LONDON/WASHINGTON (Reuters) ? The United States and European Union are set to impose more sanctions on Iran, with Britain on Monday banning dealings with the central bank and France calling for measures on an "unprecedented scale" over Tehran's nuclear program.
The steps come in response to a November 8 report by the International Atomic Energy Agency (IAEA) that presented intelligence suggesting Iran had worked on designing an atomic bomb and may still be secretly carrying out related research. Iran says its nuclear work is entirely peaceful.
The range of unilateral steps planned by Western powers reflects the difficulty of persuading Russia and China not to veto further measures at the U.N. Security Council, where they have supported four previous sanctions resolutions.
While Britain ordered its financial institutions to stop all business with Iran, a source familiar with the sanctions said the steps would not directly target trade in Iranian oil.
"We believe that the Iranian regime's actions pose a significant threat to the UK's national security and the international community. Today's announcement is a further step to preventing the Iranian regime from acquiring nuclear weapons," said British finance minister George Osborne.
The United States has not bought Iranian oil since 1995, but it appeared unlikely the U.S. Treasury would try to now cut off the Iranian banking system entirely, a move that could disrupt global energy markets and harm U.S. economic recovery.
A U.S. official said the Treasury Department planned to designate Iran as an area of "primary money laundering concern" on Monday, a move allowing it to take steps to isolate the Iranian financial sector further.
The United States is also expected to unveil sanctions against Iran's petrochemical sector on Monday, sources familiar with the matter said on Friday.
It was unclear exactly what steps the U.S. Treasury plans, but the measures, which the U.S. official said were to be announced by Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner, appeared designed as a warning about the risks of dealing with Iran's financial institutions.
EU governments could reach a preliminary deal on Tuesday to add about 190 Iranian people and entities to a list of those targeted by asset freezes and travel bans, diplomats said.
Canada will immediately ban the export to Iran of all goods used in the petrochemical, oil and gas industry as part of an international sanctions package, the government said on Monday.
But France called for much stronger action.
"As Iran steps up its nuclear program, refuses negotiation and condemns its people to isolation, France advocates new sanctions on an unprecedented scale to convince Iran that it must negotiate," said a statement from President Nicolas Sarkozy's office.
"France therefore proposes to the European Union and its member states, the United States, Japan and Canada and other willing countries to take the decision to immediately freeze the assets of the Iranian central bank (and) stop purchases of Iranian oil," it added.
The new EU measures will likely target industries such as shipping and will be formalized at a meeting of EU foreign ministers on December 1, but discussions on possible further steps could take place in the coming days, diplomats said.
"NOOSE TIGHTENING"
Henry Smith, Middle East analyst at the Control Risks consultancy in London, said the British move may not significantly affect Iran's major oil customers.
"It essentially de-legitimizes the country's financial system but in reality it may not make that much practical difference. The Chinese, Indians and others will continue to engage, while many Western multinationals have already pulled out," he said.
Smith said tighter sanctions had appeared more likely than any Western attack to knock out Iran's nuclear facilities. "We wouldn't regard Israel or indeed the U.S. as having the wherewithal to pursue the kind of military action required to destroy Iranian nuclear facilities," he said.
"It's going to affect trade finance which has a derivative effect on oil trade. That seems clear," said John Solomon, director of threat finance research at World-Check, a risk intelligence firm owned by Thomson Reuters.
"The proverbial noose has been tightened and the new sanctions will definitely have an unprecedented chilling effect on Iran's economic dealings globally, not just in Europe, not just in the UK, but even in the Middle East," he said.
U.S. sanctions have already made it extremely difficult for many global oil companies and traders to obtain bank financing to trade Iranian crude, of which less than a third goes to Europe with the rest flowing to China and India.
"A LOSE-LOSE GAME"
The U.S. administration suspects Iran is pursuing a nuclear weapons capability under cover of its civilian atomic energy program. Tehran says it has no interest in nuclear arms.
In Tehran, Trade Minister Mehdi Ghazanfari said sanctions were hitting the Iranian economy but warned Western countries they were harming their own interests.
"Sanctions are a lose-lose game in which both sides make a loss. If they don't invest in our oil projects, they will lose an appealing market," Ghazanfari told a news conference before the British announcement.
Iranian President Mahmoud Ahmadinejad has often said sanctions have little effect and in some cases make the economy stronger by making Iran find domestic solutions to challenges.
Ghazanfari reiterated that Iran had found alternatives to Western imports and investments, but did not deny the downside.
"Facing hardship in a fight is inevitable. I admit projects will get harder as our trading costs will go up, delays will hit projects and money transfer will get harder," he said.
U.S. officials say there has been a debate within the Obama administration about whether to sanction Iran's central bank, which many Iranian crude importers use to clear transactions.
Despite calls for such sanctions by Democratic and Republican lawmakers, U.S. officials have been reluctant to do so because of the fear that this could cause oil prices to jump, potentially impairing the U.S. economic recovery.
There is also a concern that importers of Iranian oil, including China and India, could be hurt by such a move, thereby antagonizing nations whose support Washington needs.
(Additional reporting by Ramin Mostafavi in Tehran, Peter Apps, Yeganeh Torbati and Dmitry Zhdannikov in London, David Ljunggren in Ottawa, Leigh Thomas in Paris and Justyna Pawlak in Brussels; Writing by David Stamp and Jon Hemming; Editing by Janet Lawrence)
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