Sunday Times: The government faces a diplomatic row with America over disclosures that it has provided the Iranian regime with financial support worth about £290m while at the same time calling for sanctions. The Sunday Times

Jonathan Leake and Sarah Baxter

THE government faces a diplomatic row with America over disclosures that it has provided the Iranian regime with financial support worth about £290m while at the same time calling for sanctions.

The money was offered by the Export Credits Guarantee Department (ECGD) to support British firms exporting to Iran, mainly to the countrys petrochemical industry.

Many of the loans were being negotiated while British ministers were threatening sanctions against Iran for creating a nuclear enrichment facility to make atomic weapons.

Last week Gordon Brown called for new sanctions against Iran in addition to those already imposed by the United Nations security council. The prime minister wants a ban on investment in the oil and gas industries if Iran does not agree to end the production of enriched uranium.

This weekend government sources signalled their embarrassment over the ECGDs activities. There is clearly a gap between our actions and our rhetoric, said one Whitehall insider.

The US administration has been privately lobbying Britain to end the financial support. Stuart Levey, the US Treasury official responsible for terrorism and financial intelligence, stepped up the pressure in private discussions with British ministers in London in July, claiming that such export credits were inconsistent with UN sanctions.

Danielle Pletka, an expert on trade links with Iran at the Washington-based American Enterprise Institute, said: You cant subsidise with one hand and sanction with the other.

Britain is saying the European Union needs to do more but it needs to lead by example, not just by its mouth.

The government is also under political pressure at home. William Hague, the shadow foreign secretary, said: Our government must make up its mind about export credit guarantees to Iran. Britain should lead the way with a clear, unequivocal commitment to banning new export credit guarantees to Iran.

The ECGD underwrites bank loans to enable overseas buyers to purchase goods, often including military hardware, from UK companies. It stopped providing support for Iran in 1994 but resumed in 2000. Much of the support was for the National Iranian Oil Company and a subsidiary, the National Petrochemical Company.

The decision to start pushing hard for new business came in 2003, the year of the second Iraq war. It coincided with a declaration by the International Atomic Energy Agency that Iran had been secretly constructing a nuclear enrichment plant.

The same year, however, the ECGD announced a £72m deal for a plastics plant in Iran. It then sent John Weiss, its business group director, to Iran to speak at a petrochemical conference to drum up more business.

Weiss said then: The petrochemical sector in Iran is a key target for the ECGD, but we are also keen to look at sectors including oil, gas, transport, power, water and telecommunications.

Such optimism contrasted with warnings throughout 2003 from Tony Blair, then prime minister, that Iran should halt its nuclear ventures. He also accused it of supporting terrorist groups attacking British troops in Iraq.

In the same year the ECGD negotiated a series of deals involving the National Iranian Oil Company that were worth another £63m. In 2005 the ECGD extended credit worth £109m to the oil company, with more to other Iranian firms.

Parliamentary records show that the ECGD received 153 requests for credit guarantees from firms dealing with Iran between 2002 and March 2007. Most of the contracts are still in force and Britains total exposure to Iranian deals is now valued at £290m.

Last week the Foreign Office said that money earned by the Iranian oil industry was used to support its nuclear enrichment programme and the Iraq insurgency.

The ECGD, however, said it had acted completely within the law.