Once upon a time, it seemed that the Obama administration had held off opponents in Congress as well as pressure from Israel in order to press forward with negotiations with Iran. It seemed that President Barack Obama’s penchant for diplomacy was finally bearing fruit and that the United States and Iran were coming to the table with a sense of determination and an understanding that a compromise needed to be reached over Iran’s nuclear program.
These days, the story is different. Almost halfway through the four-month extension period the parties agreed to in July, the possibility of failure is more prominently on people’s minds, despite the fact that significant progress has been made in the talks. Right now, both sides have dug in their heels over the question of Iran’s nuclear enrichment capabilities. Iran wants sufficient latitude to build and power more nuclear reactors on their own, while the United States wants a much more restrictive regime.
Part of the calculus on each side is the cost to the other of the failure of talks. Iran is certainly aware that, along with escalating tensions with Russia, the U.S. is heading into what is sure to be a drawn-out conflict with the Islamic State (IS). The U.S. and its partners would clearly prefer to avoid a new crisis with the Islamic Republic, especially when the they need to work with Iran on battling IS forces, however independently and/or covertly they may do it.
The U.S. certainly recognizes that Iranian President Hassan Rouhani staked a good deal of his political life on eliminating the sanctions that have been crippling the Iranian economy. But both sides would be wise to avoid a game of chicken here, where they are gambling that the other side will ultimately be forced to blink first.
On the U.S. side, there are many in Washington who would not be satisfied with anything less than a total Iranian surrender, something the Obama administration is not seeking. Those forces are present in both parties, and, indeed, even if Democrats hold the Senate and win the White House in 2016, those voices are likely to become more prominent as time goes on.
But many believe that on the Iranian side, this is a life-or-death issue politically for the reform-minded Rouhani, and that may not be the case. It is certainly true that conservative forces in Iran, which had been ascendant under President Mahmoud Ahmadinejad, are lying in wait to pounce on Rouhani if he doesn’t manage to work out a deal that removes U.S.-led sanctions against Iran. It is also true that Rouhani deals with a Supreme Leader who is highly skeptical not only of Washington’s sincerity, but of the kind program Rouhani’s reform-minded allies wish to pursue on the domestic front. Rouhani’s support derives most reliably from an Iranian public fed up with the failure of the conservatives to improve their lives. He dare not disappoint them.
But if Washington policy-makers believe that this amounts to a political gun to Rouhani’s head, they are mistaken. In a just-released paper published by the Wilson Center. Farideh Farhi, the widely quoted Iran expert at the University of Hawaii Manoa (and LobeLog contributor), points out that Rouhani does have options if the negotiations fall apart.
“To be sure, Rouhani will be weakened, in similar ways presidents in other countries with contested political terrains suffer when unable to deliver on key promised policies,” according to Farhi.
But he will continue to be president for at least another three, if not seven, years. The hardliners will still not have their men at the helm of the executive branch and key cabinet ministries. Given their limited political base for electoral purposes, they will still have to find a way to organize and form coalitions to face a determined alliance of centrists, reformists, and moderate conservatives—the same alliance that helped bring Rouhani to power—in the parliamentary election slotted for early 2016. And, most importantly, Rouhani will still have the vast resources of the Iranian state at his disposal to make economic and social policy and will work with allies to make sure that the next parliament will be more approving of his policies.
Farhi’s point is important. Rouhani has options and he need not accept a deal that can be easily depicted by conservatives as surrendering Iran’s independent nuclear program. As pointed out in a recent survey of Iranian public opinion we covered earlier in the week, this issue is particularly fraught in Iran. It has been a point of national pride that Iran has refused to bend to Western diktats on its nuclear program, diktats that are seen as hypocritical and biased by most Iranians. That estimate is not an unfair one, given previous demands by the U.S. (and one still insisted upon by Israel and its U.S. supporters) that Iran forgo all uranium enrichment. Such a position would force Iran to depend on the goodwill and cooperation of other countries — Russia, in the first instance — whose reliability in fulfilling commitments may depend on how they perceive their national interest at any given moment. Other countries are not held to such a standard, a source of considerable resentment across the Iranian political spectrum.
Rouhani has wisely chosen not to challenge the public on this point, but rather commit himself to finding an agreement that would end sanctions while maintaining Iran’s nuclear independence, albeit under a strict international inspection regime. This is far from an impossible dream. The Arms Control Association published a policy brief last month with a very reasonable outline for how just such a plan which would satisfy the needs of both Iran and the P5+1.
In principle, both sides could live with such an outcome if they can put domestic politics aside. But of course, they cannot.
Still, the consequences of failure must not be ignored. With Barack Obama heading into his final two years as President, it is quite possible, if not probable, that his successor — regardless of party affiliation — will be much less favorable toward a deal with Iran. In that case, we go back to Israeli pressure for a direct confrontation between the United States and Iran and escalating tensions as Iran feels more and more besieged by the Washington and its western allies.
Rouhani, for his part, may be able to continue his path of reform and re-engagement with the West, but the failure of these talks would be an unwelcome obstacle, according to Farhi.
Rouhani and his nuclear team have had sufficient domestic support to conduct serious negotiations within the frame of P5+1. But as the nuclear negotiations have made clear, the tortured history of U.S.-Iran relations as well as the history of progress in Iran’s nuclear program itself will not allow the acceptance of just any deal. Failure of talks will kill neither Rouhani’s presidency nor the ‘moderation and prudence’ path he has promised. But it will make his path much more difficult to navigate.
All of this seems to amount to sufficient incentive for the two sides to bring themselves toward the reasonable compromise that both can surely envision. At least, one hopes so.
]]>by Djavad Salehi-Isfahani
Iranian President Hassan Rouhani was elected to office largely on his promise to lift the economy out if its deepest recession since the Iran-Iraq war. One year later, evidence of a recovery is hard to find, but he has achieved a few significant accomplishments.
Rouhani’s most visible accomplishment [...]]]>
by Djavad Salehi-Isfahani
Iranian President Hassan Rouhani was elected to office largely on his promise to lift the economy out if its deepest recession since the Iran-Iraq war. One year later, evidence of a recovery is hard to find, but he has achieved a few significant accomplishments.
Rouhani’s most visible accomplishment is lower inflation, down by more than half from over 40 percent a year ago. The runaway inflation of the last three years that alienated the middle class and even many conservatives from former President Mahmoud Ahmadinejad is now back to a level that Iranians consider normal.
Containing inflation was achieved at considerable cost, though, by keeping government expenditures to a minimum and forgoing any kind of fiscal or monetary stimulus. Rouhani even managed to increase energy prices last April without any protest, indicating that his popularity has so far survived austerity. The energy price hikes were substantial enough to close the budget gap left by Ahmadinejad’s generous — some would say irresponsible — cash transfers. The price of gasoline was increased by 75 percent, diesel by 67 percent, and other energy prices by about 30 percent.
Rouhani’s second economic achievement was restoring the business confidence lost to the erratic economic management of the Ahmadinejad years. He did this by simply getting elected and by appointing a competent team. His election stopped or at least slowed down the hemorrhaging of Iran’s economy, which has been hit by draconian international sanctions and bad domestic policies.
Rouhani’s greatest economic success came in the form of a political victory. He overcame substantial domestic opposition to rapprochement with the West to sign the Joint Plan of Action (JPA) with world powers last November. The economic impact of the JPA has been underwhelming, but without it the economy would have continued to slide.
The agreement can be credited with the strengthening of Iran’s currency, the rial, which is a good indication of rising business confidence. Since November, Iran’s oil exports have also increased by 30 percent, about $7 billion of Iran’s frozen funds have been released, and petrochemical exports, which received specific sanctions relief, have increased.
This spring, auto production (also marked for sanctions relief in the JPA) was up by a whopping 90 percent compared to a year ago according to Mohammad Reza Nematzadeh, the minister for industry, mines and commerce. He also mentioned increases in petrochemicals production by 9 percent and durable goods by 30 percent.
These improvements are most likely lost on the average Iranian, whose job prospects and income has not increased since Rouhani took office. The obvious culprit is, of course, the financial and shipping sanctions that limit Iran’s access to its foreign exchange earnings and continue to choke large sections of its industries. Manufacturers are still using cumbersome and costly channels to procure their raw materials and parts. For them, the optimistic official statements and newspaper headlines proclaiming the imminent “collapse of the sanctions regime,” is just talk. Indeed, while Western critics of Iran’s limited sanctions relief, particularly in Washington, point to the flood of foreign business missions to Tehran, no actual investment has occurred due to the continued uncertainty about the future of the sanctions.
The latest disappointing jobs report shows the limited impact of the JPA so far. Industry as a whole continued to lose jobs last spring, more than 6 months after the signing of the agreement.
There were 700,000 fewer industry workers employed in spring 2014 than when Rouhani took office. These numbers cast doubt on the claim made in a recent report published by the Foundation for Defense of Democracies and Roubini Global Economics that the economic benefit of the JPA “is reflected in increased economic output and improvements in employment within Iran.” National accounts data published last week shows that industrial output for 2013/14 as a whole was down by 4.5 percent and industrial employment has been falling through spring 2014.
Data on personal incomes and consumption published by the Statistical Center of Iran also indicates that economic recovery is yet to come. For the Iranian year that ended on March 20, 2014, real household consumption fell by 5 percent for urban households and 12 percent for rural ones. Their real food expenditures meanwhile fell by 14 percent.
So does the anemic economic recovery weaken Rouhani’s hand in the nuclear negotiations and should the West therefore toughen its position now in order to extract further concessions from Iran?
Sanctions have no doubt increased Iran’s willingness to negotiate, but it would be a mistake to think that more sanctions always brings more concessions. Most Iranians believe their government has held its part of the bargain since last November, so they would see more sanctions now as bad faith on the part of the P5+1 (US, UK, France, Russia, China plus Germany) and blame the failure of the negotiations on them. This would reduce pressure on Rouhani to make further concessions.
Furthermore, the Iranian middle class, after having survived eight years of Ahmadinejad, still regards Rouhani as the best leader to champion its interests. The poor, who, despite years of sanctions are decreasing as a proportion of the total population, are meanwhile relatively well protected. Thanks to the cash assistance program instituted by Ahmadinejad (about $40 per person per month in international dollars) in 2012/13, when average real incomes and expenditures were falling, poverty rates actually fell. At the time, only 5 percent of the population was counted as poor, based on a $5 per day poverty line (in international dollars). Iran’s effective income assistance programs can be adjusted to protect them against further economic deterioration.
The more interesting question is how the course of the talks could affect Rouhani’s presidency beyond its first year.
As they stand now, Rouhani’s plans are helping the private sector lead the economic recovery and letting markets form the basis of economic life in the Islamic Republic. If the talks succeed in the next four months and sanctions are gradually lifted, Iranian businesses are sure to spring into action, as they do when oil money starts to flow. Rouhani will be then be well on his way to a second term.
But Rouhani has reservations about this scenario. In the past, oil-induced booms have deepened Iran’s dependence on the outside world, something that runs counter to the vision of a “Resistance Economy” identified with the Supreme Leader.
If the talks fail, as the Washington hawks seem to wish, Rouhani would have to reverse course; instead of re-integrating Iran into the global economy with the private sector in the lead, he would promote economic self-reliance and resistance to outside pressures, a strategy that fits much better with the state and its para-statals at the helm.
In the narrow, security-focused discussion of Iran that passes for analysis these days in the US, the broader issues of importance to Western leaders are easily lost. But for those interested in longer-term relations with Iran, it helps to bear in mind that the current negotiations are not just about Iran’s nuclear activities; they are also about the direction that Iran’s economy will take in the coming decade, and who could benefit from it.
Photo: Iranian President Hassan Rouhani visits the Shahid Rajai Port Complex port in Hormozgan Province on Feb. 25, 2014.
]]>by Jasmin Ramsey
Mohammad Javad Larijani, a top adviser to Iran’s Leader Ayatollah Ali Khamenei, seems like a reasonable fellow with respect to Iran’s nuclear stance in this March 12th interview with CNN’s Christiane Amanpour.
On the West’s issue with Iranian enrichment of uranium to 20%, Mr. Larijani says we simply need [...]]]>
by Jasmin Ramsey
Mohammad Javad Larijani, a top adviser to Iran’s Leader Ayatollah Ali Khamenei, seems like a reasonable fellow with respect to Iran’s nuclear stance in this March 12th interview with CNN’s Christiane Amanpour.
On the West’s issue with Iranian enrichment of uranium to 20%, Mr. Larijani says we simply need to go back to the era when Iran was able to buy the fuel it needs for its Tehran Research Reactor (TRR). “The minute they sell it to us, the amount we need for the Tehran reactor, there is definitely no need to produce it,” he said.
On the issue of Iran’s slow but steady advancement of is nuclear program, Mr. Larijani argues that Iran’s enrichment of uranium is an “honest to God right” that’s also covered by the Nuclear Non-Proliferation Treaty (NPT) and “we are a moving nation, we are going to capture higher levels of scientific achievement” regardless of Western demands. Then the reasonable part kicks in full-swing: however, if concerns about Iran’s nuclear program are related to the issue of nuclear armament, Iran understands and shares that concern, claims Mr. Larijani, adding that Iran is “willing to accept all mechanisms under the NPT” to safeguard against such development.
And with respect to the possibility of bilateral talks between Iran and the US (which already occurred back in October 2009), Mr. Larijani is less direct. He doesn’t confirm or reject the possibility, but does offer a “recommendation” that a “new model” be designed for relations between Iran and the United States which acknowledges that Iran does not want to be more than “what we are” and ends US hostility toward Iran.
Excluding Mr. Larijani’s comments about the political battle between Mahmoud Ahmadinejad and Iran’s ruling elite, which Mr. Larijani describes as part of Iran’s “democratic structure”, all this raises the question of why Iran isn’t perceived as reasonable during negotiations or can’t be as reasonable as Mr. Larijani seems to be here with Amanpour on CNN, and why progress on the diplomatic front remains slow at best or simply nil. Deep mutual mistrust, acknowledged by the most knowledgeable US-Iran analysts, is perhaps the main reason for the lack of substantial results, as are those pesky details that need to be agreed upon by both sides before a deal can be reached.
Then there’s that lingering issue of whether progress can even be hoped for before Iran’s 2013 Presidential election, and for that I turn to the experts. I’ll have an interview that touches on that issue and the nuclear negotiations as a whole with Farideh Farhi up next week.
]]>