Iran risk: Alert - Nuclear talks at critical stage

May 20th 2014

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The latest four-day round of talks between and Iran and the P5+1 (the permanent members of the UN Security Council plus Germany) aimed at reaching a substantial deal to supersede the six-month interim Geneva accord signed in November has faced the inevitable challenges of seeking agreement on a specific text. Hence both US and Iranian officials called the talks "difficult". It remains far from clear that an agreement will be reached before the Geneva deal expires in late July, although the accord has the provision for a six-month extension. The talks in Vienna, including two meetings between EU foreign policy chief, Catherine Ashton, and the Iranian foreign minister, Mohammed Javad Zarif, reflected the continuing desire of political leaders on all sides to reach agreement, but how far they are prepared to compromise remains unclear. The greatest danger may be that the US side seeks to drive a hard bargain, aware that a six-month extension could weaken Hassan Rowhani by increasing domestic pressure on him to deliver economic benefits from diplomatic agreement. Although opponents of an accord have kept up their criticisms, they appear on the back foot. Binyamin Netanyahu, the Israeli prime minister, has continued his belligerent talk, but there is growing scepticism in Israel of his approach. The former head of the Israel Atomic Energy Commission, Brigadier‑General Uzi Eilam, said in early May that Iran needed ten years to make its nuclear programme "operational", that is, on a weapons footing. The next round of talks will be in June at the "political director" level, but discussions of the text of an agreement are continuing all the time. In that sense, the process not longer really has discrete rounds. Geneva being applied The International Atomic Energy Agency (IAEA) has verified Iran's compliance to date with the terms of Geneva, particularly in diluting uranium enriched to 20%, while Iran has agreed to prepare a document explaining past research with alleged military dimensions. Under a co-operation pact agreed between the IAEA and Iran in November, Iran was to implement seven transparency steps by May 15th: on one of these—providing information about work on detonators that can trigger an atomic explosive device—the agency is seeking further information. Although the recent senior IAEA visit did not include Parchin, a military site dogged by Western allegations of nuclear-related military work, Iran's new proposal to redesign the Arak heavy-water reactor, until now a sticking point because it opens a potential path to a plutonium-based bomb, has been well received. Essentially, an agreement would limit Iran's nuclear programme to 5%-enrichment and introduce more intrusive IAEA inspections. Iran is unlikely to close down Fordow, the fortified enrichment site near Qom that the Israelis want mothballed, but the hardest areas for agreement may be the number of centrifuges Iran would retain, the time period the agreement would apply, and the nature and timing of sanctions relief. Another likely bone of contention is whether and how Iran's missile programme, condemned by a UN Security Council resolution in 2010, would be included: among the P5+1, Russia regards the missile programme as a separate matter. Centrifuges and the duration of any agreement are sticking points Ali Akbar Salehi, head of Iran's Atomic Energy Organisation, has talked of Iran keeping the current number of 20,000 centrifuges—of which under half are active—for "four or five years", whereas the US is pressing for a lower figure. The Geneva accord stipulated Iran's programme should be "consistent with practical needs" especially in power generation, but there is tension with the US idea that any "break out period"—the time it would take to put the nuclear programme on a weapons footing—should be at least six to 12 months. In line with this, it is thought the US is seeking a reduction in the number of centrifuges to around 4,000. Iran is also committed to becoming self-sufficient in generating nuclear power and is aware that Russia's supplies for Bushehr, thus far Iran's only reactor producing power, run out in 2021. Iran's need for uranium will increase over time, given plans for up to 16 new nuclear power stations generating up to 20,000 mw, and for other civilian uses, including medical treatment. On the timescale, Iran has been arguing that Libya's nuclear issue was resolved in five years and Japan's in less than ten, reflecting its concern that the agreement should be of limited duration, following which it should not be subject to stricter terms than any other signatory of the Nuclear Non-Proliferation Treaty. Lifting sanctions It is unclear which sanctions would go in return, and how quickly. Iran wants to release funds frozen abroad, and to end the banking and oil sanctions that have halved crude exports to around 1.1m barrels/day since 2012 (although they have been slightly higher in recent months). It is important for Iran, beyond the short term, to end US actions that have curbed its development of gas reserves, which at 33.6trn cu metres are the world's largest. Only the oil majors have the expertise to develop liquefied natural gas, which is preferable to having to rely on more limited exports via pipelines, but these companies are deeply wary of technology transfers in the face of US disapproval. Presumably, a deal would lift some sanctions immediately and schedule further easing as Iran "behaves", but Iran is sceptical that the interrelated and complex nature of the sanctions regime—and the fear the US has created worldwide over trading with Iran— will curtail any benefits of a partial lifting.

Economist Intelligence Unit

Source: The Economist Intelligence Unit