By Justyna Pawlak and William Maclean
MOSCOW/LONDON (Reuters) - Western diplomatic efforts to curb Iran's nuclear program may not have breathed their last but the troubled process appears to be on life support after talks this week failed to resolve a row stirring regional tensions and unsettling oil markets.
Mindful of a possible Israel strike, both Iran and its negotiating partners are keen to pursue even a minimal level of contact to shore up the process despite the failure of the negotiations in Moscow on Monday and Tuesday.
A technical discussion is scheduled for July 3 in Istanbul, but no further political talks have been agreed. The West, suspicious Tehran is working towards a nuclear bomb, is due to introduce hard-hitting trade sanctions in the two weeks before that.
"Diplomacy in now on a respirator," said Cliff Kupchan of the Eurasia Group consultancy. "Both sides underestimated the difficulty of moving talks forward. How little progress was made underlines how far apart the sides are on substance."
U.S.-based Iran expert Trita Parsi said if a compromise was not vigorously pursued, "war will become far more likely."
"It really does seem like the Iranians just haven't made the decision to accept limits on their nuclear program," a Western diplomat said.
"If they haven't made that decision then all the talking in the world really isn't going to get us anywhere."
"Iran really pressed for this experts meeting and Russia wanted it so we agreed to do it. It doesn't feel to us like there is a lot of progress that is going to be made even there.
"(But) nobody is going to shut the door entirely."
The six powers - the United States, China, Russia, France, Britain and Germany - want Iran to scale back its nuclear work and, in particular, stop enriching uranium to levels that could bring it close to making an atom bomb.
Last month, and again in Moscow, the powers asked Tehran to shut down the Fordow underground facility where uranium is being enriched to the 20-percent level of fissile purity and ship any stockpile out of the country.
IRAN SEEKS SANCTIONS RELIEF
In return, they have offered fuel to keep Iran's medical isotope reactor running, assistance in nuclear safety and an end to a ban on spare parts for Iran's ageing civilian aircraft.
Iran denies its work has any military purpose and says the powers should offer it relief from sanctions and acknowledge its right to enriching uranium before it meets their demands.
New U.S. and European sanctions are due to come into effect in the next two weeks. In addition to totally banning Iranian oil imports, the EU measures prohibit European insurers from covering Iranian oil exports anywhere in the world, which would leave importers exposed to personal injury and pollution claims.
Western officials are suggesting that even further punitive measures may now be in prospect.
After the Moscow discussions broke up, a senior U.S. administration official said the talks would not go on indefinitely and Tehran should expect more sanctions if it fails to address international suspicions over the nature of its work.
"Sanctions will be increasing. We have told the Iranians there will be more pressure coming if this (lack of progress) proceeds forward," the official said, speaking on condition of anonymity.
There was no immediate world from Israeli officials on the failure of the Moscow talks.
PRESSURE WILL RATCHET UP
But on June 4, a U.S. official was quoted as saying the United States was conferring with Israel about new sanctions planned against Iran should the Moscow talks fail.
"If we don't get a breakthrough in Moscow there is no question we will continue to ratchet up the pressure," said David Cohen, U.S. Treasury undersecretary for terrorism and financial intelligence, Haaretz newspaper reported.
The comment offered a strong hint that Washington is continuing to apply the brakes on any plan by Israel to attack Iranian nuclear facilities preemptively.
In Paris, Foreign Minister Laurent Fabius said France would continue to strengthen sanctions against Iran. Some analysts say they suspect U.S. President Barack Obama, seeking a second term in November elections, cannot afford politically to make concessions to Tehran right now.
TALKS SEEN AVERTING ISRAELI STRIKE RISK
The Democratic White House has strongly rejected a Republican charge that Obama, who sought to ease 30 years of enmity with Iran after he came to power in early 2009, has shown a lack of resolve abroad.
Bijan Khajehpour, an Iranian and managing partner of Atieh International, a Vienna-based consultancy on the Middle East, told Reuters there were two reasons why the two sides were prepared to engage without a clear result.
One of them was that the continuation of such contacts, both sides calculated, reduced the risk of an Israeli strike.
The other reason was that either side suspected time would change the strategic situation in their favor.
"Western governments think the sanctions will bite further, Iran will come to its knee and then it will be more willing to compromise," he said. "From the Iranian perspective, the Americans have an election and it is not clear whether Obama will win 'so let's just wait and see what happens'."
Meir Javedanfar, lecturer on Iranian politics at Interdisciplinary Center in Herzliya, Israel, said that despite the failure of the Moscow gathering diplomacy was not dead.
Neither side would want to show that it was not interested in diplomacy as the costs at home and abroad would be high, he said. "It just means that for this route to succeed, more time and effort will be needed. Until then, both sides will try to use their own leverages to pressure the other side to compromise at the next round, whenever that may be."
(Additional reporting by Fredrik Dahl in Vienna, Marcus George in Dubai and Yeganeh Torbati, Thomas Grove and Tim Heritage in Moscow)