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UPDATE 2-EU moves closer to new Iran sanctions

Friday, 12 Oct 2012 | 1:54 PM ET

* EU diplomats approve new Iran sanctions

* Substantial moves against trade and finance included

* Formal approval scheduled for Monday

(Adds expert comments, details)

By Justyna Pawlak

BRUSSELS, Oct 12 (Reuters) - The European Union provisionally approved new economic sanctions against Iran over its nuclear programme on Friday, with senior diplomats giving their backing to measures against Tehran's banking sector, industry and shipping.

The move marks a major step-up of European efforts to pressure Tehran to scale back its nuclear work, amid growing concerns over Iran's military intentions, foundering diplomacy and threats of attack on Iran's nuclear installations by Israel.

Iran denies it wants to produce nuclear weapons and has so far refused to meet international demands made in three rounds of talks this year, unless major economic sanctions are lifted.

European efforts complement plans for more sanctions in the United States and aim to tighten the financial noose on the government. Already, the Iranian economy is suffering and the rial currency has lost nearly two-thirds of its value to the dollar over the last year.

"The new EU sanctions ... are a response to the uncompromising stance that Iran took in the diplomatic talks," said nuclear proliferation expert Mark Fitzpatrick of the International Institute for Strategic Studies (IISS) think-tank.

The new measures will have to be formally approved on Monday at an EU foreign ministers' meeting in Luxembourg before coming to effect.

An EU diplomat, speaking on condition of anonymity, said the new measures include a ban on financial transactions, with some exceptions for those involving humanitarian aid, food and medicine purchases and provisions for legitimate trade.

In a reversal of existing European sanctions policy, the ban will force European traders to apply to their national governments for authorisation before they can finance any transactions in allowed goods.

Previously, the EU's more narrow approach was to allow trade broadly while banning specific products.

"That further restricts Iran's ability to move money around efficiently, which will only further aggravate the current financial crisis the Iranian regime is confronting inside the country," said Emanuele Ottolenghi of the Washington-based Foundation for the Defense of Democracies.

Trade will be hampered further by a new ban on Europeans extending short-term trade guarantees.

PICKING TARGETS

EU states will also be banned from selling metals and graphites -crucial in steel-making - to Iran. In a largely symbolic move, the EU will also ban imports of natural gas from Iran.

The amount of gas that reaches Europe form Iran is insignificant in terms of volumes. It is mostly transported via Turkey, which blends it with Azeri gas and ships it on.

"Coreper (a committee of EU ambassadors) agreed the sanctions package on (the) Iranian nuclear programme," said the diplomat in a message to Reuters.

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The EU is also targeting Iran's shipping industry, in an effort to curb Tehran's ability to sell oil to obtain funds and hard currency. It banned imports of Iranian oil earlier this year.

New measures will forbid European companies to provide shipbuilding technology and oil storage capabilities, as well as flagging and classification services to Iranian tankers.

"Considering that virtually all vital parts of the engines in Iran's tankers and commercial fleets are made in Europe, this ban will eventually ground Iran's commercial shipping to a halt," said Ottolenghi.

Thirty-four Iranian companies or institutions will be added to a list of more than 400 facing European asset freezes. The names will become public after new measures are formally adopted.

More sanctions are also being prepared in the United States.

"The core message to Iran is: If you don't begin to negotiate seriously, your economic plight is just going to get worse," said Cliff Kupchan, a Middle East analyst at consultancy Eurasia Group.

Some experts said playing hardball by western governments hoping to restart negotiations after the November presidential election in the United States may backfire.

"What would be more conducive for diplomacy today is sanctions relief, not more sanctions," said Ali Vaez, senior Iran analyst at the International Crisis Group think tank. "The more sanctions are levied against Iran, the higher the price will be for a negotiated solution."

(Additional reporting by Fredrik Dahl in Vienna and Mohammed Abbas in London; Editing by Sebastian Moffett and Andrew Roche)

((Justyna.Pawlak@thomsonreuters.com)(+32 2 287 6853 x82853))

Keywords: EU IRAN/SANCTIONS