Can Iran and Europe ride out the storm?

DUBAI, April 13 (Reuter) - Iran and Europe are unlikely to allow a row over a German court ruling that Tehran ordered political killings in Berlin in 1992 to go beyond diplomatic moves and hurt commercial ties, diplomats and analysts say.

European Union members -- except Greece -- have since Thursday's ruling decided to recall their ambassadors from Tehran for consultations. But they stopped short of imposing trade sanctions against Iran, which France has rejected.

Iran -- the world's third largest oil exporter -- has said it will reciprocate the ambassador recall by summoning home its top envoys from EU countries .

Analysts and diplomats who follow Iran said they did not believe Europe -- which had so far resisted U.S. pressure to follow suit and impose sanctions on the Islamic republic -- would escalate the row beyond the diplomatic moves.

``The European Community wants to make a political point to Tehran,'' one Western diplomat said. ``It does not look like it wants to jeopardise trade relations.''

They said Iran -- fighting U.S. attempts to isolate it -- would do its best to defuse the crisis.

Diplomats and analysts compared the row to that sparked by the 1989 death edict by Iran's late spiritual leader Ayatollah Ruhollah Khomeini against British author Salman Rushdie, for alleged blasphemy against Islam in his book ``The Satanic Verses.''

EU states and Iran at the time withdrew their ambassadors and Iran severed diplomatic ties with Britain.

The Europeans, except for Britain, said a month later they would allow their ambassadors to return to Tehran, but kept a ban on high-level contacts with Iran for another seven months.

Britain and Iran resumed relations in 1990.

``The verbal war, the diplomatic steps were much stronger then and yet Europe and Iran got over that even though the death edict against Rushdie is officially still in place,'' one analyst said. ``Then the EU members were reluctant to jeopardise their companies' business contracts and I can't see why that should change now.''

But the diplomats and analysts cautioned that the current crisis could become harder to resolve as the Berlin court findings were the first by a Western judiciary to directly blame Iran for assassinations of exiled opposition figures.

``This case is more serious than the row over Rushdie...But it looks clear the Iranian government does not want to go any further and will try very hard to find a solution to this,'' said London-based Iranian journalist, Alireza Nourizadeh.

``Iran is becoming closer to Russia and China and the European states don't want to push Iran too much that way.''

He said the election of a new president in Iran in May would give a chance to Tehran to ``say there is a new leadership, let's open a new chapter.''

The diplomats and analysts agreed that neither Europe nor Iran would take a decision on sanctions lightly.

``Despite the political talk, it is the dollar that will decide what happens,'' Nourizadeh added.

``The mutual attraction is obvious. European companies have expertise in key oil and power sectors. Iran has oil money and is the largest consumer market in the Gulf,'' one diplomat said.

EU relies on Iran for 10 percent of its oil imports. Iran had a trade surplus of $1 billion with the EU in 1995.

For Iran any threat to its European sales would spell disaster virtually cutting it off from the Western world.

An early indication of the business community resisting possible sanctions came from Australia where wheat farmers urged the government to reject calls to ban trade with Iran where Australia's wheat market is worth $390 million a year.

Bonn and Tehran appear keen to avert a total diplomatic break. German Foreign Minister Klaus Kinkel said Iran must show respect for international law before Bonn could discuss a fresh start in relations, but he defended the ``critical dialogue,'' championed by Bonn and agreed by the EU in 1992 under the influence of the edict against Rushdie. He however said Bonn did not want to inflame the crisis.

Iran appeared to have the same policy.

President Akbar Hashemi Rafsanjani said on Friday the verdict would hurt German and European interests more than Iran, but stressed the diplomatic row was a ``passing storm.'' Iran has repeatedly denied all involvement in the killings. ``It does not serve Western interests to isolate Iran. It is counterproductive to push it into a corner,'' one diplomat said.