BERLIN German Chancellor Angela Merkel and her Israeli counterpart Benjamin Netanyahu are likely to discuss a German bank providing financial services to Iran when they meet this week, a source said Monday.
Israel and the United States want Germany to shut down the bank, Hamburg-based EIH, saying it supports the proliferation of weapons of mass destruction by handling payments to known participants in Iran's contentious nuclear program.
"I would imagine the Iranian issue will be an agenda item, and among those, I imagine that EIH would be an issue," an Israeli political source said, declining to be named. "It would be a good assumption to say they will speak about it."
The U.S. Treasury Department in September sanctioned EIH for facilitating billions of dollars of transactions with Iranian banks blacklisted by the United States and the European Union for aiding Iran's nuclear or missile programs.
Germany says it monitors EIH closely but cannot act against the bank unless the European Union agrees to sanction it, or if it engages in business with institutions on the EU blacklist. EU rules allow payments for Iranian oil and natural gas.
The controversy resurfaced last week when it emerged Berlin had authorized India to pay for billions of euros of oil purchases from Iran via the bank, with payments cleared by Germany's central bank, the Bundesbank.
Berlin allowed the transactions to pass through its system, potentially raising its own problems with Washington, after India's central bank decided to restrict payments to Iran to placate Washington's tough stance.
Washington understands Germany's predicament with its own legal system -- which would enable EIH to file a motion against the government if it is closed without breaking EU sanctions -- but is pressing its allies to find a solution to stop the transactions nonetheless.
An official from the U.S. Treasury department said the United States was concerned about reports Germany had authorized the use of EIH as a conduit for India's oil payments, but that it had not revised its aims.
"Treasury will continue to engage with both German and Indian authorities about this situation, and will continue to work with all our allies to isolate EIH," the official said, declining to be named.
The U.N. Security Council has imposed sanctions on Tehran for refusing to freeze its uranium enrichment program, which Western powers suspect is aimed at producing a nuclear weapon.
Iran denies allegations, trumpeted loudest by the United States and Israel, that it is enriching uranium to produce atomic arms, and maintains that its program is for peaceful energy needs.
Israel's Netanyahu, who meets Merkel Thursday, has called on world powers to make clear Iran faces "credible military action" if sanctions do not shut down its nuclear program.
(Reporting by Brian Rohan; Editing by Matthew Jones)