UPDATE 2-U.S. begins Iran sanctions relief, sees tough talks ahead

Mon Jan 20, 2014 3:09pm EST

By Jeff Mason and Steve Holland

WASHINGTON Jan 20 (Reuters) - The United States has followed through on promised sanctions relief for Iran covering oil exports, trade in precious metals and automotive services as part of a nuclear agreement that began taking effect on Monday, U.S. officials said.

In exchange for steps that Tehran had taken to halt its most sensitive nuclear-related activity, the White House said the United States, Britain, France, Germany, Russia, China and the European Union "will today follow through on our commitment to begin to provide the modest relief agreed to with Iran."

"At the same time, we will continue our aggressive enforcement of the sanctions measures that will remain in place throughout this six-month period," White House spokesman Jay Carney said in a statement.

The move is the controversial culmination of a promise that President Barack Obama made as a presidential candidate to engage with U.S. adversaries, including Tehran.

However, the effort has tested ties with top U.S. ally Israel and prompted both fellow Democrats and opposition Republicans in Congress to pursue legislation that would ratchet up sanctions against the longtime U.S. foe.

Obama has vowed to veto any such action.

"While the positive economic impact on Iran will go beyond this relief, as foreign investors are rushing in, our leverage over Iran shrinks," said Representative Ed Royce, the Republican chairman of the House of Representatives' foreign affairs committee.

"Meanwhile, Iran's nuclear program continues," he said.

State Department spokeswoman Jen Psaki said the Iran deal would pave the way for negotiations on a long-term deal to contain Iran's nuclear program. Those negotiations, she said, "will be even more complex, and we go into it clear-eyed about the difficulties ahead."

Since Iran had fulfilled its initial nuclear commitments under the deal, the administration had taken "the necessary steps to pause efforts to further reduce Iranian crude oil exports," the U.S. Treasury Department said.

This will allow the six current customers of Iranian oil to maintain their purchases at current reduced levels for the six-month duration of an interim nuclear deal between Iran and world powers, it said.

A U.S. official said Iran was currently exporting about 60 percent less oil than it was two years ago and would be held to those reduced levels.

The official also said Washington would allow Iran to access, in installments, $4.2 billion of oil revenues frozen overseas in a set schedule across the six-month period. The last installment would be accessible on the final day of the period, he said.

The United States took steps to suspend sanctions on non-U.S. individuals engaged in transactions related to Iran's petrochemical exports, as well as certain trade with Iran in gold and precious metals and provision of goods and services to the country's automotive sector.

"This temporary relief will not fix the Iranian economy. It will not come close," a senior administration official, speaking on condition of anonymity, told reporters on a conference call. The official noted that inflation in Iran remained near 40 percent - one of the highest in the world - and its economy was expected to contract further.

"Iran is not and will not be open for business until it reaches a comprehensive agreement with the international community that addresses all outstanding concerns," he said.

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