Mark Garten

Iran Nuclear Negotiations: Why This Time is Different

The latest P5+1 talks in Istanbul rejuvenated the diplomatic track between Iran and the West, paving the way for a new chapter in Iranian nuclear negotiations. Yet if the recently concluded talks were a test of intentions, the upcoming negotiations in Baghdad are going to be a real test of wills.

Both sides will have to overcome huge obstacles if they want to establish a “sustained process of serious dialogue” to resolve the Iranian nuclear impasse. The only way the Baghdad nuclear talks can work is if both sides confine their demands to a mutually acceptable deal. This means that the Iranians need to concretely demonstrate their openness to greater transparency — subjecting not only their (increasing) stockpile of highly enriched uranium to real-time, verifiable, and comprehensive inspection by the International Atomic Energy Agency (IAEA), but also opening up their more controversial facilities in Fordo and Parchin.

Simultaneously, the West should refrain from imposing further sanctions, conditionally reverse unilateral sanctions on Iran’s oil exports and central bank, and patiently lay down the groundwork for a nuclear swap deal, whereby Iran will cap its enrichment levels at around 3.5-5 percent and exchange its 20-percent enriched uranium stockpile for guaranteed amounts of medical isotopes from the West.

To seize this newfound diplomatic opportunity, the West must concede Iran’s inherent right to a peaceful nuclear program under the Non-proliferation Treaty (NPT). This not only signifies the spirit of the NPT, but it also gives an opportunity for Tehran to save face. Moreover, the United States should abandon its call for Iran to close its installation at Fordo — the country’s only nuclear facility secure from surgical strikes — and instead push for greater transparency.

Iran’s Increased Flexibility

Clearly, both sides had plenty of reason to come to the negotiating table. For the Iranians, the Western sanctions have not only frozen Tehran out of mainstream international finance — battering the Iranian rial, compounding inflation, and raising transaction costs — but also they have squeezed Iran’s international trade, especially its oil exports.

The sanctions have been particularly hurtful because ordinary Iranians were already struggling with the impact of unprecedented subsidy cuts, which began in late 2010. And the U.S. Congress is working on a new set of sanctions that will prohibit virtually any significant trade with Iranian ports – the economic version of a naval blockade.

Iran also has a serious marine insurance and fleet storage capacity problem. Facing an uncertain supply of customers and sanctions against many of its shipping and transport companies, Iran will need to significantly expand its oil fleet to accommodate its increasing stockpile of unsold crude oil – although China has recently stepped in to help Iran by delivering 12 new supertankers by May this year. Diplomatically, the Turks, Chinese, and Russians have also used all their levers of influence to cajole Iran back to the negotiating table. Sensing the urgency of the issue, Iran has displayed considerable flexibility on the nuclear issue lest it risks further economic and diplomatic isolation.

The Iranian leadership is aware that both the short-term and long-term costs of Western sanctions are tremendous. Iran has one of the largest reserves of oil and gas in the world, but its aging refinery infrastructure has faced significant problems keeping up with demand. Without significant new investments, Iran’s long-term exports are set to decrease. Moreover, Iran’s largely untapped gas reserves also need major investments, making Western energy companies crucial to Iran’s long-term viability in energy markets. The sanctions are affecting short-term output too. According to Vienna-based JBC Energy GmbH, Iran’s output is currently at its lowest level in almost two decades.

Iran’s geography and huge gas reserves make it one of the biggest potential players in a slew of proposed transcontinental pipeline projects connecting energy-rich Eurasian countries to major markets in Asia and Europe. However, Western sanctions are preventing Iran from fully realizing its huge potential as a global player in the natural gas market. Iran is practically frozen out of the so-called New Silk Road due to Western opposition to its inclusion in any major energy or infrastructural project in Central Asia. More fundamentally, the sanctions are also undermining the viability of Iran’s relatively sophisticated economy. With Iran’s $900-billion, industrializing economy in heavy need of foreign direct investment (FDI) and high-tech imports, Western sanctions are stunting the country’s burgeoning manufacturing and service sectors.

Why the West Still Prefers Diplomacy

For the West, sanctions have also proven to be highly counterproductive. Global energy markets are in shambles, and growing fears over Iran-related supply shocks have increased the price of crude oil by about $25-30 per barrel in recent months. There is no way to understate the dire status of global energy markets. Although global demand for oil has increased by around 800,000 barrels per day, sanctions against Iran may lead to a reduction of around 1 million barrels of oil per day, forcing “swing producers” such as Saudi Arabia to tap into their diminishing spare capacities.

As a result of declining flexibility in the global oil pool, energy markets have become even more volatile. The price of brent crude is currently more than $120 a barrel, surpassing the 2011 average of around $111 — the highest in almost 150 years. Moreover, high oil prices have encouraged greater investments in the extreme oil sector — from tar sands in Canada to oil shale in the United States and deepwater drilling in Brazil – which is dirtier, more dangerous, and more environmentally destructive. There is also a domestic political angle. With the economy at the center of the upcoming U.S. presidential elections, President Obama is already struggling with growing popular discontent over rising fuel costs.

Moreover, Obama sees substantive negotiations as a chance to dampen the calls for war principally emanating from Republican quarters and Israel. On the other hand, troubled European economies, from Greece to Spain and Italy, have been scrambling for alternative sources of oil ever since Iran preemptively suspended its oil exports to European nations in retaliation for the EU oil embargo, effective June 2012.

Why This Time Is Different

Against this gloomy backdrop, both sides expressed optimism and flexibility ahead of the Istanbul talks. The Iranians hinted at an enrichment cap and greater transparency, while the West re-affirmed Iran’s right to peaceful enrichment on its own soil, with Washington indicating its willingness to allow up to 5-percent enrichment.

Also, in an unprecedented op-ed for The Washington Post, Iranian Foreign Minister Ali Akbar Salehi reiterated his country’s commitment to an exclusively peaceful nuclear program and a diplomatic resolution of the nuclear issue. Iran’s Supreme Leader Ayatollah Ali Khamenei also reiterated his fatwa against nuclear weapons. This is important — Khamenei made a similar statement back in 2004 when Iran agreed to suspend uranium enrichment to enhance confidence-building measures and resolve the nuclear issue. Therefore, the Iranian leadership is likely preparing its domestic audience for a substantive compromise with the West.

There are more signs of an emerging shift in the Iranian leadership’s position. With the Iranian political system now firmly under the control of the traditional conservatives who dominated the parliamentary elections in March, the regime feels much more confident about cutting a deal. Most recently, Ayatollah Jannati, the head of the powerful Guardian Council and one of Iran’s most influential clerics, reiterated the leadership’s increasing willingness to compromise on the nuclear front by praising the recent negotiations in Istanbul. According to him, the talks “showed success and progress” and suggested that Western countries “are ready to accept that enrichment is Iran’s right.”

Encouragingly, both sides described the Istanbul talks as “constructive and useful.” According to EU foreign policy chief Catherine Ashton, “We have agreed that the nonproliferation treaty forms a key basis for what must be serious engagement to ensure all the obligations under the treaty are met by Iran while fully respecting Iran’s right to the peaceful use of nuclear energy.” Her Iranian counterpart, Saeed Jalili, reciprocated such expressions of optimism by commending the West’s “positive approach” that furthered the “process of cooperation.” They both said that they look forward to “concrete steps toward a comprehensive negotiated solution.”

Thus, both Jalili and Ashton tasked their deputies to draft the framework for upcoming negotiations in Baghdad. However, this is precisely where the challenges arise. Ahead of the Baghdad talks, Iran and the IAEA are set to have substantial negotiations in Vienna to agree on a framework of inspection to settle outstanding questions about the nature of Iran’s nuclear program. Delicacy is essential. “Iran has lost a lot by voluntarily accepting the additional protocol for snap visits to nuclear sites before,” says Hamid Reza Taraghi, a key figure close to the supreme leader, because “the inspectors of IAEA turned out to be spies and our nuclear scientists were exposed and some of them assassinated.” Accordingly, the West must provide guarantees that any new inspection regime will be safe and exclusively technical.

The Obstacles to Peace

There are a number of issues that need to be resolved. Sure, the Iranians have indicated their willingness to subject themselves to greater inspection, perhaps even an Additional Protocol-plus sort of arrangement – which would involve unprecedented intrusive inspections by the IAEA cutting across all of Iran’s nuclear sites and areas of concern, such as the Parchin military complex. Moreover, they have entertained the idea of reverting their enrichment levels to around 3.5 percent and subjecting their stockpile of 20-percent enriched uranium to credible and verifiable inspection by the IAEA. However, in exchange, they have two conditions: first, a guarantee from the West that they will be provided a corresponding supply of medical isotopes for domestic civilian consumption; and second, perhaps most crucially, an immediate reversal of sanctions, especially those on Iran’s central bank and oil exports.

The problem is that even though the West has expressed its commitment to the so-called “step-by-step” approach – rewarding Iran for transparency in exchange for lifting sanctions – the Americans seem to be reluctant to make a significant move on this front without further Iranian concessions. In response to Iran’s call for an easing of the sanctions, Secretary Hillary Clinton dismissively said, “The burden of action falls on the Iranians to demonstrate their seriousness, and we’re going to keep the sanctions in place and the pressure on Iran.” This is a potential deal breaker.

There is also a procedural problem. When it comes to reversing sanctions, the United States, unlike the EU, is hamstrung by a dysfunctional and hostile Congress, which has not granted the executive the power to decisively suspend sanctions in exchange for Iran’s cooperation. Therefore, the EU will be crucial to any meaningful concession in terms of sanctions until the United States figures out a way to properly leverage its own set of sanctions. Also, the West has yet to revive plans for a nuclear swap – initially proposed in 2009 and reflected in the 2010 Tehran Declaration – to assuage Iran’s demand for medical isotopes. Clearly, the United States should look back at the Turkish – and Brazilian-brokered nuclear swap deal that it rejected back in 2010.

With the West equivocating on these two key demands, it is not clear how much Iran will be willing to compromise. There is an even bigger obstacle. The West’s insistence that Iran close its heavily fortified Fordo enrichment plant – an obvious concession to Israel – is another potential deal breaker. “We will reward you if you render your nuclear program completely vulnerable to a strike if and when we choose to launch one” is the wrong message.

It could strengthen the hand of hardliners who oppose any compromise on the grounds that the West is ideologically opposed to Iran’s nuclear program and scientific sovereignty. According to an official from the Iranian Foreign Ministry, “one thing I can tell you for sure is that Iran will never, ever close down the Fordo nuclear site.” If there is any motivation for Iran to develop a nuclear weapon, it stems from the country’s security dilemma. Iran is surrounded by unfriendly and menacing neighbors, including four nuclear powers and at least 40 American military bases.

Ultimately, Iran must be assured that any compromise on its nuclear program will actually improve its national security and enhance its regional standing. This is why the nuclear negotiations are inevitably tied to the need for normalizing Iran-U.S. relations. This is why Ayatollah Jannati beseeched the West to give assurances that it is no longer the enemy of Iran.

Meanwhile, the clock is ticking. The Baghdad talks in late May are the last chance to reverse the torrent of sanctions slated to kick in around June, potentially driving energy markets into a tailspin and discouraging Iran from any kind of substantive compromise. This was unequivocally reflected in Ayatollah Ahmad Jannati’s recent Friday prayer’s sermon, in which he warned: “The West should lift sanctions against Iran, but if they continue to insist on sanctions and then say they are negotiating with Iran, it is clear that these talks will be halted.” This was a sentiment most recently echoed by both Iranian President Mahmoud Ahmadinejad and the supreme leader’s adviser, Gholam-Ali Haddad Adel, who said, “At the least, our expectation is the lifting of sanctions.” Unless key obstacles are overcome in the coming weeks, we are headed for a rough set of talks in Baghdad.