vote.

“Based on reports from provinces, Mousavi will certainly be victorious with a large lead in this very first round,” Abolfazl Fateh, Mousavi’s campaign manager, said earlier in the day.

Ahmadinejad has further worsened Iran’s relations with the West by questioning Israel’s right to exist and the extent of the Holocaust. The government in Tehran has supported radical Islamist movements such as the Gaza Strip-based Hamas and Lebanon’s Hezbollah. The U.S. also accused Iran of arming militant groups in neighboring Iraq that have killed American soldiers.

During the campaign, Karrubi and Mousavi accused Ahmadinejad of isolating the country and squandering years of rising crude oil prices through mismanagement that fueled an inflation rate that reached 24 percent in January and unemployment of 10.5 percent.

‘Nuclear Peaks’

“The Iranian nation has reached the nuclear peaks,” Ahmadinejad said in a campaign rally in Tehran on May 22. “It has broken the chains of sanctions. In these four years, despite international pressure, the Iranian nation proved that it can progress. The path of the future is this very one.”

The former Tehran mayor expanded handouts to Iranians as the price of oil jumped from $60 a barrel to a high of $147 last July. Spending on subsidized products such as sugar, wheat and cooking oils rose more than 50 percent from 2005 to 2007.

With oil now down to $72 a barrel, Iran -- holder of the second-largest oil reserves in the world after Saudi Arabia -- faces widening budget deficits, the International Monetary Fund says.

Ahmadinejad focused his campaign on buttressing support in the more rural, religiously inclined provinces, a constituency that helped secure his surprise victory four years ago on a promise to redistribute oil wealth. Since taking office in 2005, he has visited each of Iran’s 30 provinces twice.

‘New Possibilities’

All three of Ahmadinejad’s challengers said that his flaunting of the country’s nuclear program and his confrontational rhetoric on Israel backfired. Iran is starved of investment to boost crude oil production by U.S. and UN sanctions imposed because of its nuclear program.

Obama yesterday underlined his ambition to secure better relations with Iran.

“You’re seeing people looking at new possibilities,” Obama said in response to a question at the White House. “Whoever ends up winning the election in Iran, the fact that there’s been a robust debate hopefully will help advance our ability to engage them in new ways.”

Ahmadinejad had the implicit backing of Supreme Leader Ayatollah Ali Khamenei, 69. On May 18 Khamenei, who has the final say on all affairs of state, urged voters to shun candidates who might yield to “bullying Western powers.” Ahmadinejad supporters cited Khamenei’s call for a president who “understands the people’s woes.”

On May 23, Iran temporarily blocked social networking Web sites Facebook and Twitter, used in presidential campaigns by Mousavi and Karrubi.

To contact the reporters on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net; Henry Meyer in Dubai at hmeyer4@bloomberg.net.

Last Updated: June 13, 2009 00:03 EDT