By Alistair Lyon
LONDON, Nov 25 (Reuters) - Despite the world's worries about its intentions, Iran is doggedly pursuing its nuclear programme and U.S.-backed European Union diplomacy has failed to stop it.
Faced with an Iranian blend of brinkmanship, bluster and negotiation, Western powers have blinked, tacitly recognising that they lack the support of China, Russia and other nations for any immediate punitive action against Tehran, analysts say.
But with international suspicions growing that Iran seeks nuclear weapons, not just power stations as it asserts, defter diplomacy is needed to find a face-saving way out of a high-stakes dispute in a region already roiled by the Iraq war.
"It was a mistake to use threats without credibility," said Paul Ingram, senior analyst at the British American Security Information Council, referring to U.S.-EU warnings that Iran would be hauled before the U.N. Security Council for possible sanctions unless it abandoned dual-purpose nuclear activities.
"There was no prior agreement with the Russians and the Chinese on a credible stick," Ingram added.
Now, say diplomats and intelligence sources at a meeting of the U.N. nuclear watchdog in Vienna, Iran is preparing to begin the sensitive process of uranium enrichment, which can be used to make fuel for atomic bombs or power plants.
That would pose a new challenge to Western powers whose threats have so far failed to impress Iranian negotiators.
NOT SERIOUS
"On the basis of our assessment, we did not think the idea of referring Iran to the Security Council was serious," Iran's top negotiator Ali Larijani told reporters in Tehran this week.
He was discussing Tehran's resumption of uranium conversion in August in defiance of Western pressure, after which talks with an EU trio of Britain, France and Germany collapsed.
"In an atmosphere of dialogue we should not resort to threats because every threat can be reciprocated," he said.
The International Atomic Energy Agency governing board was expected to signal concern at the end of its two-day meeting on Friday, but may allow time for talks on a Russian compromise plan which would let Tehran keep a civilian nuclear programme but transfer enrichment to Russia under a joint venture.
The idea, which could erode U.S.-EU opposition to all such activities, fails to meet Iran's demand for a full nuclear fuel cycle as part of what it says is a legal, peaceful programme.
Any Iranian move to start enrichment at its Natanz plant might render talks on the Russian compromise meaningless.
Referral to the Security Council would then loom, again raising the question of what would come next.
"You look at the cards you can play," said Dana Allin, a senior fellow at London's International Institute for Strategic Studies. "China and Russia can't be taken for granted in this."
He said Washington had gone along with EU diplomacy in the past two years, even though some U.S. hawks had wanted a tougher line, or even military action. But with EU efforts running into the sand, the Western powers had not lined up a consensus at the IAEA for referral, or at the Security Council for action.
The IAEA still has questions about Iran's programme, but inspections have failed to turn up proof it is seeking nuclear arms, making it harder to build such an international consensus.
Allin said Washington and its EU allies might seek to "lay the groundwork for the idea that any Iranian (nuclear) breakout capability would be ... a threat to global peace and security".
ONCE BITTEN
This would need delicate handling because of memories of how the United States invaded Iraq in 2003 citing previous Security Council resolutions. "It's hard to see how military action against Iran would make any strategic sense," Allin added.
Striking Iran's scattered, well-defended nuclear sites would require a full-scale air campaign. Iranian energy exports could be disrupted, sending oil prices soaring. Tehran could hit back by stirring more trouble for U.S. forces in Iraq and beyond.
A senior EU diplomat in Tehran said the Iranians were still keen to avoid referral to the Council, despite their tough talk.
"They know they really don't have many, if any, true friends out there who will stand up and support them," he said.
The EU had hoped its economic clout would sway Iran, but the Iranians snubbed EU incentives to halt sensitive nuclear work in August, perhaps confident of finding alternative markets and capital in India, China and elsewhere in the east.
China and Russia have both argued that Iran should be left to the IAEA to handle. Both have major energy interests in Iran, but neither wants it to develop nuclear weapons.
Similarly, neither wants to see the United States dictate the outcome in the dispute with Iran, or in the Middle East in general. Their interests, however, are not identical.
Russia, Iran's main nuclear supplier, is self-sufficient in oil and gas. China has a voracious energy appetite, is seeking supplies aggressively in the Middle East and may have more to lose than Russia in any quarrel with Washington, analysts argue.
"The big question is how China is going to look at the nuclear proliferation dynamic," Allin said. "A big part of U.S.-EU diplomacy is to try to bring it into a common framework for considering proliferation dangers in the Middle East." (Additional reporting by Paul Hughes in Tehran and Mark Heinrich and Lou Charbonneau in Vienna)
