PSA Peugeot Citroen is in advanced talks over an Iranian car making venture with historic partner Iran Khodro and expects rapid progress following the diplomatic breakthrough lifting sanctions against the country, the French company said.

The deal struck between Iran and western powers “should clear the way for significant progress in our discussions,” Peugeot Africa and Middle East chief Jean-Christophe Quemard told Reuters on Tuesday in an emailed response.

Unlike their existing partnership, under which Iran Khodro re-assembles older Peugeot models made in European plants, the new venture would manufacture cars from scratch using the French group's latest vehicle architectures and engines, Quemard said.

“This project will deliver a generational leap,” he said.

Peugeot, the leading foreign player in Iran until sanctions were imposed in 2011, will face tougher competition on a market where Chinese rivals have since gained a firmer foothold. Domestic rival Renault also aims to revive production of its no-frills Logan sedan, known locally as the Tondar.

Other Western carmakers including Volkswagen and Ford have long been poised for re-entry, industry insiders have said, in anticipation of the detente finally announced on Tuesday.

Both companies reiterated on Tuesday that they have no current business in Iran.

Under the breakthrough deal, which followed marathon talks in Vienna, Tehran has agreed to curb its nuclear programme in return for the lifting of international sanctions that have crippled its economy.

Peugeot stopped supplying kit versions of its 206 and 405 models to Iran Khodro in 2012 under pressure from then shareholder General Motors, which has since sold its 7 per cent stake.

But the Iranian partner soon began sourcing through intermediaries -- effectively maintaining the French brand's near-30 per cent share of the promising Gulf market. Some 350,000 Peugeot-badged vehicles were registered in Iran last year, according to the French carmaker.

The imminent lifting of financial sanctions “will reopen the normal parts supply chain”, allowing Peugeot once again to book those sales, Quemard said on Tuesday. The planned manufacturing venture would also serve export markets, he added.

While discussions are in progress with other potential Iranian partners, talks are “most advanced with Iran Khodro,” a company spokesman said. - Reuters