June 26, 2009 / 4:23 PM / 10 years ago

World leaders seek new Iran strategy

BRUSSELS (Reuters) - World leaders face pressure to find a new policy for dealing with Iran following its disputed presidential election and crackdown on protesters, but are unlikely to tighten sanctions any time soon.

The United States and the European Union want to encourage democratic change but will also try to avoid doing anything that could block the way to dialogue with Tehran when the crisis ends or be portrayed by Iranian leaders as interference, experts say.

They are likely to hold back the threat of tighter sanctions for use in discussions on Iran’s nuclear program. Agreement on trade sanctions would be unlikely anyway because of opposition from U.N. Security Council members China and Russia.

But they may also avoid embarking on any new strategy for now while the situation in Tehran remains fluid.

“The dynamics of the ruling establishment have changed, the dynamics of the opposition have changed. We are dealing with a totally new scenario,” said Mehrdad Khonsari, an analyst at the Center of Arab and Iranian Studies in London.

World leaders may have been caught off guard because they expected former prime minister Mirhossein Mousavi to win the June 12 election.

In the event, he was declared a distant second behind President Mahmoud Ahmadinejad, prompting street protests and a crackdown by the Iranian authorities in which about 20 people have been reported killed and hundreds have been arrested, and exposing deep rifts in the ruling elite.

“What we are seeing has completely changed the dynamics in which we were hoping to engage in dialogue with Iran,” said Clara O’Donnell of the Center for European Reform in London.

“For the moment, we are still seeing what we have seen before — leaders holding back, trying to see what is happening, trying to make sure they are not seen as meddling in the system and not making matters worse for the protesters.”

CONCERNS OVER NEW SANCTIONS

The 27-nation EU has been fiercely critical of Iran in the crisis, and often more outspoken than Washington, which has been trying to engage with Iran under President Barack Obama.

But, like the United States, the EU has avoided talk of new punitive measures.

“My worry is that talk of sanctions, talk of a tougher line, might just be the start of an excuse for the Iranian leadership not to listen in to what is now being said by the Iranian people,” Swedish Prime Minister Fredrik Reinfeldt, about to take the EU presidency for six months, told Reuters in an interview.

The United States and the EU have scant leverage on Iran, which limits their options to condemnations of the repression and calls for the people’s democratic will to be respected.

In addition, they fear that Russia and China are seeking to use their good relations with the authorities in Tehran as a pawn in a geopolitical game with the West.

The EU and the United States also know they will need to talk to whoever is in power to try to halt a nuclear program that they fear could produce a nuclear bomb, although Iran denies it has any plans to do so.

BIG STICK ON NUCLEAR ISSUE

Obama is reluctant for now to upset his policy of encouraging dialogue with Iran.

“They (the Americans) don’t want to prejudice the future and want to keep open the possibility of dialogue with Iran once the internal crisis is over,” said Clement Therme, an analyst at the French Institute of International Relations in Paris.

“There’s only a certain window of opportunity if they want to get Iran to stop its nuclear program and all the time this situation is evolving that window of opportunity gets smaller.”

For this reason, Washington is likely to want to keep the threat of fresh sanctions in reserve.

United Nations sanctions on Iran already cover weapons, nuclear materials, the travel and finances of individuals and firms, and other financial and trade measures.

The EU has frozen the assets of Iran’s biggest bank, Bank Melli, and imposed visa bans on some officials.

The United States has banned most U.S.-Iran trade and imposes sanctions on foreign companies that invest more than $20 million a year in Iran’s energy sector.

Options for more sanctions could range from more individual travel bans on Iranian officials to putting pressure on European oil companies to quit Iran and, ultimately, trying to embargo the supply of gasoline to Iran, which lacks refining capacity despite being the world’s biggest oil exporter.

The Europeans have cut back on export credit guarantees for trade with Iran and could cut them further, although Germany, Italy and Austria are reluctant, especially when their exporters are struggling in the global economic crisis.

It is a small set of options, and would be a harder starting point for any engagement with Iran on the nuclear issue.

Additional reporting by Paul Taylor; Editing by Kevin Liffey

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