Economic pain may push tough-talking Iran to show nuclear flexibility

Dubai/Tehran: Iran insists the new US administration act first to save the collapsing 2015 nuclear deal but faces pent-up pressures, from ruinous sanctions to internal dissent and wider regional crises, that may impel Tehran to show flexibility in a test of wills.

US sanctions are squeezing Iran’s oil income, Iranians’ economic misery is palpable. Israel’s normalisation deals with Gulf Arab states threaten Iran’s wider regional presence, and Tehran’s regional proxy wars are draining scarce resources.

Despite official Islamic Republic bluster that Tehran is in no rush for Washington to rejoin its nuclear accord with world powers, the myriad pressures mean speed is of the essence with a presidential election looming in June.

“Public dissatisfaction is simmering ... The hopes of many Iranians that their economic misery would quickly end after (US President Joe) Biden’s election are turning to frustration and anger,” a senior Iranian official said.

Iran’s clerical rulers fear a re-eruption of unrest among its core voting bloc - lower-income Iranians - whose periodic bouts of protest in recent years reminded them how vulnerable they could be to popular anger over economic hardships.

“This anger over economic problems should be addressed immediately. It does not mean yielding to America’s pressure. It means showing heroic flexibility,” he told Reuters.

Strict limits on uranium enrichment

Biden has said Washington will return to the nuclear pact abandoned by predecessor Donald Trump if Tehran first resumes compliance with its strict limits on uranium enrichment, a potential pathway to nuclear bombs. But with mutual mistrust running deep, Tehran avers that Washington must act first.

“It is a delicate decision for top leaders to make. They have to choose between sticking to their uncompromising stance or showing some flexibility,” another senior Iranian official told Reuters.

There may be little time to lose to avoid the risk of the stand-off deteriorating into open conflict, some analysts say.

Since Trump ditched the deal, asserting it was too lenient on Iran, Tehran has been rebuilding stockpiles of low-enriched uranium, enriching it to higher levels of fissile purity and installing advanced centrifuges to speed up production.

Dramatically upping the ante, a law passed by the hardline parliament obliges Tehran on Feb. 21 to cancel the sweeping access given to UN non-proliferation inspectors under the 2015 deal, limiting their visits to declared nuclear sites only.

“This will be considered a major breach by Iran and will deeply complicate the situation,” warned a senior Western diplomat whose country is a party to the deal.

Quiet debate

However, some officials and analysts see room to bypass the hardline public posturing over which side should take the first step to rescue the deal, which was touted as a key insurance policy against wider Middle East war when signed.

Iran would be amenable to a step-by-step, give-and-take approach if Washington took the first step, another Iranian official who was involved in the nuclear diplomacy with six world powers before 2015 told Reuters.

“Biden needs to build trust by returning to the deal as soon as possible. Then they should immediately find a way to ease the unjust economic pressure that would encourage Iran to show flexibility,” he said.

Three sources told Reuters on Monday that the Biden administration was weighing a wide array of ideas on how to revive the deal, including an option where both sides would take small steps short of full compliance to buy time.

A viable route to agreement that would avoid either side losing face has yet to crystallise, however.

“We still dont know how all this will happen because the Americans have not defined how they see the calendar sequencing and crucially what they actually want to obtain. The Iranians have also not defined what they want,” said a European diplomat.

A senior Iranian diplomat suggested one gesture by Tehran towards resolving the impasse could be help in ending conflicts in Yemen, Iraq and Syria, saying this could offer a “quick foreign policy win” for Biden.

Ali Vaez, Iran analyst at the International Crisis Group, suggested Washington could help pave the way to a new deal by reviving a French proposal to give Iran a $15 billion credit facility, or unblocking Iranian funds abroad. About 90 per cent of Irans official reserves are frozen abroad due to sanctions.

Eurasia Group analyst Henry Rome said Iran could match US gestures by eschewing further provocative moves, such as “not reducing UN inspector access, not installing more advanced centrifuges, not ramping up enriched uranium production”.

Another gesture could lie in a prisoner swap - Tehran has in the past indicated readiness to carry one out with Washington.

Ultimately the Islamic Republic desires Western recognition of what it sees as its rightful place as a pre-eminent power in the Middle East, where for decades Iran and Saudi Arabia have jostled for the upper hand.

Saudi Arabia and Israel both opposed the 2015 deal and fear its revival, without addressing Iran’s ballistic missile program and role in various Middle East conflicts via proxy forces, might further embolden their mutual enemy.

Economic misery

As the nuclear impasse has festered, so has popular disenchantment at home - especially among women and the young, who comprise the bulk of voters - over high unemployment, soaring inflation and restrictions on political freedoms and social life.

Hundreds of factories have been closed, Iran’s rial currency has lost 70 per cent of its value against the US dollar and official data show over 40 million Iranians live below the poverty line.

The election outcome in June will have no notable sway on nuclear policy, which is determined by Supreme Leader Ayatollah Ali Khamenei.

But the myriad privations suffered by voters make a poor turnout more likely and this could bolster critics who say the establishment must moderate domestic and foreign policy.

“Any delay in reviving the economy could push Iran into chaos. People cannot take more economic pressure,” said a former Iranian official who favours policy reforms.