Iran official says sanctions raising trade costs

TEHRAN (Reuters) - Iran should step up diplomatic efforts to head off sanctions over its nuclear program, arguing that they damage Western as well as Iranian economic interests, an Iranian business official told a newspaper published on Tuesday.

Mohammad Nahavandian, head of Iran's industry and mines chamber of commerce, told Sarmayeh that Iranian import costs had risen 20 to 40 percent.

The government has brushed off the impact of U.S. and U.N. sanctions on the Islamic Republic; but economists say they are raising the costs for Iranian traders, for example, to get credit -- if they can get it all.

An International Atomic Energy Agency report circulated on Monday said Iran was blocking an inquiry into whether it was developing an atomic bomb. Britain said it would press for further sanctions.

Tehran has insisted such pressure will not make the country change course on its bid to master nuclear technology which it says it wants to generate electricity.

"International sanctions were unsuccessful in changing Iran's political behavior but it had economic costs for Iran," Nahavandian told the newspaper.

"Certainly these costs do not mean cutting commercial ties with other countries ... but the cost of imports and exports increased," he said.

Executives say Iranian importers now face difficulties in opening letters of credit, a vital instrument in international trade, as many banks, particularly Western institutions, have been reining back or simply cutting off business with Iran.

Those banks still ready to do business tend to charge a premium. If they cannot secure credit, Iranian firms often have to pay for goods up front before delivery, adding to risks.

"Sanctions increased the cost of imports 20 to 40 percent, which means about around $10 billion," Nahavandian said, without giving a total figure for imports.

"Therefore (Iran) should move towards adopting an active diplomacy to convince our economic partners that these costs will not only harm Iran's economy but will harm their economy as well because they will lose opportunities," he said.

"We have always said that sanctions are a lose-lose game."

Critics of President Mahmoud Ahmadinejad says he has deepened Iran's isolation with his fiery speeches against the West. Opposition politicians may back Iran's nuclear plans but also say more active diplomacy would help court partners.

The United States, which imposes sanctions on most trade with Iran, is pushing for a fourth round of U.N. penalties on Iran because of its failure to halt sensitive atomic work.

But analysts say Washington may face a challenge in pushing through more U.N. sanctions, which have so far been relatively limited in scope, because of a row over Georgia with Russia, another veto-wielding member of the U.N. Security Council.

Russia and China, two of the five permanent Council members, have backed the previous three sets of U.N. sanctions but only after they were watered down. Both countries have commercial ties with the Islamic Republic.

(Reporting by Parisa Hafezi, writing by Edmund Blair)