Iran, big powers extend talks despite split over sanctions

BAGHDAD (Reuters) - Iran accused world powers on Thursday of creating "a difficult atmosphere" in talks on its atomic energy program, signaling a setback in efforts to reach an agreement that would allay their fears that Iran is secretly trying to develop nuclear bombs.

The nub of the dispute appeared to be Iran's demand for fast relief from economic sanctions as part of any deal for it to stop higher-grade uranium enrichment, a pathway to nuclear arms, whereas Western powers insisted Tehran must first shut down enrichment activities.

But there was no sign of breakdown in the talks, which European Union foreign policy chief Catherine Ashton, acting for the six world powers, and Iranian chief negotiator Saeed Jalili extended well into an unscheduled second day and on into the evening.

Both sides had powerful reasons not to abandon diplomacy. The powers want to head off the danger of a new Middle East war raised by Israeli threats to bomb Iran, while Tehran is scrambling to avert a looming Western ban on its oil exports.

Iranian media close to Tehran's delegation said it was insisting on a "principle of reciprocity" of concessions they said was promised by the powers in preparatory talks in Istanbul last month but missing from their approach in Baghdad.

"What we heard in Istanbul was more interesting," an Iranian delegate who asked not to be named said on Thursday.

"We believe the reason (the powers) are not able to reach a result is America. (They) came to Baghdad without a clear mandate so we think the atmosphere is difficult."

But the official Iranian news agency IRNA said later that "in comparison with the morning, the atmosphere is improving", hinting there would be scope for further, nitty-gritty negotiations even if the Baghdad talks ended inconclusively.

Western diplomats expressed hope on Wednesday that Iran, after years of rejecting any discussions on the nature and extent of its nuclear work, was finally engaging the powers on detailed ways of proving it was peaceful purposes only.

PROPOSALS, COUNTER-PROPOSALS

Atop the wish list in the powers' proposal to Iran is for it to stop enriching uranium to a fissile purity of 20 percent.

That is the nuclear advance most worrying to the West since it clears technical obstacles to reaching 90 percent, or bomb-grade, enrichment. Iran says it will not exceed 20 percent and the material will be made into fuel for a research reactor.

Iranian officials hinted at flexibility on higher-grade enrichment but Iranian media said it would not give away its most potent bargaining chip without significant concessions on sanctions.

The powers also want Iran to send its stockpile of higher-refined uranium abroad and close an underground plant devoted to 20 percent enrichment and largely invulnerable to air strikes.

In return, the United States, Russia, China, France, Britain and Germany have offered fuel to keep Iran's medical isotope reactor running, assistance in nuclear safety and an end to an embargo on spare parts for Iran's ageing civilian aircraft.

Jalili countered with his own five-point package of initiatives on nuclear and non-nuclear cooperation, and called for explicit recognition by the powers of Iran's right to enrich uranium, according to Iranian media.

But Western diplomats said Jalili's package lacked practical details and included elements irrelevant to resolving doubts about the Islamic Republic's nuclear ambitions.

"They are pushing back on enrichment and asking us to engage their plan," another Western diplomat said. "It is pretty tough going, but I don't think anyone ever expected anything else. We are moving forward, we are talking about the substance, we are looking for areas of common ground."

Tehran wants any nuclear deal to spare it from an EU embargo on its oil exports to be phased in fully by July 1. It also wants an end to trade and diplomatic sanctions imposed since 2006.

"The West can forgo further sanctions only if Iran forgoes further progress towards a nuclear weapons capability," said Mark Fitzpatrick, non-proliferation scholar at the International Institute for Strategic Studies and a former senior U.S. official.

This would entail installing no more centrifuges, no more work on advanced models of the enrichment machines, and more intrusive monitoring by U.N. inspectors, he said, outlining the small print Western powers are likely to insist on.

On the contrary, Iran has been putting more nuclear "facts on the ground" to boost its leverage, diplomats familiar with findings of International Atomic Energy Agency inspectors said.

They said a report by the U.N. watchdog due in coming days is expected to show Iran has installed more centrifuges in the underground Fordow site, potentially boosting output capacity of nuclear work that the powers want it to cease.

WORRIES ABOUT WAR

Rising tension over the past year has sent global oil prices upward as the West has broadened sanctions to bar Iran's crude exports and the specter of Middle East war has increased with the threat of possible Israeli strikes on Iran's nuclear installations.

Israel is believed to be the only Middle East country with nuclear weapons but regards Iran's nuclear aspirations as a mortal threat given its calls for the demise of the Jewish state.

Iran, the world's No. 5 oil exporter, says it is enriching uranium only in order to generate electricity to serve the needs of a burgeoning population, and for a medical research reactor.

The Islamic Republic has repeatedly ruled out suspending all enrichment as called for by several U.N. Security Council resolutions, saying nuclear energy is a matter of national sovereignty and pride in technological progress.

(Additional reporting by Patrick Markey and William Maclean in Baghdad, Marcus George and Isabel Coles in Dubai, Fredrik Dahl in Vienna; Writing by Mark Heinrich; Editing by Angus MacSwan and Giles Elgood)

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