By Justyna Pawlak and Fredrik Dahl
BRUSSELS/VIENNA (Reuters) - Iran has said it should be able to produce fuel for its Bushehr nuclear power plant, a demand that world powers are unlikely to agree to and which may put a July deadline for a deal to end its nuclear standoff with the West in jeopardy.
Diplomats from the major powers negotiating with Tehran said Iranian negotiators expressed the demand at the latest talks in May – identifying one reason little progress was made towards a nuclear deal that could end Tehran's economic isolation.
Iran's ability to produce enriched uranium goes to the heart of a decade-old dispute over its nuclear program as the fuel can be used both to power reactors and - if further processed – to make the core of a nuclear warhead.
"They expect to get capacity to fuel Bushehr and that's unrealistic," one diplomat from the 'P5+1' countries in talks with Iran - the United States, Russia, China, France, Britain and Germany - told Reuters.
"It gets you a very short breakout time," he said, referring to the time that would be needed to produce enough highly enriched uranium for one bomb.
Current U.N. Security Council resolutions demand Iran suspend all uranium enrichment, but it has refused to do so, saying its nuclear work is entirely peaceful. A new deal is likely to allow enrichment, but would aim to extend significantly the amount of time Iran would need to assemble bomb material if it chose to do so.
Iran's demand to make its own fuel for the 1,000-megawatt power plant may face resistance from Russia which built it and has a 10-year contract to supply the fuel, starting in 2011, something it wants to continue doing.
That might hurt Tehran's negotiating stance, which relies in part on Moscow's moderate approach toward Tehran compared to the West at the talks.
To reach a deal, the sides will also have to agree issues such as the future of other Iranian nuclear facilities and the speed and timeline of Western relief from economic sanctions.
One diplomat said that Iran had appeared to row back on its previous openness to resolve concerns over the heavy-water Arak reactor that the West fears could provide plutonium for bombs once it is operational.
At the May talks, Iranian officials appeared to suggest specific technical solutions that ran contrary to Western expectations, diplomats said. Iran has since publicly dismissed as "ridiculous" one solution that could allay western concerns.
A key issue that will determine Iran's enrichment capacity is the number of centrifuges, the machines spinning at supersonic speed to concentrate uranium's fissile element, which it can retain.
Iran now has about 19,000 centrifuges, with roughly half of them in operation. Western diplomats say only about half of the number of machines operating would be acceptable, although it would depend on other factors of any long-term deal, including the extent of oversight by the U.N. nuclear watchdog.
Such a number could be a small fraction of what might be needed to fuel Bushehr.
Talks resume in mid-June.
(Additional reporting by Parisa Hafezi in Ankara; Editing by Robin Pomeroy)