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(Bloomberg) — Iran’s decision to reduce its stockpile of near bomb-grade uranium in favor of producing a specialized fuel for advanced civil nuclear reactors may be a negotiating tactic, according to western officials.

Under most circumstances, a move by Tehran to scale back its inventory of highly-enriched uranium would be welcomed by diplomats at the International Atomic Energy Agency, who gather for their quarterly meeting on March 4 in Vienna. But escalating tensions in the Middle East — including military clashes between US and Iranian proxy groups — has raised suspicions about what’s really happening in the Islamic Republic. 

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“The main concern about Iran’s nuclear activities is not about the visible, but the part that is no longer visible,” said Ali Vaez at the International Crisis Group, who echoed the analysis of senior diplomats who spoke before next week’s IAEA meeting. 

The reduced stockpile, achieved by turning uranium into a fuel highly coveted by the UK and US nuclear industries, doesn’t relieve concerns about other aspects of Iran’s program. Those range from potentially undeclared new sites to a lack of cooperation with international inspectors, said one European official, who asked not to be identified discussing sensitive matters. 

Another who spoke on condition of anonymity said nuclear diplomacy with Iran is essentially on hold until after the US presidential election on Nov. 5, when former President Donald Trump is expected to run against Democrat incumbent Joe Biden. 

Trump withdrew the US from a 2015 nuclear deal between Iran and world powers agreed to by his predecessor, Barack Obama. Attempts by Biden’s administration to revive the accord have failed, yet a fresh solution needs to be found by October 2025, when United Nations sanctions are scheduled to be lifted.

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Iran held its own parliamentary vote on Friday, seen as a test of public support amid its heightened role in regional unrest, including the Israel-Hamas war. 

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Despite the concerns, some former officials said there’s a positive element to Iran’s actions. The decision to dilute its highly-enriched uranium inventory — a process called down blending — could have a positive impact on the global civil nuclear industry, according to Robert Kelley, a former IAEA director and nuclear weapons engineer.

“It may be taken as a very strong signal that Iran is willing to reduce stocks of material seen as a threat, turning it into material suitable only for civilian purposes,” he said. “There should be a high priority diplomatic effort to allow Iran to produce and sell all of its diluted stockpile under ordinary IAEA safeguards.”

Iran’s growing stockpile of so-called high-assay low-enriched uranium, or HALEU, potentially opens new negotiation pathways because the country can offer a product needed by western markets. “Gaps in supply could delay the deployment of advanced reactors,” according to the Department of Energy. 

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Government pledges to support production have helped push uranium prices higher. 

HALEU is expected to be used in small modular reactors, allowing them to operate longer without refueling, potentially helping to reduce operating costs. 

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The UK has committed £300 million ($379 million) to boost production of HALEU, which only Russia currently supplies commercially. The US paid $150 million for Centrus Energy Corp. to produce just 20 kilograms (44 pounds) in November. Meanwhile, Iran made 145 kilograms of the fuel in the last three months and has 712 kilograms stockpiled.

“The higher rate of conversion to HALEU appears to me as Iran’s way to stay off further escalation,” said Gaukhar Mukhatzhanova at the Vienna Center for Disarmament and Non-Proliferation. While western nations may not yet be ready to “legitimize” Iran as a potential HALEU supplier, the change could create space for discussions in the months ahead.

Iran’s downshift to HALEU could provide a way forward, said Tariq Rauf, the IAEA’s former head of verification and security policy.

“Iran could allow greater safeguards access to IAEA inspectors in return for HALEU production destined for global nuclear-fuel markets,” he said. “A new deal is necessary.”

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