The Libyan National Oil Corporation (NOC) ended on January 2 a fire that raged for days among tanks in Libya’s largest oil export terminal of Es-Sider, but the militia violence fed by the implosion of governance that caused it continues. Indeed, the levels of suffering, civilian casualties, refugees, and those internally displaced have increased steadily. The talks between Libya’s rival warring governments slated for today have been postponed. Meanwhile, extremist elements are taking greater advantage of the ongoing maelstrom.

The NOC managed to put the fire out, but three days of normal Libyan oil exports were destroyed. Of course, with Libyan crude exports already down to less than 400,000 barrels per day (only 1/3 of normal output), the fire’s impact on global markets was minimal.

Libya’s low exports since mid-2013 pose serious fiscal challenges for the country. The internationally recognized, relatively moderate House of Representatives (HOR), elected in June 2014, headed by Prime Minister Abdullah al-Thinni, and driven to take refuge in the small eastern city of Tobruk, is in fiscal crisis. The Libyan Central Bank, so far neutral between rival governments, has drawn down Libya’s currency reserves to cover spending. With two hostile governments, there is also no budget for the allotment of funds in 2015.

One might think government spending and a budget would be the least of Libya’s concerns. But beneath the government standoff and rule of local or extremist armed elements around the country, much of the Qadhafi-era’s largely socialist economy remains. If the Central Bank fails to pay government employees, those of the National Oil Corporation, personnel keeping most ports functioning, workers struggling to maintain the electric grid, civil police, and others life would grind to a halt. Goods would stop flowing, businesses would lose customers, and people would not be able to obtain goods and services at the most basic level. Fraud-ridden and often dysfunctional, presently there is an economy just the same.

Tripoli’s Power

Credit: NASA image by Jeff Schmaltz

The Es-Sider inferno was triggered by a rocket fired by Islamic Dawn (LD), the robust Islamist militia comprised of fighters from Libya’s third largest city of Misrata, near Tripoli. LD is the muscle behind the rival Tripoli government.

Since last August when it propped up the Islamist portion of the former parliament, the General National Council (GNC) as a “government,” LD has been gaining ground. Its ability to push nearly 400 miles eastward, to menace Libya’s twin oil ports of Es-Sider and Ras Lanuf plus their supporting oil fields to the south illustrates LD’s rising power at the expense of the HOR and its loyalist allies.

Likewise, 500 miles to the west, LD has been driving toward Libya’s other major oil and gas terminal of Mellitah, near the Tunisian border. Thinni has been struggling to halt this other LD drive using local tribal militias and air strikes. A NOC statement from late December, fearing the loss of Mellitah, said Libyan hydrocarbon production would fall below the levels needed to even meet Libyan domestic demand.

Bloody Benghazi

A severe impediment for the HOR and its loyalist allies is the more extremist militia grouping continuing to dominate much of Libya’s eastern second largest city of Benghazi. Led by the formidable al-Qaeda associated Ansar al-Sharia in Libya (ASL), a militant alliance— despite see-saw fighting—has managed to hold various Libyan military units and former General Khalifa Haftar’s polyglot secular forces allied with the HOR in check.

The commitment of so many HOR military assets to the military meat-grinder in Benghazi to prevent ASL from moving eastward toward Tobruk has weakened its efforts elsewhere. Eleven more died and 63 were wounded in Benghazi on Dec. 22. In fact, most killed in clashes across Libya die in Benghazi. Eastern Libyan jihadists car bombed the HOR’s Tobruk hotel on Dec. 30 wounding 3 deputies.

Human Toll

The UN Support Mission in Libya and the UN’s High Commission for Human Rights announced on Dec. 23 that nearly 700 hundred Libyan civilians have died as collateral casualties of Libyan violence since August; many times that have been wounded. Combatant casualties would likely push fatalities over 1,000. This death toll is lower than those emerging from Syria and Iraq from the regime-rebel civil war in the former and Islamic State-related violence in both. Still, the UN warned commanders of Libyan armed groups they could be charged by the International Criminal Court (ICC) with criminal atrocities.

The refugee situation is far worse. By September, 1.8 million Libyan refugees had sought shelter in Tunisia. Added to those elsewhere, as in Egypt, refugees comprise approximately 1/3 of Libya’s entire population. Those in Tunisia have overwhelmed available humanitarian assistance, particularly now during the cold, rainy Mediterranean winter. Almost 400,000 Libyans are reportedly internally displaced.

No End in Sight

So far, diplomatic efforts seeking some sort of accommodation between Tripoli and Tobruk have been futile. Talks led by UN Envoy for Libya Bernadino Leon came to naught back in September. Leon tried to organize another round for Dec. 9, but this foundered due to more fighting triggered by a failed HOR effort to retake Tripoli. Leon reported to the UN Security Council on Dec. 23 that the two sides had agreed to meet today.

That initiative also collapsed. HOR airstrikes over the weekend against targets in Misrata (the home of the GNC’s “Libya Dawn” militia) came as a surprise. Two reportedly were wounded. An HOR military spokesman said the strikes were retaliation for renewed LD attacks against Es-Sider and Ras Lanuf where fighting has resumed. Yesterday a loyalist warplane struck a Greek tanker near the eastern port of Derna, killing two crewmen; a Libyan military spokesman claimed it was carrying militants.

Meanwhile, General David Rodriguez, head of US Africa Command, revealed on December 3 that “nascent” Islamic State (ISIS, ISIL or IS) training camps had been established in eastern Libya containing a “couple of hundred” militants. Fourteen Libyan soldiers were executed on Feb. 3 in southern Libya by a group calling itself the Islamic State of Libya. Even the more moderate Islamist GNC and LD, already hostile to ASL, condemned the killings. With Libya’s disarray and the grip of ASL and associated extremists over much of Benghazi plus areas nearby like militant-held portions of Derna, IS’s appearance at some point was inevitable.

Sudanese Foreign Minister Ali Ahmed Kharti in December chaired a meeting of his counterparts from Libya’s neighbors to express concern about the Libyan crisis’ regional impact. Weighing heavily on participants was the near conquest of Mali in 2013 by extremists, many staging out of and receiving munitions from Libya’s lawless southwest. There also has been arms smuggling from eastern Libyan militants to Egypt’s Sinai-based Ansar Bayt al-Maqdis jihadists, many of whom affiliated themselves with IS in Fall 2014.

Increasingly concerned about Libyan jihadist spillover, French President François Hollande urged the international community today to address Libya’s crisis. In a two-hour interview with France Inter radio, Hollande ruled out unilateral French intervention in Libya itself, but is establishing a base in northern Niger 60 miles from the Libyan border to help contain the menace. Last year, another French base was set up near the Malian border with Libya.

The longer Libya’s chaos remains on the global back burner, the nastier its impact will be in Libya and beyond. Crises left to fester sometimes find their own way to the front burner.

The country that could ultimately suffer the most damage from a sustained depression in the world price of oil could be one that is not a major producer: Egypt.

Unable to sustain itself, Egypt is being propped up by big infusions of cash from Saudi Arabia and the United Arab Emirates (UAE). Those two oil states, closely aligned with the Cairo government headed by Abdel Fattah al-Sisi, could afford to be generous in their commitments when they were taking in $100 a barrel, just a few months ago.

With the price now down to about $60 and unlikely to rise much over the next year at least, it becomes an open question how long it will take for the two Gulf states’ domestic needs to overtake their support for Egypt.

The Saudis and the Emiratis understand that Egypt is an economic “bottomless pit,” according to Gregory Gause, a specialist in the Gulf monarchies at Texas A&M University. There have been no indications so far that they are contemplating a pullback from Egypt, but it becomes more likely the longer lower prices squeeze their oil revenue, Gause said.

Saudi Arabia’s equanimity so far in the face of the plunging price of the commodity that supports most of its public spending reflects multiple policy interests. If the falling price discourages further development of high-cost new oil sources such as shale in the United States, deep-sea wells off Brazil’s coast, or new fields in the Russian Arctic, that helps Saudi Arabia maintain its market share, a declared objective.

And the Saudis seem quite content as the price contraction inflicts economic damage on damage on Iran, their great regional rival, and on Russia, which has incurred Riyadh’s displeasure by supporting the regime of Syrian President Bashar al-Assad, to whose ouster the Saudis are committed. Egypt, however, is another matter because Sisi has become a major ally of Saudi Arabia and the Emirates in the regional struggle against the Islamic State and other extremist groups.

In a paper distributed last week, Fahad Alturki, head of research at Jadwa Investment Group in Riyadh, predicted that Saudi Arabia will maintain its current levels of spending at least for a while because it has “foreign reserves of more than 95 percent of GDP and a public debt of less than 2 percent of GDP.” Even at today’s prices, he said, the kingdom is likely to show a balance of payments surplus next year and fall into deficit only in 2016.

If the Saudi government did decide to cut spending, however, external aid would probably be one of the first targets, Alturki said.

Oil prices were already descending rapidly because of declining global demand and inventory surpluses when the members of the Organization of Petroleum Exporting Countries decided last month not to reduce their production to stabilize the price. That decision sent the price down still further to the apparent satisfaction of Saudi Arabia and the UAE, which have very deep pockets. Platts Oilgram, a trade journal, reported that “Saudi oil minister Ali Naimi left the summit all smiles, telling reporters that rolling over the 30 million b/d production ceiling was ‘a great decision.’”

The most immediate losers from the price decline are the large producing countries that need the cash to sustain their current operations. According to Alturki’s paper, these include Russia, which needs a price of $107 a barrel to support its budget; Venezuela, which needs $120; and Iran, which needs $127. Alturki’s “baseline” price projection for the next two years is $83 to $85 per barrel. Oil prices are notoriously hard to predict, but his figures are in line with several other analyses that have been published in the past few weeks.

Egypt’s problem is different, and harder to solve. The country produces about 700,000 barrels of oil a day, and its output has declined steadily from a peak of 900,000 barrels in the 1990s, according to the US Energy Information Administration. (Worldwide production is about 92 million barrels.) Almost all of Egypt’s output is consumed domestically by its population of about 80 million.

Because it is not an oil exporter, Egypt depends on other sources of hard-currency revenue to support itself; mostly Suez Canal tolls, cotton exports, and tourism. The tourist trade, however, has dwindled to a trickle over the past few years because of the country’s political upheavals, leaving the country short of cash to pay for imported food and other necessities.

According to Arabian Business magazine, the United Arab Emirates and Saudi Arabia committed aid with more than $12 billion in cash grants, no-interest loans, and refined petroleum products in 2014 alone. Kuwait, another major Gulf oil exporter with a small population, kicked in another $4 billion, the magazine reported.

Saudi Arabia pledged to support Sisi almost immediately after he ousted the former president, Mohamed Morsi, in 2013. Morsi had been elected as the candidate of the Muslim Brotherhood, which both Egypt and Saudi Arabia have since outlawed. In June, Saudi Arabia’s King Abdullah reportedly declared that any country that did not join in supporting Egypt would “have no future place among us.” But the king is also doling out tens of billions of dollars in salary increases, new social benefits and housing programs that he extended to his own citizens during the regional uprisings of 2011. He is also paying for massive infrastructure projects such as a new metro rail network for Riyadh and a mammoth new port on the Red Sea. Even Saudi Arabia can’t keep it up indefinitely at $60 a barrel.

by Djavad Salehi-Isfahani

The decision announced last Monday in Vienna to extend the talks aimed at a compressive agreement on Iran’s nuclear program for an additional seven months has resulted in Iran’s currency taking dive. In one week, the rial lost more than 5% of its value in the unofficial market. The devaluation has clear political and economic implications: it will revive inflation, slow or stop economic growth, and increase the pressure on Iranian President Hassan Rouhani as his government tries to make good on the election promises he made 18 months ago.

But will this soften Iran’s negotiating position? To answer this question, we need to look at the basis of this phase of the rial’s devaluation and what it means for ordinary Iranians.

The drop in the value of the rial after the extension was announced on Nov. 24 indicates that expectations in Iran for a final deal were high before the deal failed to materialize. This optimism had kept the rial’s value above what the economics of the situation warranted. In other words, rather than being in “free fall,” as several reports in the press have suggested, the rial is actually adjusting to a new equilibrium.

Two major factors have been putting pressure on the rial in the last few months, neither of which is related to the negotiations or the sanctions. The first is the decline of the price of oil, by more than 30% since this summer, which has reduced the already strained supply of foreign currency to the Iranian economy. As I noted in my previous post, prior to Nov. 24, the rial had remained surprisingly stable despite the falling price of oil.

The rial was also under pressure because Iran’s inflation exceeded that of its major trading partners, making Iranian producers less competitive. Prices in Iran have increased by 23% since Rouhani’s election in June 2013 when the rial traded around 31,000 per dollar. All else the same, the rial would have to fall by 23% to keep Iranian production competitive. That would mean an exchange rate of over 38,000 rials per dollar in the unofficial market and 32,500 in the official market. Presently, these rates are at 34,000 and 26,500.

Of course, all else is not the same. The price of oil is lower, Iran has started receiving around $700 million a month of its unfrozen assets, and there have been changes in economic policy. Some of these changes, like the lower price of oil, would require the rial to devalue further, while others would have the opposite effect.

At the same time, although the rial could continue to decline, currently it’s certainly not in free fall.

An overlooked fact in Western press reports on this issue is that the Rouhani government, populated in part by economists focused on the competitiveness of Iranian producers, had signaled its intention to officially devalue the rial before the Nov. 24 extension was announced. Indeed, officials spoke publicly last month about a (modest) 7.5% increase in the official exchange rate to be used in the 1394 (2015/2016) budget to 28,500 rials to the dollar.

Now on to that burning question: How long will this crisis last?

The pace of devaluation in the free market has quickly slowed down—the rial even rose against the dollar on Dec. 1—but as I mentioned earlier, further drops in the value of the rial are still possible as the reality of the lower price of oil sinks in.

Devaluation is a sign of an underlying imbalance in the economy, so when it happens, people are naturally alarmed. But it is also part of the solution to the same imbalances that need correcting. Consider, for example, that a cheaper rial is good for production and employment, even in a poor business environment hampered by international sanctions and domestic impediments to production, which business people refer to as “internal sanctions.”

Devaluations also redistribute income. In the short-run, inflation, which dropped last year below 20%, will rise as prices for goods bought and sold at the unofficial rate increase. The burden of the higher inflation will fall primarily on people living on fixed incomes, on the public payroll, and those who travel abroad or send money to their children abroad—all of whom compose the better part of the middle class.

Unlike former President Mahmoud Ahmadinejad, Rouhani does not believe in directly paying the poor, so what happens to this segment—about 10-20%— of the Iranian population is less certain. Wages of unskilled workers usually increase with inflation, though not always in tandem. They also rise with demand for labor, which could get a boost from devaluation. However, the 30% increase in the price of bread that was quietly implemented earlier this week, on Dec. 1, will hurt the poor disproportionately, as it was put through without any compensatory mechanism.

Of course, if the Rouhani government is forced to reduce the country’s much larger energy subsidies to balance its budget in the face of falling oil revenues, it may ultimately have to swallow its pride and take up the Ahmadinejad cash transfer mechanism, which Rouhani strongly criticized during his presidential campaign.

Ultimately, the drop in the price of oil will result in lower economic growth and loss of income across the country. But there is no policy that can fully compensate for a large decline in the terms of trade, which the recent decline in the price of oil represents—there are only good and bad policy responses. Allowing the rial to devalue is a good start, but not enough. The government should also be planning policies to help domestic producers rise to the occasion and measures required to protect the poor as prices for basic goods such as bread and energy rise.

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by Wayne White

Libya’s chaos and violence may seem like a continuum of painful replays. However, as the situation festers, the risk of extremist elements gaining a more dangerous foothold and broader freedom of action increases. Indeed, since the beginning of this year, militant Islamists have gained ground overall, undermining what little governance remains. Making matters worse, a Libyan Supreme Court decision has gone against the newly elected and relatively secular government.

Debating whether Libya is a failed state is academic even though the country has resembled one for the past six months. Even a senior Libyan official admitted back in August that most “factors at the moment are conducive to a failed state.” Unfortunately, Libya’s problems won’t be contained. Militant extremists and terrorists thriving amidst this mess will spread violence even farther beyond the country’s practically non-existent borders than they have already.

House of Cards

Most recognizable forms of authority in Libya have steadily imploded this year with the explosion of greater violence in the country’s two largest cities (Tripoli and Benghazi), the flight of foreign workers and embassies amidst kidnappings and murders, and the disarray affecting all manners of central governance (though its writ was already limited). In fact, Libya never evolved beyond the dominance of militias that refused to disarm following the struggle against Muammar al-Qadhafi.

Shaky stability in the capital city of Tripoli until mid-2014 depended on a wary balance of power between two powerful militias employed by Libya’s parliament, the General National Council (GNC). The Islamist militia comes from Libya’s third largest city of Misrata, while the other secular nationalist militia is from the tough Zintan mountain region south of Tripoli. The Misrata militia (now “Libya Dawn”) was linked to Islamist members, and the Zintani forces to its secular caucus. At the time, the GNC had a modest Islamist majority.

But the election in June of a secular majority permanent House of Representatives (HOR) triggered the collapse of the militia power balance. The larger Libya Dawn secured the upper hand over the Zintanis, seizing Tripoli. Libya Dawn reconvened mainly the Islamists from the GNC, proclaiming the body the true Libyan government.

The HOR fled east, taking refuge near the Egyptian border in the small city of Tobruk. Ex-General Khalifa Haftar’s effort since spring 2014 to crush extremists like the al-Qaeda affiliated Ansar al-Sharia in Libya (ASL) had experienced mixed results. Then, after solid gains against ASL forces in Benghazi in October, the beleaguered HOR embraced Haftar as acting on behalf of the newly elected parliament.

But the Libyan Supreme Court declared the internationally recognized HOR unconstitutional on November 6, arguing that the committee that prepared the election law for the June poll, which elected the HOR, violated Libya’s provisional constitution. The court remains, however, in Tripoli under Islamist occupation and originally was not asked to address the legality of the HOR, making its ruling questionable. Moreover, even if there were some inconsistencies involving election procedure, they pale against Libya Dawn’s violent seizure of Tripoli and revival of a rump GNC that no longer has any legal mandate whatsoever. The most recent election, quite an achievement under the circumstances, at least reflected voters’ preferences.

A map featuring Libya’s major cities and border states.

Consequently, despite urgings from some quarters that the HOR be abandoned, the UN and most foreign governments have not done so. As of Nov. 17, Turkey and Chad appeared to be the only exceptions.  Embracing the court decision, the rump GNC has offered a national dialogue, something that would have been of value prior to Libya’s descent into far greater chaos in 2014. Earlier this year, when there was more to work with, I had discussed the advantages of such a meeting being held at a neutral venue abroad and being overseen by the UN along with the governments that backed the anti-Qadhafi struggle in 2011.

Of course, Libya has only spiraled further downwards since then. But because both governments share the need for revenue, Libyan exports still rebounded to more than 800,000 barrels per day (BPD) in September (although still only 1/3 of capacity). Following the court decision, however, Libya Dawn sought to control the country’s oil, seizing the 300,000 BPD western El-Sharara field. But Sharara was shut down, with Zintani forces blocking the pipeline to its northern export terminal of Zawiya. Then a security guard strike over unpaid wages closed Tobruk’s Hariga export terminal last weekend. These closures have driven exports down to barely 500,000 BPD.

Whether emanating from a now more aggressive Libya Dawn or the beleaguered ASL (most likely the latter), a number of bombings have also hit HOR-controlled locales in eastern Libya. One went off in the town of Shahat during a meeting there between HOR Prime Minister Abdullah al-Thinni and UN Libyan Envoy Bernadino Leon On Nov. 10. Several car bombings occurred two days later. One hit a busy street in front of the Tobruk hotel housing the HOR; another hit the airport used by al-Thinni near the town of Bayda. A third bomb blew up in Benghazi (where fighting between the forces of Haftar and the ASL has intensified again).

The fighting in Benghazi became so intense that Leon arranged a 12-hour humanitarian ceasefire on Nov. 19 so the Red Crescent could evacuate civilians and casualties from affected areas. The UN Security Council meanwhile blacklisted ASL branches in both Benghazi and Derna.

Located between Benghazi and Tobruk, Derna has been an extremist hotbed since the 1990s. Youthful demonstrators there declared their allegiance to the so-called Islamic State’s (ISIS or IS) “Caliph” Abu Bakr al-Baghdadi in late October. With Haftar’s air assets sorely limited, Egypt probably took aim at jihadi targets there with airstrikes on Nov. 12, despite Egyptian denials. Egyptian airstrikes have previously hit Tripoli and Benghazi. Fighter-bombers from the United Arab Emirates (UAE) have also staged through Egypt against Benghazi’s extremists.

Spillover Effect

Libya remains a vast arsenal of weapons, ammunition and explosives. The Sinai-based Beit al-Maqdis, which has sworn allegiance to IS, continues to receive Libyan munitions despite Egyptian countermeasures. The Jihadi group killed 33 Egyptian soldiers on Oct. 24. It struck again on Nov. 13, killing five soldiers and police. Near the northern end of the Suez Canal, militants or their smugglers had fired on an Egyptian Navy patrol boat wounding 5 sailors a day earlier, with eight others still missing. Sinai jihadists also released a lengthy video on Nov. 14 showcasing their suicide bombing that killed the soldiers in October, with participants shouting: “good news to al-Baghdadi!” The violence appears to be continuing unabated, with a likely Beit al-Maqdis bombing having hit a police checkpoint in a Cairo suburb just yesterday.

Libya also continues to export violence in various other directions. Four Tunisian soldiers were killed and 11 wounded in a Nov. 5 bus bombing. Much of the residual violence in Tunisia meanwhile stems from the cross-border infiltration of munitions from ASL. Malian jihadists, using Libya as an arsenal and for sanctuary, attacked a border village in Niger on Nov. 19, killing nine Nigerien security personnel.

With the West’s attention absorbed by IS, the negotiations over Iran’s nuclear program, Israeli/Palestinian affairs, and more, Libya has been woefully neglected. Yet the longer the country’s problems fester, the worse they will get. Indeed, even more IS-inspired connections with Libyan and associated jihadists surely will emerge in this chaotic environment. Simply watching Libya’s meltdown has achieved nothing.

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by Jahandad Memarian

According to a recent special report on Iran in The Economist: “The revolution is over.” The article concludes by suggesting that Iranian President Hassan Rouhani’s approach to the country’s controversial nuclear program and international relations is a departure from that of his predecessors. While the piece makes several noteworthy points, it fails to mention some important nuances of Iran’s foreign policy paradigm shift, a movement three decades in the making.

Ruhi Ramazani, a veteran scholar on Iranian affairs, has long demonstrated that since Iran’s 1979 revolution, the country’s foreign policy-makers have broken away from a doggedly spiritual paradigm in varying degrees, at times acting directly in opposition to long-held religious, moral, and ideological values. Indeed, the intervening years since the Iranian Revolution have facilitated an evolution of the country’s foreign policy, which has culminated as a hybrid political construct framed by both pragmatism and spirituality, as Ramazani asserts in his book, Independence Without Freedom.

The leader of Iran’s revolution, Ayatollah Khomeini, a super-idealist, led the charge toward a more aspirational foreign policy paradigm based on ideals rooted in what Ramazani describes as spiritual pragmatism. To achieve this, Khomeini, at times, allowed deviations from “his ideological line” (Khatti Imam) and adjusted his worldview in response to social and political circumstances. Whether in regard to declaratory or practical policies, no one altered Khomeini’s line more than Khomeini himself.

For example, after the 1979 American hostage crisis in in Tehran, which began the era of ever-increasing US sanctions on Iran, Khomeini declared, “We must become isolated in order to become independent.” Yet following the release of the hostages in 1981 and the liberation of the Iranian port city of Khorramshahr from Iraqi forces in 1982, Khomeini saw his power consolidated at home and turned the lens on his ardent followers. He placed the blame for Iran’s “hermit” status on the international stage squarely on their shoulders. In one markedly critical accusation of his hard-line supporters, Khomeini even went so far as to cite the prophet Muhammad as an example of someone who sent out ambassadors to establish conciliatory relations with the outside world. To demand that Iran permanently cut ties with other countries made no sense, said Khomeini, because for Iran “it would mean defeat, annihilation, and being buried right to the end.”

Perhaps the most salient example of Khomeini’s pragmatism was Iran’s decision to secretly purchase arms, for its defensive war against Iraq (1980-88), from both the United States and Israel in what came to be known as the Iran-Contra Affair (1985-87). By striking a deal through intermediaries, American and Israeli military supplies were provided to Tehran in return for its cooperation and assistance in securing the release of Western hostages in Lebanon. In negotiating with his adversaries, Khomeini’s pragmatism proved he was focused on the bigger picture for Iran.

Many Iranian leaders have attempted following in Khomeini’s footsteps. Even president Sayyid Ali Khamenei, now the country’s Supreme Leader, adopted similar views under Iran’s “open door” foreign policy and declared, in the summer of 1986, that “Iran seeks a rational, sound, and healthy relations with all countries.”

What would these healthy relations look like for Iran? Consider the example of the high point in US-Iran relations that occurred during the two countries’ decision to cooperate in response to the war in Afghanistan. In late 2001, Iranian diplomats (and even some members of the Revolutionary Guard) domestically lobbied for working with the United States to deliver the mutual benefit of toppling the Taliban and implementing a new political order in Afghanistan. Ayatollah Khamenei conceded and as a result Iran offered airbases, search-and-rescue missions for downed American pilots, the tracking and killing of al-Qaeda leaders, and assistance in building ties with the anti-Taliban Northern Alliance. But this warming in relations was short-lived. Not long after taking advantage of Iran’s assistance, then-President George W. Bush declared Iran as part of an “Axis of Evil,” thereby instantly destroying the tenuous goodwill the two discordant countries had been working to build.

In another example, during his first two terms, President Akbar Hashemi Rafsanjani pressed for military reconstruction and economic development as a means of emphasizing the country’s practical needs following the end of the Iran-Iraq war. During his time in office, Rafsanjani invited Conoco Oil, a US company, to bid for the Sirri oil field development project (the largest in Iran’s history at that time). With Khamenei’s approval, Rafsanjani worked to close the Conoco deal, understanding that this act would significantly increase economic relations between Iran and the United States. But not long after the $1 billion deal was awarded to Conoco, the Clinton administration blocked the contract as a “threat to national security.”

There are of course other events in the Islamic Republic’s history proving that from Ayatollah Khomeini to Iranian President Hassan Rouhani, many Iranian leaders have genuinely attempted to—even in the face of powerful internal and external impediments—implement a hybrid paradigm, with each leader assigning different weights to practical and spiritual considerations. Considered with this history in mind, Rouhani’s efforts to facilitate compromises in regard to the Iran’s nuclear program are not, as The Economist suggests, a turning point in Iranian politics. They’re merely a continuation of an ongoing trend that should have been noticed by Western analysts long before now.

Jahandad Memarian is a research associate at the West Asia Council and a senior research fellow at Nonviolence International as well as a contributor to Al-Monitor and the Huffington Post. He holds an M.A. in Western Philosophy from the University of Tehran and was previously an Iranian Fulbright scholar at the University of California, Santa Barbara from 2010-11. Prior to that, Mr. Memarian was a researcher at the Iranian Parliament Research Center and worked as a journalist for the Iranian news daily, Hamshahri.

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by Eldar Mamedov

With only a little over a month to go before the deadline for a comprehensive deal on Iran’s nuclear program, a group of European, Gulf and Iranian academics and policymakers gathered Oct. 6-7 in Tehran to discuss the future of EU-Iran relations. The workshop, which was formally addressed by Iranian Foreign Minister Javad Zarif, was organized by a trio of think tanks: the European Council on Foreign Relations, the European-Iranian Research Group, and the Iranian Foreign Ministry’s Institute for Political and International Studies.

The nuclear issue loomed large during the discussions that were held under Chatham House rules. While both sides acknowledged that a comprehensive agreement would unlock the full potential of EU-Iran relations, including improved economic ties and mutually beneficial cooperation in the fight against extremist groups like the Islamic State, their assessments of the EU’s role in the talks varied.

According to the Iranian perspective, Europeans have more at stake in the negotiations over Iran’s nuclear program than the Americans due to their historical and geographical proximity to Iran, their need to meet security challenges in the Middle East, and their desire to uphold a peaceful, rule-bound international order. Hence the Iranian hope that Europe could soften the American position on critical issues in the talks such as the future scope of the Iranian nuclear program and the removal of sanctions.

In particular, Tehran seeks an understanding with Europe on the “breakout”  issue, which it understands as the American concern over Iran’s capacity to produce enough highly enriched uranium for a nuclear weapon in a relatively short period of time. Yet the Iranian side claimed during the workshop that Iran’s conventional military superiority does not require nuclear weapons to boost its security. To the contrary, even the perception from neighboring countries that Iran might acquire nuclear weapons would trigger a regional nuclear arms race that would be to the detriment of everyone, including Iran. This would, in turn, weaken Iran’s strategic positioning. The Iranian side added that if the real issue is Western distrust of Iranian intentions, then this sticking point could be resolved through non-proliferation mechanisms, such as inspections.

The European participants agreed that an “imperfect deal”—letting some extra thousand centrifuges spin while subjecting Iran to an intrusive inspections regime—would be an acceptable price to pay for an agreement resulting in a new era of positive relations with Iran and alleviating some of the miseries afflicting the Middle East. But they were very skeptical about the political will in the continent to put pressure on Washington in what would inevitably be seen as a favor to Iran. This is because Iran’s “breakout” capacity is also a concern in Europe, and because Europeans see intrinsic value in strengthening the trans-atlantic bond, especially at a time when Europe needs American reassurances against a resurgent Russia. However, as one European participant said, Europe is a “reluctant US ally on Iran sanctions.” If talks fail due to perceived American—rather than Iranian—intransigence, there will be “growing unease” in Europe over sanctions, especially since many European companies are eager to exploit the potential of the Iranian market. Indeed, if the US Congress accordingly imposed new sanctions, the EU would be unlikely to follow suit, except in the event of major new breaches by Iran of its Nuclear Non-Proliferation Treaty (NPT) obligations.

The failure to reach a deal is something that the Iranians clearly want to avoid, but not at any price. If the government sees the terms of the agreement as humiliating and politically unsellable to the Iranian public, it would prefer no deal at all. The Iranians are preparing for this contingency, including a renewed sanctions regime. The nuclear program would in the case of failed talks proceed anyway; the Iranians have pointed out that it is not possible to destroy their knowledge and technical capabilities. In this scenario, Iran would likely build new centrifuges to enrich uranium and sell oil at discounted prices to Russia, China, and Japan while waiting for the sanctions regime to go bust.

The message was thus very clear: this Iranian government is ready for a deal, but not desperate. The implication is that the Rouhani government is making the best possible offer Iran can make today, and if that offer is not accepted, a conservative backlash would ensue. Indeed, the hard-line opponents of Hassan Rouhani’s administration would feel their deep distrust of the West vindicated and the efforts of the president’s reformist-centrist coalition to normalize Iran’s relations with the West and set the country on a liberalizing trajectory would be undermined.

The European participants were of the opinion that even if a comprehensive agreement is not finalized, there might be a more limited deal. In any case, a return to the status quo that endured before the Joint Plan of Action was reached in Geneva last year is unlikely. All sides have invested too much political capital and energy into achieving a deal to stand by and watch as the entire diplomatic process is derailed. Striking a deal with Iran would also be a badly needed foreign policy success for the American president. Besides, the ongoing failure of the US-led coalition to significantly harm the Islamic State in Syria and Iraq might provide an additional incentive to reach out to Iran.

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“The Saudis typically make decisions based on what’s in their own best interest,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “Their second priority is to do what’s best for global economic conditions. The Saudis probably like seeing the price of Brent between $90 and $100, more than at either $75 or $125.”

This could change, but as shown by this event and Ali’s report, sometimes (and much more often than we think) economic interests win over political ones.