US-Iranian Dialogue in Obama’s Second Term – Stratfor

“U.S.-Iranian  Dialogue in Obama’s Second Term is republished with permission of  Stratfor.”

Read more:  U.S.-Iranian Dialogue in Obama’s Second Term | Stratfor

By Reva Bhalla Vice President of Global  Affairs

As U.S. President Barack Obama’s second-term foreign policy team begins to  take shape, Iran remains unfinished business for the U.S. administration. The  diplomatic malaise surrounding this issue over the past decade has taken its  toll on Washington and Tehran. Even as the United States and Iran are putting  out feelers for another round of negotiations, expectations for any breakthrough  understandably remain low. Still, there has been enough movement over the past  week to warrant a closer look at this long-standing diplomatic impasse.

At the Munich Security Conference held Feb. 1-3, U.S. Vice President Joe  Biden said the United States would be willing to hold direct talks with Iran  under the right conditions. Iranian Foreign Minister Ali Akbar Salehi responded  positively to the offer but warned that Iran would not commit unless Washington  shows a “fair and real” intention to resolve the issues dividing the two  sides.

An Uneven Record in U.S.-Iranian Diplomacy

This diplomatic  courting ritual between the United States and Iran has occurred a handful of  times over the past several years. Like previous times, the public offer of  talks was preceded by denials of secret pre-negotiations. (This time, Ali Akbar  Velayati, a presidential hopeful and senior adviser to Iranian Supreme Leader  Ayatollah Ali Khamenei, denied that he met with a U.S. representative in Oman.)  Meanwhile, as a sideshow to the more critical U.S.-Iranian bilateral track, Iran  has announced it will hold negotiations with the P-5+1 group Feb. 25 in  Kazakhstan to demonstrate its willingness to seek a compromise on the nuclear  issue as part of a broader deal. For good measure, Iran has balanced these  diplomatic moves with an announcement that it is upgrading uranium centrifuges  at the Natanz enrichment facility. Though this  will rile Israel, the thought of Iran accelerating its nuclear program could  add just the right amount of urgency to propel the talks.

The first step to any negotiation is defining a common interest. For the  United States and Iran, those interests have evolved over the past decade. In  2003, they shared an interest in bringing Saddam Hussein down and neutralizing a  Sunni jihadist threat. By 2007, it was a mutual interest in relieving  the U.S. military burden in Iraq. In 2011, it was a common interest in  avoiding a war in the Strait of Hormuz. In 2013, as the region fragments beyond  either side’s control, Washington and Tehran are each looking to prevent the  coming quagmire from undermining their respective positions in the Middle  East.

But talks have also stalled many times due to issues of timing, misreading of  intentions, lack of political cohesion or a number of other valid reasons. At  base, timing is everything. Both sides need to create a favorable political  climate at home to pursue controversial negotiations abroad. Complicating  matters, both sides have the mutually contradictory goal of negotiating from a  position of strength. In 2007, Iran could still claim to hold thousands of U.S.  troops hostage to attacks by its Shiite militant proxies in Iraq. In 2011, a Shiite  uprising in Bahrain threatened to upset the balance of power in the Persian  Gulf in Iran’s favor while Iran could at the same time shake energy markets with  military maneuvers in the Strait of Hormuz.

Iran, however, couldn’t hold that position for long. With time, Tehran’s  still-limited covert capabilities in the eastern Arabian Peninsula were exposed.  Meanwhile, the United States built up its military presence in the Persian Gulf.  With minesweepers  now concentrated in the area, Iran now must think twice before carrying out  provocations in the strait that could accidentally trigger a military  intervention.

Before Tehran could recover, the regional climate flipped against Iran. In  2012, the Sunni rebellion in  Syria gained steam, in no small part due to a growing regional imperative to  deprive Iran of its Mediterranean foothold in the Levant. As Iran’s position in  Syria and Lebanon began to slip, the Sunni momentum predictably spilled into  Iraq, where massive Sunni protests against the Shiite government in Baghdad  already are under way.

Now, Iran no longer poses a strategic threat to U.S. interests in the way it  did just a few years ago, and the prospect of Iran solidifying an arc of  influence from western Afghanistan to the Mediterranean has evaporated. Iran is  on the defensive, trying to help its allies survive in Syria and Lebanon while  at the same time being forced to devote more resources to holding its position  in Iraq. And while Iran’s overseas expenses are rising, its budget is  simultaneously shrinking under the weight of sanctions. U.S.-  and European-led sanctions over the past two years have gradually moved from  a policy of targeted sanctions against individuals and firms to a near-total  trade embargo that has prompted some Iranian officials to openly admit that  Iran’s oil revenues have dropped more than 40 percent.

At this point, the United States has two options. It could allow the regional  forces to run their course and whittle down Iran’s strength over time. Or it  could exploit the current conditions and try negotiating with Iran from a  position of strength while it still has the military capacity to pose a  legitimate threat to Iran. Iran may be weakening, but it still has levers with  which to pressure the United States. Preparations are already under way for  Alawite forces in Syria to transition to an insurgency with Iran’s backing. In  Afghanistan, Iran has militant options to snarl an already fragile U.S. exit  strategy. So far, the United States has shown a great deal of restraint in  Syria; it does not want to find itself being drawn into another conflict zone in  the Islamic world where Iran can play a potent spoiler role.

It appears that the United States is pursuing the strategy of giving  negotiations another go with the expectation that these talks will extend beyond  the immediate nuclear issue. Iran has frequently complained that it cannot trust  the United States if Washington cannot speak with one voice. For example, while  the U.S. administration has pursued talks in the past, Congress has tightened  economic sanctions and has tried to insert clauses to prevent any rollback of  sanctions. The economic pressure produced by the sanctions has helped the United  States fortify its negotiating position, but the administration has tried to  reserve options by keeping a list of sanctions it could repeal layer by layer  should the talks yield progress.

Seeking Flexibility in Sanctions

Washington could look to Europe for more flexibility for its negotiating  needs. In a recent story overlooked by the mainstream media, the General Court  of the European Union on Jan. 29 revoked sanctions against Bank Mellat, one of  the largest commercial banks in Iran that is primarily involved in financing  Iran’s vital energy sector. Bank Mellat was sanctioned in 2010 based on  allegations that it was a state-owned bank involved in Iran’s nuclear  proliferation activities. But the EU court has now ruled that there was  insufficient evidence to link the bank to the nuclear program. Even so, though  Iran claims that the bank has been fully privatized since 2010, it is difficult  to believe that it does not maintain vital links with the regime. Nonetheless,  rumors are circulating that more EU sanctions de-listings could be in store.

Given the impossibility of sealing every legal loophole, perception plays a  vital role in upholding any sanctions regime. Over the past two years, the  United States — in coordination with an even more aggressive European Union —  has signaled to traders, banks and insurers across the globe that the costs of  doing business with Iran are not worth jeopardizing their ability to operate in  Western markets. Enough businessmen were spooked into curbing, or at least  scaling back, their interaction with Iran and known Iranian front companies that  Iran has experienced a significant cut in revenue. But with large amounts of  money to be made in a market under sanctions, it can be very difficult  politically to maintain this level of economic pressure over an extended period  of time. And the more the sanctions begin to resemble a trade embargo, the more  ammunition Iran has for its propaganda arm in claiming sanctions are harming  Iranian civilians. The prospect of additional sanctions being repealed in court  in the coming months could deflate the West’s economic campaign against Iran and  give more businesses the confidence to break the sanctions — but if the  sanctions were intended to force negotiations in the first place, that may be a  risk the U.S. administration is willing to take.

There is no clear link between the recent U.S. offer of talks and the  sanctions de-listing of Bank Mellat. But if the United States were serious about  using its position of relative strength to pursue a deal with Iran, we would  expect to see some slight easing up on the sanctions pressure. This would likely  begin in Europe, where there would be more flexibility in the sanctions  legislation than there would be in the U.S. Congress. Germany,  Iran’s largest trading partner in Europe, has perhaps not coincidentally  been the strongest proponent for this latest attempt at direct U.S.-Iranian  talks. It is also notable that U.S. President Barack Obama’s picks for his  second-term Cabinet include senators Chuck Hagel and John Kerry, both of who  have openly advocated dialogue with Iran.

Iran is now the most critical player to watch. Iran is weakening in the  region and is becoming heavily constrained at home, but even so, the clerical  regime is not desperate to reach a deal with Washington. Reaching an  understanding with the United States could mitigate the decline of Alawite  forces in Syria and the Sunni backlash that Iran is likely to face in Iraq, but  it would not necessarily forestall them. And with general elections in Iran  slated for June, the political climate in the country will not be conducive to  the give-and-take needed to move the negotiations forward, at least in the near  term.

The United States would prefer to reduce the number of unknowns in an  increasingly volatile region by reaching an understanding with Iran. The irony  is that with or without that understanding, Iran’s position in the region will  continue to weaken. Even if Washington doesn’t need this negotiation as badly as  Iran does, now is as good a time as any for a second-term president to give this  dialogue another try.

Read more:  U.S.-Iranian Dialogue in Obama’s Second Term | Stratfor