Iran’s Nuclear Breakthrough Called ‘Hype’ by U.S. as Crude Oil Price Gains

The U.S. played down Iran’s claim of a “major” nuclear breakthrough as an exaggeration to bolster nationalism amid tighter sanctions rather than a step toward developing an atomic weapon.

Iranian state-run Press TV said yesterday 3,000 “new- generation” Iranian-made centrifuges were installed at its main uranium enrichment site at Natanz, and domestically made fuel plates were loaded at a medical research reactor in Tehran. Iran won’t be intimidated by outside pressure and will pursue technological advances, the Iranian Students’ News Agency said.

“Our view on this is that it’s not terribly new and it’s not terribly impressive,” State Department Spokeswoman Victoria Nuland told reporters in Washington yesterday. The announcement was “hyped” for a domestic audience, she said.

The opposing assessments came as the European Union received a letter from Iran’s top nuclear negotiator, Saeed Jalili, about resuming negotiations with the U.S., France, Britain, Germany, Russia and China. U.S. Secretary of State Hillary Clinton said the international community wants serious engagement about Iran’s program. Concern the dispute will lead to a military conflict that disrupts oil supplies from the Persian Gulf has contributed to a 3 percent increase in crude prices in February. Iran is OPEC’s second-biggest producer.

Five-Week High

Oil for March delivery rose 48 cents, or 0.5 percent, to $102.28 on the New York Mercantile Exchange at 1:41 p.m. The contract rose yesterday to $101.80, the highest settlement since Jan. 10, after Press TV reported that Iran halted crude oil shipments to Italy, Spain, France, Greece, Portugal and the Netherlands five months before a European Union embargo takes effect July 1.

“This is the kind of news that gets traders juices flowing,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said in a phone interview. “The Iran situation has gone from lukewarm to a simmer.”

The state-run Fars news agency said Iran summoned the ambassadors from the European countries to the foreign ministry to protest against the sanctions, without cutting exports.

Iran is “feeling the pressure” of “unprecedented sanctions” that U.S. and European officials say are impeding the Islamic republic’s acquisition of materials for its nuclear program and hobbling its economy, according to Nuland.

Israeli Position

While Iran insists its nuclear program is for civilian energy and medical research, the U.S. and European governments say they suspect Iran is seeking an atomic weapons capability. Israeli leaders say they haven’t ruled out a military strike to prevent it.

“It’s a lot more likely that we will soon see major change in the situation,” Lynch said. “Whether that’s an attack by Israel or negotiations has yet to be determined.”

Iran hasn’t made a decision to proceed with the development of a nuclear weapon even as it continues to enrich uranium, Defense Secretary Leon Panetta told a House panel today, citing U.S. intelligence.

“We will not allow Iran to develop a nuclear weapon,” Panetta said at the hearing of the House defense appropriations panel.

Director of National Intelligence James Clapper told the Senate Armed Services Committee today that he doubts Iran eventually will make the political decision to move forward with assembling a nuclear device.

“They have put themselves in a position, but there are certain things they have not yet done and have not done for some time,” he said.

New Sanctions

Over the past three months, the U.S. and the EU have imposed numerous new sanctions restricting petroleum and non- energy trade as well as financial transactions in an effort to force Iran to give up any illicit nuclear activities. Sanctions advocates say economic pressure is the best way to avert a military conflict in a region that holds more than half the world’s oil reserves.

Iran pumped 3.55 million barrels of crude a day in January, 11 percent of the total produced by the 12 members of the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg. Oil sales earned Iran $73 billion in 2010, accounting for about 50 percent of government revenue and 80 percent of exports, the U.S. Energy Department estimates.

Nuclear Fuel Cycle

Press TV yesterday showed President Mahmoud Ahmadinejad at the research reactor in Tehran, and reported that Iran has taken the final step in completing the nuclear fuel cycle. Only a handful of countries, including France and the U.S., have the technology to build the 19.75 percent enriched fuel plates needed for the reactor, according to Iranian officials.

David Albright, a nuclear physicist and former international weapons inspector in Iraq, said in an interview that the fuel plates aren’t hard to produce and have no military implications.

“They’re so far behind that it sounds like they’re trying to play catch-up, which makes me think it’s more for a domestic audience than an international one,” said Albright, founder of the Institute for Science and International Security in Washington.

‘Image of Progress’

Iranian media provided no details about the so-called new generation of centrifuges, the sophisticated equipment used to enrich uranium. Enriched uranium is used to fuel power plants and reactors and, at 90 percent enrichment levels, it may be further processed for use in atomic weapons.

“This is more symbolism than anything else,” Dennis Ross, who served until recently as President Barack Obama’s chief adviser on Iran, said in an interview. Iran has “claimed for years that they are installing next generation centrifuges, and they continue to have material and technical problems that bedevil their operation.”

There is no evidence that Iran has overcome those failings, Ross said. They are trying “to create the image of progress even when they are not advancing, now because they want to suggest they are not being affected by the pressure and isolation” of sanctions, he said.

Iran’s announcements may have been timed for the day its leaders sent a letter to the EU about resuming talks to signal that the nation is “in a position of strength,” Peter Crail, a research analyst at the Arms Control Association in Washington, said in an interview. These were “posturing, more than real advances,” he said.

Time for Diplomacy

There’s still an opportunity to persuade Iran’s leadership to stop enriching uranium to 19.75 percent and to turn over its stocks of so-called low-enriched uranium, according to Crail. To induce Iran to halt domestic enrichment, the U.S. and Europe have offered to provide nuclear fuel for civilian use.

White House press secretary Jay Carney said the U.S. expects “to learn more” about yesterday’s developments from International Atomic Energy Agency inspectors, who are due to return to Iran Feb. 20-21. Officials from the United Nations’ agency last visited the Persian Gulf country for three days ending Jan. 31.

Carney called reports of a nuclear breakthrough and threats to cut off oil exports before an embargo takes effect “provocative acts” that are “designed to distract attention from the demonstrated impact” of sanctions.

Car-Bomb Attacks

Israel’s leaders, who have pressed for “crippling sanctions” on Iran, have suggested time may be running short to stop its rival’s progress toward becoming a nuclear weapons state. The two countries accuse each other of engaging in bombings and assassination attacks. Car-bomb attacks on Feb. 14 targeted Israeli diplomats in India and Georgia, which Israel blamed on Iran. In Thailand, police arrested Iranians allegedly planning similar attacks. Iran says Israel is behind a series of killings of Iranian nuclear scientists.

Iran declaration that its underground Fordo enrichment facility “is in routine production,” is more significant than its announcements yesterday, according to Olli Heinonen, a Finnish physicist and former top inspector for the IAEA.

“By the end of this year they’ll have 250 to 290 kilograms of 20 percent enriched uranium, and that’s a lot,” Heinonen said in a phone interview from Cambridge, Massachusetts, where he is a senior fellow at Harvard University’s Belfer Center for Science and International Affairs. That amount of 20 percent enriched uranium could be used for two nuclear weapons if Iran further enriched it to 90 percent, he said.

Iran’s known enrichment facilities are under IAEA monitoring and there has been no report of enriched uranium being diverted for weapons use.

To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Viola Gienger in Washington at vgienger@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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