Iran Diplomacy Nerves Fray as Atomic Talks Run Into Summer

(Bloomberg) -- Diplomats negotiating for months over Iran's nuclear program now face the prospect of new delays and rising risk that they'll fail to resurrect a landmark deal between the Islamic Republic and world powers.

Envoys won't reconvene as planned this week in Vienna and aren't sure when a seventh round of diplomacy will be scheduled, according to four officials who asked not to be identified discussing the talks. Negotiations are being closely watched by energy markets because of the potential flood of Iranian oil that would be unleashed by a return to the agreement, which capped the Persian Gulf country's nuclear activities in exchange for sanctions relief and unraveled with the Trump administration's 2018 exit.

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European and U.S. diplomats originally sought to restore the accord before this month's Iranian presidential elections, won by hardline cleric Ebrahim Raisi, who's widely seen as less willing to compromise with the West. The European Union's deputy foreign policy chief Enrique Mora twice predicted an imminent conclusion to the talks only to be stymied by the refusal of Iran and the U.S. to budge from their positions.

Envoys, who began their discussions in April by dining together on Persian fare at the Hotel Imperial in belated celebration of Nowruz, the Iranian new year, say nerves are fraying as summer approaches. The sixth round of talks that adjourned June 20 was fueled by fast food in hotel rooms, with diplomats bunkered up from dawn until dusk and negotiating through weekends, according to two people present.

The mood among nuclear inspectors at the International Atomic Energy Agency has similarly soured, according to two other officials. A temporary monitoring pact between Iran and IAEA Director General Rafael Mariano Grossi is closer to failure than extension, potentially complicating talks even further by eliminating information needed to verify Iran's baseline nuclear capacity.

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“There are some very significant differences that remain,” U.S. Secretary of State Antony Blinken said on Tuesday in Rome. “I can't tell you whether we'll succeed in overcoming these differences.”

Chief sticking points are orchestrating the sequence of a U.S. return to the July 14, 2015 accord and renewed Iranian compliance, along with the Treasury Department's dense web of sanctions, according to the officials. Confidential settlements between the U.S. and multinational corporations previously found in violation of broader Iran sanctions are a further complication because they threaten to undermine Iranian access to markets even if an agreement is struck.

The star-crossed deal was originally meant to be a potential building block for further cooperation between Iran and the U.S. But two things undermined that plan.

The wider U.S. sanctions that weren't swept away by the original agreement scared away banks afraid of running afoul of the penalties, so corporations weren't able to get the financing needed to move ahead on planned investments. And then former President Donald Trump all but killed the pact by unilaterally withdrawing and reinstating punishing sanctions.

Iran gradually responded by ramping up its nuclear activities closer to the levels needed for weapons while restricting some international monitoring.

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Europeans have long warned that the longer talks run, the higher the risk that events on the ground will further complicate the process. Iran's nuclear facilities and scientists have been subjected to acts of sabotage, which Tehran blames on Israel. The U.S. military and Iranian proxy forces have engaged in a series of tit-for-tat exchanges, most recently along the Iraqi border with Syria this week.

Asked how envoys might commemorate the sixth anniversary of the original deal, one diplomat said with a “bouquet of weeds.”

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