US Recalibrates Carrot and Stick Toward Iran

US Recalibrates Carrot and Stick Toward Iran

By Andrés Cala

Iran’s supreme leader Ayatollah Ali Khamenei this week flatly rejected recent US overtures for bilateral talks, but the reality is more encouraging. An evolving global geopolitical and economic landscape is pressing Western powers and Iran to resolve Tehran’s defiant nuclear program during a new round of negotiations later this month.

Western powers will bring new incentives to the table February 26 in Kazakhstan to convince Iran to ship its highly enriched uranium to a neutral country. More importantly, the Obama administration has signaled it is finally willing for direct negotiations with Iran, as long as Tehran is serious.

The Islamic Republic is hurting bad from sanctions, which this month were further tightened, but Western powers also know the economic pressure has proven insufficient to break Iranian resolve. But the war in Syria, sectarian strife in Iraq, increased global oil output, infighting in Iran, and Chinese pressure are forcing the regime to recalibrate its options.

Presidential elections in June are temporarily empowering hardliners, which explains why Khamenei’s posturing, but that is more about domestic politics ahead of Iran’s June presidential elections.

To be sure, Iran might be far from conceding defeat and halting enrichment, as Western nations demand, but it’s broader national long term interests, geopolitical and economic, are improving the chances of a compromise as both sides increasingly factor in the cost of extending the standoff.

Western countries, especially the US, are aware time also plays against them with more pressing concerns like broader Middle Eastern and North African stability, Chinese muscle flexing, and the economic recovery.

Sanctions and pressure points

Economic sanctions have simply not been crippling. Iranian oil exports are currently between 1.3 million and 1.5 million bpd, according to multiple public sources, down from 2.4 million bpd before the European Union implemented an embargo last July and, along with the US, tightened financial sanctions that hit the Islamic Republic’s oil revenue.

This week the US tightened sanctions further, in effect forcing Iran to increasingly barter for goods as payment from its most important oil customers China, Japan, India, and South Korea. Inflation has soared and Iran’s financial markets are bleeding from evaporating hard currency.

But that will not be enough to coerce the Ayatollah, especially as the nuclear program has become a national pride issue. Iran’s current oil revenue is equivalent to exports at full capacity with prices at around $80 a barrel, according to analysts quoted by Bloomberg. That is economically sustainable and Western countries know that.

Also, the nature of global oil markets is such that Saudi Arabia, which has in effect underwritten sanctions on Iran by increasing its oil output to offset lost Iranian exports, needs prices to remain around $100 a barrel to sustain its heavily subsidized economy, which explains why it’s starting to cut output in tandem with increased production in the US, Canada, and Iraq.

Furthermore, the EU’s General Court this week for a second time ruled that the EU sanctions on two Iranian private banks should be lifted because authorities failed to prove their ties to the country’s nuclear program. Countries like China too would reject US attempts to completely cut Iranian oil exports.

But geopolitically Iran is more hard pressed as a result of tightening sanctions. Iran is fighting a proxy war throughout the Middle East, not only against Israel through Hezbollah and Hamas, but more dangerously, against Saudi and Qatari backed Sunnis in Syria and increasingly in Iraq.

It’s impossible to tell how Syria’s war and Iraqi sectarian strife will evolve, but clearly Iran is not in its geopolitical comfort zone anymore. And in its order of priorities, Iran will naturally tend to seek an end to the standoff with the West to empower itself to face the more pressing Sunni challenge.

For Shiite Iran, the long term priority is overcoming Sunni militant antagonism diplomatically and militarily, and having a nuclear weapon is counterproductive to that goal. Becoming a nuclear military power will only undermine its security because inevitably Sunni nations and Israel will seek strategic parity or superiority.

China is also pressing Iran diplomatically to stop dragging its feet, for no other reason that in the long term the standoff hurts Chinese interests in Iran and Chinese energy security, even if there are strategic gains in the short term.

Western calculations

The Obama administration, much like its Western allies, is fairly confident that Iran is not seeking to build a nuclear weapon, at least for now, and that its diplomatic and economic leverage and overwhelming military power are enough to contain the Islamic Republic even if it decided to seek a nuclear deterrent.

That said, Iran has still been able to master uranium enrichment and a parallel space program. The two technologies would in theory give Tehran the ability to deliver a nuclear warhead on Israel. Tel Aviv has made it clear it will act alone if necessary to prevent that. Thus it’s also in Washington’s interest to reach an agreement with Iran to pre-empt a regional war that would seriously undermine world stability.

Also, Washington needs to prioritize in the short term global economic sluggishness, especially in Europe, and gradually extricating itself from the Middle East to concentrate on the military and strategic assertiveness of China.

In other words, Washington and Tehran both want to resolve the impasse. A more desperate Iran, suffocating under sanctions and its own problems in the Middle East, wants a face-saving solution, while President Barack Obama won’t have to worry about elections and will thus be able to impose a more pragmatic negotiation.

Economic incentives in exchange for temporarily foregoing highly enriched uranium would deny Israel the urgency it feels to unilaterally attack. It would be a sign of goodwill while the two sides agree on how Iran can keep a peaceful nuclear program under strict international control to guarantee Western powers and Israel that it won’t be able to build a nuclear bomb.

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