Moving towards an Iranian deal

Hurdles to lifting sanctions are imposing, but the biggest is trust

After the latest round of talks over Iran’s nuclear program this month, Europe’s foreign policy chief Catherine Ashton struck a cautious tone. “For the first time that I’ve seen, [there has been] a real back and forward between” Iranian and international negotiators, she told the press following this month’s talks in Kazakhstan. But, she stressed, the parties “remain far apart.”

See also: The Iranian sanctions navigator

The talks were the second round this year to discuss world powers’ concerns over Iran’s nuclear program. While Tehran claims its program is solely for peaceful purposes, the United States and European Union fear that the Islamic Republic is pursuing nuclear weapons capabilities.

To stop the nuclear push, the US, EU and the United Nations have erected ever-stiffening economic sanctions in recent years. But there exists another layer of sanctions — primarily enacted by the US — with diverse aims: stopping alleged support for terrorism and generally containing Iran. So even if Tehran were to meet international demands on its nuclear program, experts say these other sanctions would likely remain on the books.

The result is talks with little hope of a deal as neither side has confidence in the other’s intentions. “No one trusts anyone with a spoon in this process,” says Rouzbeh Parsi, an Iran expert at the European Union Institute for Security Studies, a Paris-based think tank funded by the EU. Iranian business executive Bijan Khajehpour concurs — telling Executive that the fundamental obstacle to current negotiations is “the mutual distrust between the parties.”

A messy mélange

Sanctions against Iran are nothing new — in fact, they date back to the founding of the Islamic Republic in 1979. These first sanctions had nothing to do with nuclear weapons but were in response to 1979-1981 US embassy hostage crisis. More were added in the 1990s proscribing US development of Iran’s hydrocarbons and banning all forms of US investment and trade with Iran.

But a turning point came in 2005 when negotiations over Iran’s nuclear program failed. Tehran had been discovered secretly enriching uranium in 2002, and was not fully complying with the demands of the International Atomic Energy Agency (IAEA), the global nuclear inspector. The collapse of negotiations led to the current era of sanctions — squarely aimed at Iran’s nuclear program, and involving several nations as well as the UN and EU.

UN sanctions bar the export of nuclear material and know-how, as well as conventional arms to Iran and loans to the country. EU sanctions go much further, blacklisting many Iranian individuals and institutions, boycotting oil imports, barring certain technology exports and freezing central bank assets, among other measures. In March of last year, Brussels implemented financial sanctions that cut Iran from the Society for Worldwide International Financial Transfers, or SWIFT, a clearinghouse for bank transfers. The result was to prevent Iran from making or receiving normal payments through the banking system.

US unilateral sanctions are even tougher — with formidable restrictions on trade, investment, financial services and Iranian entities alleged to be contributing in some way to the nuclear program, money laundering or the broadly-defined ‘terrorism’.

Woven into this messy mélange of UN, EU and US sanctions are similar, coordinated measures by at least seven other nations. The result is a complicated web of overlapping restrictions and regulations that affect nearly every aspect of the Iranian economy.

The hammer drops

The effect of the sanctions is an issue of much debate, with scattered dispatches describing a faltering economy. Between 2011 and 2012, Iranian oil exports dropped from 2.5 million to 1.5 million barrels per day according to the International Energy Agency. Other reports indicate that bread prices have shot up, while chicken costs three times what it did in 2009. Indeed, last October some observers drew a link between the measues and the apparent collapse of the Iranian rial — an event that led to protests and a government crackdown.

However, such dire reports fail to tell the whole story. Through the end of last year, official figures from Iran’s central bank showed inflation of 38 percent, not much higher than the historical average and nowhere near the 59 percent peak during the hyperinflation of the mid 90s. Casting further doubt that inflation is a direct result of sanctions is Iran’s expansionary monetary policy. M1, a narrow measure of money supply that counts circulating currency and some bank deposits, more than quadrupled between 2007 and 2011.

And while oil exports have plummeted, high oil prices made 2012 the third best year in recent memory in terms of revenue. This is an important metric for Tehran, since oil exports account for some 70 percent of government revenues.

The economic problems — whatever their causes — are being addressed by the state, argues Khajehpour. The response has ranged from easing regulations, to postponing deeper reforms, to subsidies. Despite these moves, “none of them are designed around a softening of the Iranian tone in nuclear negotiations,” Khajehpour claims in a recent paper. Counter intuitively, he also suggests that sanctions have actually helped parts of the government in certain respects, as Tehran can hide behind them.

Parsi echoes this view, saying that when President Mahmoud Ahmadinejad enacted a partial subsidy reform in 2010, sanctions “made it politically easier, because [he] could blame all the problems that come with structural adjustment on the sanctions.”

Public opinion appears to corroborate these claims. A Gallup poll conducted in December of last year demonstrates a stark perception of sanctions: 83 percent of Iranians surveyed said sanctions were harming their personal livelihood. People largely blame the US (48 percent) as opposed to their own government (10 percent). Moreover, nearly two-thirds want the nuclear program to continue.

 

Not exactly Geneva

As such the Iranian government has some leeway in charting a course through sanctions and negotiations. But public attitudes also reinforce Tehran’s strategy at the negotiating table.

According to the latest IAEA report in February, Iran has enriched 280 kg of uranium to 20 percent — enough for a crude nuclear device if processed further.

“The size of Iran’s stockpile of 20 percent [highly enriched uranium] is worrisome because it is much easier to enrich 20 percent to 90 percent than five percent to 20 percent,” says Gregory Koblentz, a nuclear security expert at the Washington-based Council on Foreign Relations. “So if Iran decided to build a bomb, it would be able to do so much more quickly if it is sitting on a large quantity of 20 percent than five percent Uranium-235.”

These dynamics make uranium enrichment the focal point of negotiations for the West, and create divergent logics among negotiators. “The Iranians know we’re obsessed with the nuclear issue, so if they’re going to give up any goodies…the big things, in the beginning, they know that after that, it’s going to be a process of diminishing returns,” says Parsi. Essentially, Iran needs to get major concessions at the beginning of any deal where they are asked to make major initial sacrifices.

On the other side of the table, that logic is flipped. “[The EU’s] negotiating mentality is that the Iranians are trying to trick different entities within the P5+1,” says Parsi, referring to the five permanent members of the UN Security Council plus Germany, who are negotiating with Iran. “[The EU] thinks the only reason the Iranians are willing to listen and are forced to negotiate is that we have the pressure of sanctions on them. This logic dictates that sanctions relief cannot be a part of the beginning of the process.”

A lack of understanding is also at play at the negotiating table, according to Dina Esfandiary, a non-proliferation expert at the London-based International Institute for Strategic Studies. “The relief has to be proportional to what is being asked of Iran because until now, the West’s position in nuclear negotiations with Iran undervalues the importance of the nuclear program to the Islamic Republic.” Esfandiary points to the example of the Fordow enrichment facility as “a symbol of self-sufficiency and pride.” As such, sanctions relief for shutting it down “will have to be proportional to that — not just removing recent sanctions on gold, which was an idea that was being floated around.”

Despite these differences, finding a solution could be simple, according to Parsi. “Solving it on a technical level isn’t that difficult; it’s just a question of finding the sequencing. Basically what you have to do is say in the next three months, you will do x and y, we will do z. In three months from now, you will do this and we will do this.”

Koblentz sketches the broad outlines of such a framework: “Presumably, Iran and the P5+1 would have to work out a phased agreement where both sides take reciprocal steps to end the stand-off. Iran would have to agree to greater oversight by the IAEA [reinstating the Additional Protocol], resolve outstanding concerns [about weaponization and other issues] and perhaps accept limits on its future nuclear activities; the P5+1 would match these actions with the lifting of specific sanctions and perhaps additional positive inducements.”

But such a solution would be difficult to achieve politically. As a recent report from the International Crisis Group (ICG) argues, “the longer the standoff endures, the higher the price Tehran likely is to demand to justify any consequential policy reversal.” Similarly for the West, “beginning to undo the sanctions regime would threaten to unravel the painstakingly constructed multilateral consensus; and it would face important political obstacles in Washington but also in European capitals.”

Who do you trust?

Further complicating matters is the sprawling and interconnected nature of the sanctions themselves. Some US measures could be lifted by a stroke of the president’s pen, but many would require congressional action — and many US sanctions deal with matters other than the nuclear file. EU sanctions may give more room for maneuver, but repealing them would still require unanimity among the 27-nation bloc. And interactions between different sanctions complicates their removal: easing restrictions on, say, insurance for oil shipments would have little effect if Iran cannot access revenues blocked by financial sanctions. In total, the ICG argues, “the sanctions’ multi-purpose and multi-layered nature has confused their strategic purpose, while constraining Washington’s and Brussels’ ability to respond to positive actions” by Iran.

The prospect of a long, complex desanctioning process makes any deal harder to achieve. Even if Iran cooperates with the West, it faces this daunting process of winding down sanctions — a procedure that could take years. Against this backdrop, Iranian Supreme Leader Ali Khamenei rejected direct talks with the US earlier this year, saying, “The US is pointing a gun at Iran and wants us to talk to them.”

Ultimately underlying the obstacles to reaching a deal and sometimes of even talking is a dearth of basic trust. “Given the number of moving parts involved in the desanctioning Iran is right to be concerned about not getting what is promised to it,” cautions Koblentz. “On the other hand, [in the view of the US] Iran’s past history of deception gives ample reason to be concerned that Iran will pocket the sanctions relief and just start spinning more centrifuges.”

“You need to build some basic trust, and you can do that by taking small steps,” adds Parsi. “The reason why all of this is happening [is] the non-relationship between Iran and the United States. There doesn’t have to be a rapprochement, but there does have to be a common understanding. Because as long as it’s not there, we’re going to be suspecting that they’re trying to build a bomb, and they’re going to have incentive to be able to build a bomb…because they’re afraid someone is going to overthrow them.”

On this note, one small ray of hope appeared last month. In televised remarks, Khamenei indicated a reserved willingness to open bilateral talks with the US, saying, “I’m not optimistic about these talks, but I’m not opposed to [them] either.” A US official quickly responded that US President Barack Obama “was open” to them as well.

Benjamin Redd

Ben is a Beirut based investigative journalist. He served as Executive's resident data geek from 2013 to 2014, and as managing editor from 2014 to 2015.

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