Why Iran believes in nuclear brinkmanship

By Roula Khalaf
February 1, 2006
The Financial Times
Original Source: http://news.ft.com/cms/s/88af81a6-935d-11da-a978-0000779e2340.html

To an anxiously watching world, the escalation of tensions over Iran’s nuclear programme is evidence of the irrationality of fundamentalist president Mahmoud Ahmadi-Nejad.
But viewed from inside Iran the government’s aggressive approach is based on an entirely rational calculation: that a potent combination of high oil prices, a distracted and overstretched US and Tehran’s potential to foment unrest among allies in the Middle East will ensure the Islamic Republic emerges triumphant from its long months of brinkmanship with the west. In other words, while Iran’s strategy may be dangerous, it cannot fairly be characterised as mad.
To most Iranians, the gathering international storm still seems remote. A country that has lived through war and revolution and suffered decades of US sanctions has yet to absorb the potential consequences of the crisis. In the grand bazaar, the traditional commercial centre that helped finance the 1979 Islamic revolution, a mood of assertive nationalism is apparent. Traders say developing nuclear energy is their country’s right and a matter of pride as well as security.
They wonder why a regional power such as Iran – which insists its programme is peaceful – should be barred from developing a nuclear capability when neighbours, from Pakistan to India and Israel, are not. “If the whole world can have a nuclear programme, and have weapons, why shouldn’t we? Why should we be bullied?” is a common refrain.
However, the mass of Iranians – and the majority of those who helped deliver Mr Ahmadi-Nejad’s unexpected victory in elections last year – are not well-off despite their country’s record oil wealth. So one unanswered question is how much Iranians would be willing to pay for such a programme.
Some people say they would fight for the right to the technology. Others argue that Iran should focus its energy on economic development, before seeking a costly technology that also carries a heavy price in terms of alienating the west. “It’s like buying a necktie before you even get a suit,” quips one carpet trader.
Although Mr Ahmadi-Nejad has contributed to the newly confrontational climate, reformists, who dominated the previous government of Mohamad Khatami, dismiss the successor as an extreme and inexperienced figure whose influence on the nuclear dispute is minimal. But many are less interested in Iran’s newly assertiv
e foreign policy than in what the president can do to address the country s social problems. Such supporters laud him as a modest man, determined to redistribute resources to the poor. In recent weeks, while the nuclear dispute has intensified, Mr Ahmadi-Nejad has appeared to court that constituency, holding cabinet meetings in various provinces and lavishing promises of loans and projects, funded from the $43bn (¬ 36bn, £24bn) in oil revenues that the world s fourth largest producer is expected to amass thi
s year.
Analysts in Tehran say the new nuclear policy is backed by Ali Khamenei, the supreme leader and ultimate decision-maker. Rebutting suggestions of irresponsible adventurism, officials involved in the nuclear issue argue that all sensitive activities were suspended for more than two years while Iran pursued negotiations with the UK, France and Germany – the so-called EU3. They point out that Tehran’s goal – an agreement that would allow Iran to maintain the main features of its nuclear programme – has been frustrated.
“The suspension was meant to produce an agreement on nuclear fuel but the EU proposal had everything in it but nuclear fuel,” asserts Ali Larijani, secretary of the Supreme National Security Council and the most senior nuclear official.
Now Tehran has changed tactics, believing it can win through pressure and unilateral action what it could not achieve through negotiations. The diminished influence of reformists and “conservative pragmatists” in the regime since last June’s presidential election has reinforced the decision to adopt a more aggressive stance. 
“The current (regime’s) strategic argument is that Iran’s policy on the nuclear issue was passive and Europe’s was aggressive but our policy was to build confidence and have a long-term strategy with Europe,” explains a former senior official. “They (the new team) now say Iran should not attach great importance to Europe and that it should speak to the west differently.”
The hardened stance became apparent on January 3 when Tehran announced it would restart “nuclear research”, including small-scale uranium enrichment. Nasser Hadian-Jazy, an assistant professor at the University of Tehran, argues that, from Iran’s perspective, the confrontation is well-timed. It comes during a period of high oil prices, which have maximised Iran’s clout.
A conviction that the US and its allies are bogged down in Iraq has bolstered the Iranian leadership’s confidence that it can win the stand-off. “They feel the west is not in a position to block Iran and they feel that the military option is not an option for the west,” adds Mr Hadian-Jazy. “The perception is that the west will make a compromise – that they will have to negotiate with Iran in a serious way.”
The US also has a strong imperative not to alienate Iran, which is close to the Shia coalition that will dominate the government now being formed in Baghdad. Tehran also has allies elsewhere in the region and government officials have repeatedly hinted that Iranian-backed groups could stir up trouble for the US. “The hand of Iran is in Iraq, Afghanistan, Palestine – they [in the west] need Iran,” says a senior Iranian diplomat.
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Aat the same time, Iran has vowed that, if it is reported to the United Nations Security Council, it would retaliate by ending snap inspections by the International Atomic Energy Agency, the UN’s nuclear watchdog, and forging ahead with industrial-scale uranium enrichment, producing the material that could be used for nuclear reactors or bombs.
This would deprive western governments of an important layer of international supervision – and of control over the pace of Iran’s nuclear development.
Iran has also been counting on Russia and China to block punitive measures at the Security Council, hoping that commercial self-interest will prevail. Mr Larijani, meanwhile, says that Tehran has taken measures to protect its nuclear installations in the event of a military attack, whether by the US or Israel.
Is Iran justified in its confidence that the west will blink first? That will not be clear for some time. After weeks of negotiations with Russia and China, the two permanent members of the Security Council most sympathetic to Tehran, an agreement was reached on Monday to report Iran to the council, via a meeting of the governing board of the IAEA, which starts today.
But the council will not consider any action for at least another month, until UN nuclear inspectors deliver a further report on Iran’s co-operation with the IAEA. Even then, it is not certain that the Russians and Chinese will agree to the imposition of diplomatic or economic sanctions.
Western officials insist Iran is exaggerating its leverage. “You get the feeling that they don’t give a damn about world opinion and they want to do things their way,” says a senior western diplomat. “But they’re deluded – they are under-estimating our resolve.”
Diplomats in Tehran say the report to the Security Council is intended to send a direct message to Mr Khamenei – the only way of reaching a man with whom western governments have no direct contact. They argue that if the supreme leader, viewed as a pragmatist, can be convinced that Iran’s strategy will have damaging consequences, he would eventually order the nuclear team to back down.
Diplomats are still hoping that Tehran will agree, at least for a period, to endorse a proposal by Moscow thaturanium should be enriched on Russian soil andreturned to Iran. But, according to European officials, so far Iran has been insisting that small-scale enrichment continues inside the country – an option that the Russians, along with the US and Europe, are against.
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Iran, however, has much to lose if it rejects the Russian compromise. Moscow would align itself more closely with the US and EU. Tehran would lose an important ally and face more concerted opposition at the UN Security Council.
Among the Iranian political elite there is a growing concern that Iran willnevertheless opt to raise the stakes in response to a UN referral. Mostafa Tajzadeh, a leading reformist official with the opposition Musharakat group, warnsa strengthening international backlash against Iran’s nuclear ambitions would only engender more radicalism from the regime and provoke further instability in an already volatile Middle East.
“Conditions in the region are so complicated that any mistake by either side, or the two sides could create a huge incident, something outside anyone’s control,” he says. “It’s true that Iran is in a strong position now, as the conservatives argue. But their biggest mistake is that they are imposing a lose-lose game on the region.”
Frustrated watchdog toughens its language
In 2002, an exiled Iranian opposition group that the US designated as a terrorist organisation announced that the Islamic Republic was engaged in clandestine nuclear activities at specific sites, writes Daniel Dombey.
The claim, subsequently proved to be true, has been at the heart of suspicions about Iran’s nuclear programme ever since. In the most important site to come to light, an underground facility in Natanz, Iran had started working towards small-scale uranium enrichment – a process that at high levels can produce weapons-grade material.
Tehran, which subsequently allowed international inspectors into the country, has always insisted its nuclear programme is purely peaceful. The International Atomic Energy Agency, the United Nations nuclear watchdog, has been careful to say that it has not found any proof that the country has been operating a weapons programme.
But the IAEA has grown increasingly frustrated by what it sees as Iran’s foot-dragging over its access to places, people and documents – in spite of a spurt of co-operation over the past week – and its language has grown harsher.
In a note circulated for today’s IAEA board meeting, which is set to report Iran to the UN Security Council, the agency sets out some of the most worrying information to have emerged since the Natanz site was revealed.
The note refers to a 15-page document, which the Iranians showed to the IAEA last year, containing instructions for “the casting of enriched and depleted uranium metal into hemispheres, related to the fabrication of nuclear weapons”.
Iranian officials argue that they had not sought such information but that it had been provided by Tehran’s supplier, the black-market nuclear network operated by Abdul Qadeer Khan, the father of Pakistan’s nuclear programme.
The IAEA note also cites allegations – thought to come from a western intelligence agency and formally passed on to the IAEA relatively recently – on uranium feedstocks, “tests related to high explosives and the design of a missile re-entry vehicle, all of which could have a military nuclear dimension and which appear to have administrative interconnections”. These Iran calls baseless.
The IAEA note adds that enrichment-related work has been carried out at military sites.
Mark Fitzpatrick, a senior fellow at the International Institute for Strategic Studies in London, says Iran is at least five years away from developing a nuclear bomb if it wants to – assuming that no other nuclear facilities have been hidden away.
“The five years are based on the assumption that they go for broke and are ignoring international reaction,” he says. “And right now, that looks like what they are doing. The clock is ticking.”
Survival skills honed by embargo
Iran has honed its survival skills in 27 years of circumventing a US embargo imposed after the 1979 Islamic revolution, writes Gareth Smyth. So, in spite of the likelihood that the International Atomic Energy Agency will refer Tehran to the United Nations Security Council over its nuclear programme, there is no panic at the prospect of economic sanctions.
Nonetheless, business concern at the nuclear crisis can be detected in the decline of the Tehran stock exchange index: at 10,076 on Wednesday, it stands some 23 per cent below its level of a year ago. Haydar Pourian, an economic analyst in Tehran, says he expects the market to make no progress until July when the political picture will be clearer. Bankers say both private and government companies have already shifted funds out, especially to Dubai.
Officials in Tehran play down the effect of the US embargo. Iran Air points to a good safety record in spite of Washington’s blocking of parts for its fleet. US banking sanctions erect barriers for Iranian citizens rather than the state, which receives oil revenue in dollars and holds, according to International Monetary Fund esti
mates, foreign exchange reserves of $30.6bn (¬ 25bn, £17bn).
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US sanctions have blocked Iran s access to some advanced technology.  This is an area where European companies have clearly stepped into the gap to some extent,  says a European Union diplomat.
 Groups including Royal Dutch Shell, Eni and Total have brought up-to-date techniques to Iran’s oilfields, although insiders say Iran struggles to produce 4m barrels a day. Even if their returns are low, the Europeans have gained a toe-hold on Iran’s reserves of 133bn barrels in oil and 27,500bn cubic metres of natural gas.
Any disruption of oil exports could have serious consequences for Iran, for which oil receipts provide 80 per cent of export earnings – $42bn of $52bn in the current Iranian year – and account for 60 per cent of government revenue.
The Security Council is, however, thought unlikely to impose oil sanctions. A concern at putting upward pressure on oil prices is compounded by resistance from Iran’s customers. Japan, China and India are all big consumers of Iranian crude, one reason Tehran remains hopeful Beijing will use its veto. Oil is part of annual Iran-China trade of around $10bn, up from $1.3bn in 2000 and set to increase further under an agreement, valued at around $100bn, for Beijing to buy 10m tonnes a year of liquefied natural gas over 25 years.
Moscow, which also holds a Security Council veto, has its own economic interests, with $800m invested in Iran’s atomic reactor in the southern city of Bushehr and a recent $1bn deal to supply surface-to-air missiles.
Analysts in Tehran say sanctions, even if agreed, would not bleed Iran dry, given its porous borders and skill in secondary trading through centres such as Dubai.
But two areas in which Iran would be vulnerable to sanctions are th
e car industry – for which many components are imported and where Iran Khodro, the national manufacturer, plans to enter the world market through a joint venture with Peugeot – and imported petrol, which in the absence of adequate refining capacity accounts for about 40 per cent of the total used by Iranian motorists.
Outside oil, sanctions would harm Iran’s trading partners. Businessmen in Germany – the biggest European exporter to Iran, with shipments worth $4.4bn in 2004 – are already grumbling. Jochen Clausnitzer of DIHK, the German chamber of trade and industry, recently told Reuters he expected a “significant decline of exports” in 2006.
Turkey had nearly $4bn of trade with Iran in the first 11 months of 2005, a 56 per cent increase. Iraq has agreements with Tehran over electricity and oil while Iran has agreed a $1bn credit facility for private Iraqi businesses.