Iran Nuclear Report by UN Inspectors Spurs U.S., Europe to Press Sanctions

U.S. and European officials said they will seek to tighten financial sanctions against Iran as soon as possible, armed with a United Nations atomic weapons inspectors’ report that asserts Iran has conducted clandestine activities “specific to nuclear weapons.”

The International Atomic Energy Agency concluded the Persian Gulf nation has pursued a nuclear warhead small enough to fit on its ballistic missiles. Yesterday’s statement is the strongest to date from the Vienna-based UN watchdog that Iran isn’t simply seeking peaceful nuclear power, as its leaders insist.

The findings bolster the arguments of U.S. and European officials who say negotiations with Iran have failed to halt a covert nuclear weapons program. Prime Minister Benjamin Netanyahu of Israel is seeking support in his cabinet for military action to destroy Iran’s program, news reports said, raising concerns in Washington and at the UN.

Iran is “not going to take diplomacy seriously until they believe the alternative to diplomacy is far worse than coming to an agreement at the table,” said Michael Rubin, an Iran specialist at the American Enterprise Institute in Washington who drafted the Bipartisan Policy Center’s 2008 report on Iran.

Rubin, who said he opposes a military strike, said sanctions need to cripple Iran’s program in order to persuade Israel and other nations that military action is unnecessary.

“Instead of seeing whether diplomacy works and adding sanctions if it doesn’t work, it’s much more effective to add as many sanctions as possible and then remove them if appropriate,” he said.

Coordinated Sanctions

The Obama administration from the start has pursued two- track diplomacy -- attempting talks with Iran and threatening sanctions as those negotiations collapsed.

Following yesterday’s report, the administration said it had not abandoned talks. Still, the Treasury Department is drafting new sanctions aimed at commercial banks or front companies that may be imposed this month, while the European Union is considering its own financial sanctions, according to U.S. and European officials who spoke on condition of anonymity to discuss measures that haven’t been implemented.

The efforts stop short of penalties that would hit Iran’s leadership hardest -- sanctioning Iran’s Central Bank, imports of refined gasoline or oil exports, measures that might rock world markets and hurt the Iranian public, the officials said.

The IAEA report “will serve as the tip of the spear of a new effort to bring tougher sanctions to bear on Iran,” Michael Singh, a former National Security Council senior director on the Middle East under President George W. Bush, whose administration also imposed a series of sanctions on Iran’s nuclear program.

Oil Production

Singh, now managing director of The Washington Institute for Near East Policy, an independent research center, said in an interview that “there are plenty of other sanctions on entities or individuals” yet to be applied, including some similar to those recently imposed on Syria. “You never know what marginal pressure will cause Iran to break.”

Iran is the second-largest oil producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia. About 15.5 million barrels of oil a day, the equivalent of about a sixth of global consumption, according to the U.S. Energy Department, flows through the Strait of Hormuz, a narrow waterway between Iran and Oman at the mouth of the Persian Gulf.

While the IAEA report adds pressure on Iran to answer questions about its program, it doesn’t assert that Iran has resumed full-scale nuclear weapons development, according to two U.S. officials, nor does it conclude how far along Iran has gotten in developing a weapon.

UN Divided

For years, the five nuclear-armed, permanent members of the UN Security Council -- the U.S., Britain, France, Russia and China -- along with Germany have pursued negotiations with Iran, while also imposing sanctions on weapons, nuclear-related material, banking, shipping, and nuclear-related material in an effort to restrain individuals and firms associated with suspected Iranian weapons activity.

Iran is under four rounds of UN Security Council sanctions imposed between 2006 and 2010, as well as numerous restrictions by the U.S., the EU, Canada, Japan, Switzerland, Australia and South Korea banning certain trade, financial services, energy investment and technology sales.

The UN report is unlikely to result in a fifth round of UN Security Council sanctions against Iran, officials in Washington and at the UN said, because of vehement opposition from Russia, a veto-wielding permanent member of the Security Council.

Russian Scientist

Russian officials have said further sanctions would be counterproductive, and Russian and Chinese officials sought to water down the IAEA report before its release, according to U.S. and European officials who weren’t authorized to discuss the diplomatic negotiations.

The IAEA report said that a Russian nuclear scientist shared technology with Iran that helped calibrate the explosive force of a bomb’s uranium core. Russia’s Foreign Ministry said the accusations date back 10 years and are “nothing new.”

Russian Foreign Minister Sergei Lavrov told reporters in Moscow this week that a Russian offer to resolve the dispute by lifting sanctions against Iran in stages, in return for Iranian cooperation on inspections, is “still on the negotiating table.”

Negotiations over the last round of UN sanctions in 2010 were excruciating, U.S. and European diplomats said, with Russia and China reluctantly agreeing to restrictions on financial transactions, a tighter arms embargo and authority to seize cargo linked to nuclear or missile programs.

Attempts to impose sanctions on Iran’s oil and gas would be almost impossible to get through the Security Council given China’s demand for oil, the diplomats said.

Last week on Capitol Hill, the House Foreign Affairs Committee voted to tighten U.S. sanctions on Iran, partly by targeting Iran’s oil industry.

To contact the reporter on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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