Powers, Iran discuss detail of possible nuclear deal

BAGHDAD (Reuters) - Iran and world powers exchanged unusually detailed proposals at talks in Baghdad on Wednesday in hopes of defusing a long standoff over suspicions Tehran's atomic energy programme may be a disguised quest for nuclear weapons.

The stakes could hardly be higher: global oil markets are jittery over extended Western sanctions imposed on Iran's vital crude exports and the specter of a Middle East war arising from possible Israeli strikes against its defiant arch-enemy.

But no breakthrough appeared to be in the offing in Baghdad, where the six powers were testing Iran's willingness to curb its uranium enrichment work. Differences remained, notably, over when Iran would be rewarded with relief from economic sanctions.

Two diplomats said the discussions were expected to resume on Thursday, but there was no immediate confirmation.

After a 15-month diplomatic freeze and exploratory talks in Istanbul last month, envoys for Iran and the United States, Russia, China, France, Britain and Germany convened with both sides publicly upbeat about the scope for an outline deal.

"We had a detailed exchange this morning," said a Western diplomat who spoke of the six powers presenting a 'package' of proposals in the morning. "The atmosphere was businesslike."

In the afternoon, another diplomat said, Iran reacted to the offers and "also broadened out the discussions to touch on other areas we see as non-core issues".

Iranian media close to the Tehran government said its chief negotiator Saeed Jalili presented its own five-point package of proposals covering a "comprehensive" range of nuclear and non-nuclear issues.

The official news agency IRNA sounded a note of discord by quoting Iranian officials as referring to the big-power proposal as "nitpicking" while student news agency ISNA said: "Apparently from the Iranian point of view this package is not balanced."

However, those leaks did not appear to be Tehran's final response as the talks ran on into the evening.

HIGHER-GRADE ENRICHMENT

The powers' overall goal is an Iranian agreement to curb uranium enrichment in a transparent, verifiable way to ensure it is for peaceful purposes only. Iran's priority is to secure an end to sanctions isolating the country and damaging its economy.

The pivotal proposal by the six, led by European Union foreign policy chief Catherine Ashton, was for Iran to halt its enrichment of uranium to the higher fissile concentration of 20 percent, her spokesman Michael Mann said as talks got under way.

That is the Iranian nuclear advance most worrying to the West since it largely overcomes technical obstacles to reaching 90-percent, or bomb-grade, enrichment. Iran says it is enhancing the fissile purity to such a degree only for medical research.

"We have a new offer on the table which addresses our main concerns about the Iranian nuclear programme. The 20-percent enrichment question," Mann told reporters. "We hope the Iranians respond positively and we can make progress today."

In a separate interview with Iran's state-run English-language Press TV, Mann said no final deal was expected in Baghdad because progress was likely to be only gradual.

He said toughened sanctions, especially an EU ban on Iranian oil exports due to take full effect on July 1, had helped to draw Iran finally into serious negotiations.

Iran has hinted at flexibility on higher-grade enrichment although analysts caution that it would be unlikely to compromise much while sanctions remain in place.

In previous meetings the two sides could not even agree an agenda, with each largely repeating known positions and Tehran refusing any dialogue on changes to its nuclear path.

IRAN HOPES FOR "GOOD NEWS" SOON

Iranian Foreign Minister Ali Akbar Salehi, speaking to reporters in Tehran, said: "The ideas fielded to us speak of the fact that the other side would like to make Baghdad a success. We hope that in a day or two we can bring good news."

Salehi also warned that Iran would not bow to pressure: "Their policies of pressure and intimidation are futile. They have to adopt policies to show goodwill to solve this issue."

Russia said the Islamic Republic appeared ready for serious discussion of substantive steps to resolve the impasse in return for the phased removal of sanctions.

Speaking of preparatory discussions before Baghdad, Foreign Minister Sergei Lavrov said in Moscow: "We got the clear impression ... that the Iranian side is ready to seek agreement on concrete actions." These would be taken step by step.

Another proposed step will be an updated version of an idea first floated in 2009 that envisaged Iran shipping out the bulk of its low-grade uranium - which could potentially be converted into weapons fuel - in return for higher-enriched fuel for the medical research reactor in Tehran, a diplomat said.

It was unclear whether that idea would gain traction after Iran's announcement on Tuesday that it had supplied its first batch of domestically made fuel to that reactor - a message probably meant to boost its leverage in negotiations.

The Islamic Republic launched higher-grade enrichment two years ago and has since transferred the operation to a bunkered, underground plant at Fordow that, to Israeli alarm, would be largely impervious to attack from the air.

"The key issue is the 20-percent enrichment potential. This has to be addressed in order to have a productive outcome," said one Western diplomat. "The marching orders for Baghdad are to have concrete ideas on the table, maybe not necessarily agree on all details of these ideas, but to have a clear commitment."

Iran, a major oil exporter, says it is enriching uranium for electricity. That requires fuel refined to 5 percent, although it will be many years before power stations are built. It also wants radioactive isotopes for cancer treatment.

Tehran has repeatedly ruled out suspending enrichment as called for by several U.N. Security Council resolutions.

DEAL ON EXPANDED U.N. INSPECTIONS "CLOSE"

In a possible sign of a new Iranian willingness to address concerns about its atomic ambitions, the U.N. nuclear supervisor said on Tuesday he expected to sign a deal soon to unblock an investigation into suspected Iranian attempts to design a nuclear weapon.

But Western officials note past failures to carry out deals on more intrusive inspections between the International Atomic Energy Agency and Iran, and their patience is running out.

Iran suggested it would try to parlay its reported rapprochement with the IAEA into a deal in Baghdad to relax sanctions inflicting increasing damage on its economy, including a European Union oil embargo due to take effect in July.

But Western officials ruled out such a weighty concession so soon, even though their call for a "step-by-step" negotiating process is widely seen as a tacit admission that sanctions will have to be eased at some point.

"Sanctions are only going to be lifted if we have significant and genuine progress," one diplomat said.

Israel, widely assumed to have the Middle East's only nuclear arsenal, has loudly expressed its skepticism about the chances for diplomacy to rein in its major adversary.

Defense Minister Ehud Barak said Israel was concerned that the world powers would not press hard enough to put a full stop its nuclear programme and that Israel would keep all options open - an allusion to military action - to achieve that goal.

(Additional reporting by William Maclean in Baghdad, Marcus George in Dubai, Fredrik Dahl in Vienna and Steve Gutterman in Moscow; Writing by Mark Heinrich; Editing by Philippa Fletcher and Alastair Macdonald)

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