U.S. tightens squeeze on Iran as friends join in

By Mark Trevelyan, Security Correspondent - Analysis

LONDON (Reuters) - Tough talk on Iran has captured the headlines on President George W. Bush's Middle East tour, but it is the quiet tightening of U.S.-led economic pressure that poses the greater challenge for Tehran.

Even as Bush steps up the rhetoric, calling Iran a threat to international security and the world's top state sponsor of terrorism, there are tangible signs that the squeeze on Iran's oil-based economy is intensifying.

There are also signs Iran is rising to the challenge and some analysts remain skeptical that sanctions can be effective.

The United States has slapped its own sanctions on Iran and will press for a third set of punitive U.N. measures when world powers meet in Berlin next week to discuss Tehran's refusal to halt uranium enrichment.

But beyond the blacklisting of individuals, groups and businesses it suspects of involvement in terrorism or illicit nuclear work, Washington is also leaning on allies around the world to impose a broader economic isolation on Tehran.

In the latest sign that its pressure is yielding results, Bahrain's biggest lender, Ahli United Bank, has suspended business with the Islamic Republic, sources familiar with the matter told Reuters on Wednesday.

Late last year, Indian oil refiner Reliance halted sales of gasoline and diesel to Tehran after French banks BNP Paribas and Calyon stopped offering letters of credit, a standard payment guarantee in international trade.

"It is today impossible more or less in Europe, with a couple of exceptions, to get a letter of credit" for trade with Iran, said a senior German banking and finance consultant.