Iran Will ''Co-Operate''

President Ahmadinejad—a hardline conservative—came out yesterday with surprisingly conciliatory remarks, signalling Iran’s willingness to ''co-operate'' with the international community over the country’s controversial nuclear programme. Speaking on state TV in the city of Mashad, his remarks that Iran welcomed fuel exchange and nuclear cooperation and that it would ''accept any hand extended to us in trust and honesty'' came only hours before Iran submitted its delayed reply to a nuclear deal agreed last week with world powers. In light of Iran’s demands for what appears to be significant amendments to the deal, Ahmadinejad’s remarks signal Iran’s determination to ''own'' and remain in the driving seat of nuclear negotiations, although remaining careful not to shut the door on talks. Iran’s almost week-long delay in responding to the nuclear proposal had already raised some concerns that it would attempt to secure greater concessions and take a hawkish, nationalistic stance on the sensitive issue of shipping Iran’s hard-won stockpile of low-enriched uranium (LEU). Amid Iran’s reported response to the nuclear deal, the reaction from the United States and the International Atomic Energy Agency (IAEA) has been understandably cautious; the United States said yesterday that it was still awaiting a formal response from Iran.

Iranian Manoeuvrings

The nuclear proposal was agreed last week in Vienna, Austria in the second round of talks between Iran and the so-called P5+1 countries—the United States, United Kingdom, France, Russia, China, and Germany—and the IAEA (see Iran – World: 22 October 2009: Limited Progress Achieved in Iran's Nuclear Talks). Under the proposal, Iran would agree to shipping about 85% of its LEU stockpile to Russia and France—and possibly the United States—in exchange for LEU enriched to higher grades suitable to be fed into a scientific reactor in Tehran for production of medical isotopes used in cancer treatment. Iran is currently enriching uranium to about 3.5% while its Tehran facility—built decades ago—requires an LEU enrichment grade of around 19.75%. The proposal envisions a speedy process whereby the LEU would be exported by the end of this year and it is so designed to ship out Iran’s stockpile of LEU for enough time to ensure that despite ongoing enrichment, Iran does not have enough LEU to produce a nuclear bomb. Effectively, it would secure the international community, with the United States in the lead, enough time to work on a comprehensive agreement with Iran on the nuclear—or in the worst case—signal the administration of President Barack Obama’s determination to exhaust all diplomatic means to resolve the issue. Iran’s trade-off would be an international recognition of the country’s right to enrich uranium—a significant victory indeed.

The Iranian proposal is far from clear at this point as the IAEA has yet to disclose the details of the country’s response. However, reports in the New York Times and in the Financial Times (FT) today cited unnamed Western diplomats briefed on Iran’s response stating that the changes are significant and therefore potentially unacceptable. According to the FT, Iran’s proposes to stall the shipments to only export smaller volumes of LEU at a time. Controversially the amendments also appear to propose a trade-off deal whereby Iran receives higher enriched uranium from Russia and France prior to shipping out each its LEU each time. Clearly, such a deal would make the export deal somewhat redundant, as it would not only allow Tehran to retain the bulk of its LEU stockpile, while continuing domestic uranium enrichment and receiving higher enriched uranium from the parties concerned. Further negotiations over the proposal can thus certainly be expected.

Sanctions Tentatively Tightened

President Obama earlier this week received legislation passed by the U.S. House Foreign Affairs Committee threatening to bar companies selling and shipping fuel to Iran from selling or shipping fuel to the U.S. government. The law is a crucial step in raising the pressure on Iran and companies supplying it with refined products, although it stops well before proposed harsher measures currently being discussed in the U.S. legislature which could sanction fuel traders just for doing business with Iran and target all their business in the United States. The current measure would target those oil traders doing more then US$20 million of deals with Iran in one year—in line with previous sanctions targeting investments over US$20 million, likely meaning that virtually all oil traders dealing with Iran would be included—and would ban them from crude purchase tenders issued by the U.S. government. The U.S. government, however, is not at this stage a large crude buyer as the strategic oil reserve is almost completely full and was earlier this week reported to require only an additional two million barrels. The bill passed by the House of Representatives was echoed by legislation passed by the Senate Banking Committee yesterday, proposing, in addition to mentioned measures, the targeting of U.S. imports of Iranian products—namely carpets, caviar, and pistachio nuts—which are currently exempt from trade sanctions.

Other proposed legislation prepared by U.S. lawmakers threatens to take away the president’s current prerogative to waive sanctions in specific cases and to—like much of the financial industry sanctions—punish not only investors in Iran but potentially those with dealings with the Islamic Republic. If so, Iran could very quickly start to feel the pinch, as it relies on imports to supply 40% of its fuel consumption—which moreover, it has to slump away on the domestic market due to very hefty subsidies.

Outlook and Implications

The dangers for Iran are clear. Struggling to lift its domestic refining capacity due to the sanctions damaging its ability to import technology plus suffering large funding shortages due to the confluence of expensive imports, relatively low crude prices during much of the past year, and mounting investment need to keep its mature oil industry’s output from sliding, Iran is also bracing itself for gas shortages during the coming peak electricity demand season. The failure to secure sufficient funding for its planned gas developments has left it suffering deeper and deeper shortages every peak demand time, resulting in widespread power blackouts and heating shortages—causing significant political discontent. Having come out of the other end of a major domestic political crisis, Ahmadinejad’s position is by no means safe. Notwithstanding the potential for strict sanctions to result in a sense of nationalist unity and rallying behind the Ahmadinejad government—events could be unpredictable and his already tarnished legitimacy could lead to further discontent over the government’s mismanagement.

In many ways Iran’s manoeuvring comes as no surprise and the country’s potential for unpredictable shifts by Ahmadinejad’s government will no doubt have been factored in by negotiating states. Ahmadinejad is undoubtedly treating the nuclear deal—and the Western world’s willingness to negotiate with Iran over it—as a significant victory. In fact, yesterday Ahmadinejad spent a significant portion (less widely quoted in the international media) of a speech hailing his own government’s achievements in producing the deal. The Ahmadinejad government’s intentions are thus greatly linked to domestic politics and should therefore not be misread.

Meanwhile, unwilling to portray Iran as effectively running the show, it would not be in the interest of the United States, nor indeed any of the other parties involved, to close the door on talks here. The progress achieved so far is limited but it has been hard-won and keeping Iran at the negotiation table is paramount. Meanwhile, the apparent unity of purpose in the two U.S. legislative houses, provides President Obama with both pressures and opportunities; it would also legitimise a tougher U.S. approach should Iran’s manoeuvrings become insufferable.

Global Insight (Reino Unido)