Iran "decided on a voluntary basis and as further confidence-building measures, to continue and extend its suspension to include all enrichment-related and reprocessing activities,'' the International Atomic Energy Agency said in a 28- page report obtained by Bloomberg News and to be presented to the agency's governors Nov. 25 in Vienna. "Iran invited the Agency to verify this suspension starting from Nov. 22, 2004.''

Iran has been negotiating with diplomats from France, Germany and the U.K. for more than a year. The U.S. says Iran is converting uranium as part of a clandestine nuclear weapons program. Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries, says it needs to process the uranium for nuclear fuel to generate electricity.

Iran has made "good progress'' since opening negotiations with the EU in letting IAEA inspectors verify the extent of its nuclear program, the agency said in the report. Before 2003, Iran was guilty of "many breaches'' of its IAEA treaty obligations, according to the report.

The IAEA report, to be presented by Director General Mohamed ElBaradei, isn't the end of the agency's investigation. The IAEA is "not yet in a position to conclude that there are no undeclared nuclear materials or activities in Iran,'' the document said. ElBaradei will continue to report to the board of governors about Iran.

EU Deal

Under the terms of its EU deal, Iran agreed to suspend "any activity for undertaking plutonium separation,'' the IAEA said. Iran also said it will stop making and importing gas centrifuges and all conversion tests.

Iran's suspension falls short of a total halt to uranium enrichment. That means the issue may resurface, analysts said.

"We stayed within our red lines, and this red line meant we could suspend enrichment but not stop it,'' Iran's Foreign Ministry spokesman Hamid Reza Asefi told reporters in Tehran today, Agence France Press reported earlier today.

"There'll probably be further crises focusing on Iran's nuclear program in future, but investors know it's part of doing business here,'' Albrecht Frischenschlager, a partner at Atieh Bahar Consulting, who has been advising companies such as British- American Tobacco and Rolls Royce since 1998, said in a telephone interview from Tehran. "They know that tensions are often diffused at the last minute.''

Foreign Investment

The Iranian government said in September there were applications for $8.2 billion of foreign investment so far this year, roughly equal to the total figure in Iran since 1997. The fact that investments, both foreign and domestic, continue to rise shows companies "have learnt to cope with'' uncertainty, Frischenschlager said.

Iran's deal with the EU could strengthen trade ties between the regions worth $16 billion euros ($20.7 billion). In exchange for stopping uranium enrichment, the EU had been offering Iran civilian nuclear reactor technology and the removal of trade barriers.

"We appreciate any deal which is clear and accepted by the IAEA,'' said Klaus Friedrich, spokesman on export controls and the Middle East for Germany's machinery and engineering trade group, VDMA, in a telephone interview from Frankfurt. "We hope that the threat of embargo is past us.''

Trade Surplus

Europe, Iran's main trading partner, had a 2.3 billion-euro trade surplus with Iran at the end of 2003, according to EU statistics. Exports to Iran averaged 25 percent annual growth in the last four years. Machinery and mechanical appliances represent about half of all EU exports to Iran, or around 4.5 billion euros last year.

"From a machinery point of view, Iran absorbs more German trade than India and is on the same level as Brazil, Canada and Mexico,'' Friedrich said.

Iran hasn't run a trade surplus with the EU since 2001, when it exported 186.3 million euros more goods than it absorbed. Oil and oil products last year represented almost 90 percent of Iran's exports to the EU, or around 6 billion euros.

The EU and the U.S. have differed over policy toward Iran. The Europeans have favored more diplomacy, while the U.S. cut off relations after its Tehran embassy staff was taken hostage for 444 days in 1979.

Prohibited Trade

Unlike the EU, the U.S. prohibits most trade with the Islamic Republic because of its alleged support of Middle East terrorist groups such as Hezbollah. The U.S. also forbids its companies from investing in Iran or selling high-technology goods such as computers or aircraft there because it says the Islamic government gives support to terrorist groups. Iran denies the charge.

Iran's deal with the EU may be a strategic move by Tehran to ease U.S. unilateral sanctions, according to Atieh Bahar. Iran has regularly accused the U.S., which it labels "The Great Satan,'' of only using a stick while European governments use both incentives and threats.

"The Iranians want the EU to convince the U.S. to change its attitude toward them, and they'll use today's voluntary suspension as a means of pressure,'' Frischenschlager said. U.S. economic sanctions have slowed down Iran's economic progress. While the country is the second-largest oil producer in the Middle East, it has an official unemployment rate of 16 percent. More than four-fifths of the $110 billion economy is state-run.

"Iran's trade links are pretty undeveloped,'' said Fitch Ratings analyst James McCormack, who rates Iran "B+ positive.'' Fitch also rates Indonesia and Turkey B+. "An agreement might help at the margin but they still need a lot of investment to increase economic output,'' he said.
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To contact the reporter on this story:
Jonathan Tirone in Vienna at  jtirone@bloomberg.net
To contact the editors responsible for this story:
Chris Collins in London at  collinsc@bloomberg.net
Peter Torday at  ptorday@bloomberg.net