Prospects for U.S.-Iran Relations on the Nuclear Issue in the Year Ahead

Principal Authors: Allen Keiswetter and Roby Barrett

Contributing MEI Scholars and Guests:

Geneive Abdo, Reza Akbari, Roby Barrett, Charles Dunne,Philip Frayne, George Harris, Mark N. Katz (George Mason University), Allen Keiswetter, David Mack, Melissa Mahle (C&O Resources), Richard Murphy, Greg Myre, Michael Ryan, Paul Scham, Daniel Serwer, Alex Vatanka, Marvin Weinbaum, Wayne White, Philip Wilcox, Molly Williamson

Introduction

In the coming year, the U.S. and Iran will almost certainly reach a turning point in their differences over Iran’s nuclear program. Twenty Middle East Institute Scholars and guests met on June 14 to discuss the issue.  The discussion centered on three scenarios: diplomacy, containment, and military action.  In setting the scene at the first session, the participants analyzed U.S. policy, Iranian policy, and Israel’s role in regard to the scenarios. In the second session, they focused on reactions to prospective scenarios by the GCC states, Russia, and the other members of the P5+1, and the energy markets.

This report is a composite rather than a consensus report because not every MEI scholar participated in all parts of the discussions, and not all participants agreed on all the issues. The report seeks to capture points of substantial agreement as well as of divergence.  

Key Judgments

Diplomacy – In the short term, diplomacy is stalemated and likely to remain so at least until after the U.S. elections.  In the long term, there remain margins for negotiation.  Any agreement would likely have to be based on an acknowledgement of Iran’s right to enrich uranium at low levels (3.5–5 percent) in return for its acceptance of stringent monitoring and safeguards.  Sanctions could be lifted gradually in line with Iranian compliance with the agreement. Currently, this formula is “the end game, and we are not even in the game yet,” in the words of one participant. The lack of any real diplomatic progress would make military action significantly more probable. 

U.S. – The Obama Administration hopes to keep the P5+1 talks at least alive until the November U.S. presidential elections.  Ideally, the talks would reach before then a “small deal” to tame war fever and to justify the Administration’s two-track policy of engagement and pressure.  So far Iran has shown little interest in such a narrow approach, and the Administration will likely have to settle for a fragile agreement to keep talking.  After the election, a second Obama Administration may be willing to take the political risks required of a more forward negotiating posture as long as Iran does not seem to be breaching the Administration’s redline of a nuclear weapons’ breakout.

If there is a Romney victory in November, the specific direction of his policies remains speculative based on the hard-line stance he has generally taken on Iran during the campaign. If usual patterns prevail, the talks would likely fall initially into hiatus while the new president organizes his administration and focuses on his campaign priorities of U.S. domestic and economic issues.

Iran – Supreme Leader Ayatollah Ali Khamenei has consolidated his power, and Iran now more than ever speaks with one voice. It is not clear to what extent Iran is committed to a diplomatic outcome. Some argue that Iran has in essence gotten what it wants in terms of nuclear capability and is now willing to negotiate seriously; others see Iran determined to obtain a nuclear weapon and to use the negotiations as a ploy to buy time. In any event, Iran is unlikely to agree to a deal that does not accept its right to enrich uranium in some way. While sanctions exact a significant toll, they seem unlikely to be enough alone to force agreement to the P5+1’s current objectives.  Iran is prepared to hunker down as necessary. 

Israel – Prime Minister Netanyahu’s hard-line posturing helps drive diplomacy.  Without sufficient diplomatic progress, there is “the uncomfortably real” possibility of Israeli military action because of the common Israeli perceptions of an existential threat. Reining in the urge to strike, however, are the current U.S. refusal to participate in short-term military action and the apparent reluctance of the Israeli military and security services to proceed at this juncture.

GCC States  – The GCC’s unprecedented unity in response to fears of Iranian pretensions to hegemony in the Gulf will likely hold. Nevertheless, there are nuances. Saudi Arabia and Bahrain are the most hard-line for fear of Iranian interference in their Shiite communities.  Kuwait, Oman, and Qatar oppose Iranian ambitions but are more cautious about the prospect of a military conflict. Within the UAE, Abu Dhabi has taken a hard-line position while Dubai’s view is more cautious. An Iranian ploy to exploit these differences within the GCC is unlikely to bear much fruit. In the event of conflict, the GCC would almost certainly support U.S. policy and military operations. Still, the GCC states might not yet fully appreciate the extent to which they risk Iranian retribution.

P5+1 – Solidarity has remained strong so far but it is uncertain whether it will survive the year ahead. The Europeans have been the unsung heroes in pressing Iran with their embargo on the import of Iranian oil.  Russia and China have cooperated in response to U.S. leadership, but they do not fear the consequences of a nuclear-armed Iran to the extent the U.S. or the EU does.  Differences over Syria and other issues could also impact on P5+1 solidarity.

Containment – Obama’s ruling out containment presents more starkly the choice between a negotiated solution and military action. Even if containment were ultimately adopted, such an approach has severe liabilities, such as reducing Israel to a “launch on warning” strategy. But containment has the attribute that it could help preserve international cohesion whereas military action might not.  Israel, needless to say, totally opposes containment, and the GCC hard-line states would probably be resistant if not opposed.

Military Action – Without progress toward a negotiated solution, the trajectories of the policies of the U.S., Israel, and Iran — while not locked in — could set the course for military action in the next year. The military challenges are extremely complex and possibilities range from unilateral Israeli strikes to large-scale joint operations. The serious consequences of military action put a premium on exhausting the diplomatic alternatives first. A prime condition should be preservation of an international coalition able to cope with post-attack contingencies.

Conclusion – The next year will almost certainly mark the turning point in U.S.-Iran relations on nuclear issues. Without substantial progress on the diplomatic front, especially if even tighter sanctions fail to move the Iranians, the chances for a unilateral Israeli strike, or possibly a U.S. military campaign aimed at destroying the Iranian nuclear program, could become a probability.  This is cause for redoubling diplomatic efforts.

Panel One:  Setting the Scene: the U.S., Iran, and Israel

The U.S. Point of View

In the lead presentation, an MEI Scholar described the drivers of U.S. policy as concerns about Israeli and Gulf security, energy security, and nuclear proliferation.  Also important are two other factors: maintaining international consensus on the two-track policy of engagement and pressure towards Iran, and the approach of the U.S. presidential elections, which constrains short-term options for the Administration.

In reaction to the failure of the January 2011 P5+1 talks with Iran, the U.S. focused on the pressure track of its two-track policy. The U.S. successfully urged the EU to enact an embargo against the import of Iranian oil, and President Obama signed a law prohibiting any bank that deals with the Central Bank of Iran (CBI) on oil purchases from doing business in the U.S.  The effect has been a cut in Iran’s oil exports by about 40 percent so far this year compared to its daily average in 2011, with even further cuts predicted.  Coupled with the recent fall in the price of oil, the economic impact on Iran has been serious.  Despite this financial pressure, few believed the sanctions alone would bring Iran to heel.

Reinforcing these economic measures have been what one scholar described as the opening campaign in a war using cyber attacks against Iranian nuclear facilities and assassinations of Iranian scientists.  In addition, President Obama has explicitly warned that “all options are on the table,” and PM Netanyahu has threatened military action if Iran continues to fortify its nuclear facilities and to develop a “potential” nuclear weapons capability. Despite these measures, Iran has still proceeded with enrichment of uranium at the 20 percent level and increased its holdings of enriched uranium in the past year. 

After a 15-month hiatus, the P5+1 and Iran agreed to recommence talks in April in Istanbul followed by further sessions in Baghdad in May, Moscow in June, and a technical expects meeting in Istanbul in July.  Progress has been slight with presentation of positions having little common ground.  As confidence building measures, the P5+1 has asked for 1) suspension of enrichment at 20 percent, 2) Iran’s shipping out its stockpile of uranium enriched at that level, and 3) cessation of work at the heavily fortified facilities at Fordow; in return they have offered minor inducements such as lifting sanctions on spare parts for Iran’s Boeing aircraft. Iran, for its part, reportedly has presented “grand ideas and issues” centered on acknowledgement of its right to enrich and the lifting of sanctions but made few specific proposals.

Short-Term Diplomatic Prospects

Until the November elections, the Obama Administration seeks to keep the negotiations with Iran alive because their existence helps vouch for the validity of the Administration’s dual track policy of engagement and sanctions.  At this point, it is hard to imagine the U.S. or Iran making the types of concessions necessary before the election that could result in a major breakthrough in the negotiations. 

The ideal development, from the Obama Administration’s point of view, would be a “small deal” that keeps pressure for military action under control, but the Administration will probably have to settle for less.  That “less” could include a de facto suspension of the P5+1 talks based on the argument that more time is needed for the latest sanctions to have full effect.  The Administration has bolstered international solidarity in support of the sanctions against dealing with the Central Bank of Iran (CBI) by negotiating waivers with 20 countries in recognition of cuts in oil imports from Iran varying from 25-40 percent. 

In short, the prospects for negotiations in the immediate term are at best the establishment of a regular pattern of discussions that could mitigate the call for military action while establishing channels and laying positions that might be useful later.

Extended Diplomacy

Once the elections are over, a second Obama Administration could be in a position to consider a broader deal. One proposal is an acknowledgement of Iran’s right to enrich to a limited degree (3.5–5 percent) in return for Iranian acceptance of stringent monitoring and inspections.  So far, according to a former Administration official, there has not been “a full-throated discussion” of this possibility. However, any acknowledgement of Iran’s right to enrich would run counter to five UN Security Council Resolutions, aggravate Israel’s sensitivities, possibly even to the point of provoking military action, alienate U.S. supporters of Israel, and allow Republicans to accuse the President of being  “soft on Iran.”  These risks are not acceptable to the Administration in the pre-election period; whether they would be acceptable later depends greatly on the extent to which these downsides could be mitigated, especially in the view of Israel.

Another step could be “truly crippling sanctions,” in the words of an Administration official.  As proposed in Congress, these would expand CBI-style tertiary sanctions to a wide range of Iranian exports or imports.  The downsides are that such sanctions might find limited international support, hurt the Iranian people with little effect on Iranian decision makers, and offer no guarantee that they would be a prelude to a popular-based overthrow of the regime. Moreover, a certain level of Iranian oil exports must be preserved to maintain stability in the international energy markets.

If there is a Romney victory in November, the specific nature of his policies still remains largely speculative, an extrapolation from his generally hard-line position on Iran. If usual patterns prevail, the new president in the first several months of his administration would prefer to focus on appointments, organization, and priority campaign issues of U.S. domestic and economic issues. Events, however, could alter that paradigm. 

Whatever administration is in power, prerequisites for successful extended diplomacy include establishing a framework to broaden discussions beyond the nuclear issue, along with the creation of a private U.S.-Iran channel to discuss bilateral issues.

Containment

President Obama has rejected containment, emphasizing that U.S. policy is the prevention of Iran obtaining a nuclear weapon. This declaration has been useful diplomatically so as to pose starkly to the Iranians the choice between negotiation and military action. It has also bought time with the Israelis.  Some MEI scholars, however, felt containment should be resuscitated and remain on the table along with military action.  As a tactic, containment is an inherent part of the pressure track. As a policy, the concept of containment is as valid as it was during the Cold War.  It remains an alternative to broad-scale military actions.  Most participants, nonetheless, viewed containment as a dead issue.

Military Action

The U.S. has left few stones unturned to discourage Israeli military actions. While all options remain on the table, it is clear that President Obama would regard military action as a last resort. The President has made clear that a decision by Iran to actually develop a nuclear weapon is an American red line. Thus, while there is still time for diplomacy, the window is closing.

To fortify the President’s choices, the Pentagon has acknowledged planning for a range of options, including high-end attacks that would aim to devastate Iran’s command and control functions, as well as to severely degrade its nuclear and military capabilities.  An MEI scholar explained that many capabilities are already in place. For example, an additional aircraft carrier, as well as F-22 Raptor aircraft, critical components of any air campaign, have deployed or are in the process of deploying to the region. Furthermore, the Israelis have been running long-range air exercises for months.  In essence, the planning is well advanced, exercises have been run, and many of the military assets are set to go on very short notice.

One MEI Scholar’s View of Potential Frameworks for Conflict

A unilateral Israeli attack on the Iranian nuclear facilities has the highest likelihood among possible military scenarios because of the Israeli leadership’s strong belief that military action, even if unilateral, will be necessary to remove the Iranian threat. If the Iranian reaction were limited to Israel, then U.S. intervention would become politically more complicated. 

Second, an attack on Iran in which the U.S. is an active participant could result either from a decision to initiate a military campaign or, more likely, from an Israeli attack on Iran and an Iranian retaliation that included U.S. forces and Arab allies in the region. A decision for the U.S. would be whether military reaction deals only with the nuclear program and associated targets or includes broader targeting objectives.

The third scenario assumes that Iran acquires a nuclear weapon, perhaps because of an intelligence failure.  In this scenario, many states, including Turkey, Egypt, and Saudi Arabia, may reconsider acquiring nuclear weapons. Israel would undoubtedly assume a “launch on warning” posture or perhaps even decide to unilaterally obliterate the Iranian capability using any means necessary before the threat expands.

The Iranian Point of View

An MEI Scholar specializing in Iranian affairs gave Iranian political context to the scenarios.  With the recent parliamentary elections, Supreme Leader Khamenei has consolidated his power, and Iran more than ever speaks with one voice. While there remains controversy over relations with the U.S., politically relevant elites largely believe the U.S. goal is regime change and that the American focus on Iran’s nuclear program aims to diminish the power of the state. They see a double standard whereby the U.S. tolerates a nuclear-armed Israel but not a similar status for Iran; and they favor, in the long run, what they see as the evenhandedness of a Middle East nuclear-free zone. 

Iran blames the U.S. for the missed opportunities over the past several years, especially in 2003 when Iran offered negotiations on a “Grand Bargain” that the Bush Administration failed even to acknowledge, but also again in 2009 and 2010 when prospective deals regarding fuel for the Tehran Research Reactor fell through.  The Iranians see the recent assassinations and cyber attacks as acts of war and bristle at attempts to pressure them. The Scholar endorsed the idea of Hossein Mousavian, a former Iranian nuclear negotiator now at Princeton University, who advocates a parallel negotiating track to take up non-nuclear issues. Mousavian also believes Iran would agree to a nuclear deal in which the West would recognize Iran’s right to enrich uranium to a low level under close IAEA supervision in return for the West’s lifting sanctions. 

The Scholar noted that these proposals have since been complicated by the fact that the U.S. and Iran are more than ever at odds on Syria, Iraq, and other issues. The Scholar believes that the elites realize the consequences of a military attack on Iran would be quite grave.  Just as the Supreme Leader resists caving to U.S. pressure, he also wants to avoid an attack on Iranian soil. This provides margins for negotiation.

Another MEI Scholar commented that though Khamenei is stronger than ever, he still has to negotiate among the various leadership factions. He uses the language of self-sufficiency, like North Korea, and now there is a debate among Iranians about the costs of isolation. In this scholar’s view, the nuclear issue must remain an international issue, not one controlled by the U.S. alone.  He worried that Khamenei thinks he is the “Deputy of the Imam.”  The discussion raised the question as to what the U.S. actually knows and understands about Iran’s frequently opaque and usually complex political functioning.

Several MEI Scholars attributed Iranian rigidity on nuclear diplomacy in part to a worldview among Iran's leadership that things are moving in their direction. Iran’s decade of good luck includes threats against their nuclear program that have never materialized, U.S. destruction of the Taliban regime in Afghanistan, U.S. intervention resulting in the installation of a Shiite regime in Baghdad, and the fall of Mubarak in Egypt. Overconfidence or hubris could prevent elements of the leadership from heeding the very real military threat in the current situation.

For their part, the Iranians have taken some military precautions.  For example, they have paid for the installation of a powerful Russian-supplied radar in Syria that can monitor air activity over most of Israel.

The Israeli Point of View

An MEI guest expert asserted that there is consensus within the Israeli national security establishment that Iran poses such a threat that it must be stopped from obtaining nuclear weapons.  Based on Iran’s actions, such as funding Hezbollah and Hamas, a nuclear-armed Iran would be a threat to Israel’s survival.  There is, however, disagreement within Israel on Israel’s next steps and whether Iran’s leadership is a rational actor that can be deterred. Prime Minister Netanyahu put in place colleagues who share his views that a nuclear-armed Iran would change the regional balance of power, launch a regional nuclear arms race, and pose an existential threat to Israel. 

The expert noted that the Israelis have little confidence Iran will negotiate in good faith; they perceive the incremental approach as a trap to lift sanctions.  Their terms for a diplomatic agreement are hard-line: no enrichment and hefty verification with no slackening of sanctions until these terms are met. Further, they believe no action short of threatening regime survival will push the Iranians to compromise.  For Israel, a policy of containment is out of the question.

This expert focused on the military option because “this is where we truly are” in the Israeli view. The debate in Israel now is: Does Israel have the capacity to hit and destroy the known nuclear infrastructure? Would the unknown sites have the capacity to sustain an advanced nuclear program after the attack? How would the Iranians respond to an attack? Will the Iranians just double down? Without knowing the answers to these questions, it is difficult to do risk analysis.  The assassinations and the “Flame” Internet virus are intelligence operations aimed at penetrating Iran’s nuclear progress.

The expert concluded it would be a serious mistake to dismiss the possibility of an Israeli unilateral attack. Netanyahu is a confident leader who thinks he can do what he wants despite U.S. opposition. The judgment was that next year is the likely timing for an attack if dramatic progress is not made in negotiations.  The Israelis have a different clock than the U.S. has.

An MEI commentator differed with the expert by positing that PM Netanyahu’s statements are at least in part bluff intended to press the U.S. to take a hard-line stance and to scare the Iranians into concession. He noted that PM Netanyahu’s actions have been very cautious on national security issues but his style has been the opposite of Teddy Roosevelt’s: he talks loudly and carries a small stick.  His bluster has successfully aroused the international community and diverted attention away from the Palestinian issue.  Given Israel’s military capabilities, he judged there is more elasticity than one would surmise from PM Netanyahu’s remarks. By keeping the U.S. on board, the Israelis have a better option than acting unilaterally if they have confidence the U.S. will act when reaching its own red lines.

In the ensuing discussion, there was no consensus as to the degree that bluff is part of the Israeli posturing, but there was agreement that the Israelis regard Iran, in part, as an irrational actor. Several challenged the practicality of an Israeli strike because of its likely limited impact on Iranian capability, the near-term crisis it could provoke in U.S.-Israeli relations, the near-certain fissure of the broad international support for isolating Iran, and the possible reprisals by the Iranians.

One Scholar asked to what degree there is irrationality in Israeli decision-making, and another asserted that military action, especially in contradiction of U.S. will, would require broader support in Israel than simply among PM Netanyahu’s handpicked leadership. He cited in particular Israeli public opinion polls critical of Israel’s going it alone and the many leaks sourced to Israeli military and intelligence doubting whether the time is ripe for unilateral action.

Another Scholar put forth the “wild card” that in the event of a Romney victory the Israelis may find the transition period between the election and the inauguration as an opportune time for unilateral military action.  It could follow the pattern of Operation Cast Lead launched in the Gaza Strip on Dec. 27, 2008 while President George W. Bush remained in office in lame duck status.

Several experts felt that the war had already begun with the assassinations and cyber-attacks on computer systems and nuclear devices. There was a consensus that this ‘covert’ war had bought time but that it would not prevent the Iranians from achieving a nuclear weapons capability if not actual possession of nuclear weapons. Some observed that Israel might act soon even without notice to the U.S. in certain conditions.

Panel Two:  Reaction to the Scenarios – the Gulf, P5+1, and the World Energy Market and Economy

The GCC States and Other Neighbors

GCC States

In the lead presentation, an MEI Scholar observed that the Arab Gulf States were uniformly hostile to the hegemonic ambitions of the Iranian Republic.  In a generally shared view, he predicted that the recently found tighter cohesion among the Gulf Cooperation Council members aimed at blunting Iranian influence would continue. In the GCC view, whether the Shiite uprising in Bahrain was Iranian-sponsored is beside the point; a Shiite dominated government there would add to Iranian influence in the region, and thus the GCC states have acted to eliminate that possibility. In Syria, the destruction of the Alawite regime is viewed in the Gulf as a major policy goal that would undermine Iranian inroads in the Arab world.

Still, according to the Scholar, the Gulf views on how to deal with Iran are not monolithic. Saudi Arabia, Bahrain, and Abu Dhabi are hard-liners and would like to see the Iranian regime gone. In contrast, Qatar, Dubai (UAE), and Oman have more business-like ties with Tehran and would prefer to avoid conflict. Kuwait falls into the later camp in spades because of its 1990 war experience.

Their attitudes toward P5+1 talks with Iran reflect these nuances. The Scholar reported conversations held in hard-line states.  A senior Arab analyst asserted, “Finally we have something on which we agree with Israel.” Similarly, senior Gulf military officers have questioned aloud whether sanctions and diplomacy are “just a cover by the United States for a policy of doing nothing about Iran.” Some have gone so far as to venture that, strategically, the U.S. prefers an alliance with Iran and that this explains Washington “handing Iraq over to Iran in 2003.”  In the Scholar’s view, U.S. policy makers have consistently underestimated the amount of Gulf Arab frustration with U.S. regional policy since 2003. 

Thus, the Scholar concluded that while all GCC states officially support a negotiated settlement, the hard-liners see the talks as largely a waste of time. The others are more likely to see the talks as having at least some small chance for success and to be worth the effort to exhaust alternatives to military action and preserve international solidarity.

In the meantime, the Gulf Arab states are spending huge sums to prepare for the possibility of a conflict. The focus has been on military and not civil defense so as to avoid alarming their populations. They have firmed up their bilateral U.S. ties to build a hub-and-spoke system of coordination with the U.S. at its center. For example, much of their anti-ballistic missile capability (Patriot and THAADS), air force strike and inceptor capability can be integrated into the regional U.S. combat air operations center (CAOC) with its advanced radars, satellite capability, and intelligence systems. The Gulf Arabs have supported an increased U.S. military presence in Kuwait, Qatar, the UAE, and Oman.

They have also increased their ability to control potential sources of domestic problems that might arise from a conflict, whether the Shiite in Bahrain, Saudi Arabia, and Kuwait, dissidents in the U.A.E., or potential border security issues. In Saudi Arabia, the U.S. has committed to assist the Kingdom in protecting key petroleum infrastructure, and throughout the Gulf, pipelines are being constructed to bypass the choke point at Hormuz.

The Scholar assessed that the Arabs are not in a position to unilaterally initiate military operations against Iran, nor would they actively participate in an Israeli- initiated campaign against Iran. However, they would support, if not participate in, U.S. operations against Iran.  In that eventuality, there would likely be a division of labor in which Arab naval, air, and air defense forces play an active role in defending their turf and the U.S. carries the offensive burden. Operationally and politically, that arrangement is far more manageable.

He noted that the Iranians are well aware of nuances among GCC views. In the event of a unilateral Israeli attack on its nuclear installations, Iran might well attempt to exploit those differences with a limited response that excluded all or part of the Arab Peninsula States.  Likely the attempt would be fruitless because the Iranians fail to grasp just how unacceptable their policies are to the Gulf Arabs.

An MEI commentator in the lead presentation described Iran as “a permanent threat” and “a permanent fact” for the GCC states.  Under these circumstances, the U.S. is a natural ally, but in their view it is often very clumsy and undependable, causing problems due to the United States’ democratic agenda and association with Israel. Moreover, the U.S. is not a permanent fact in the Gulf; in particular, eventually the GCC and the U.S. could have differing interests regarding the role of oil and gas in the world economy. He also felt that the Gulf states would support U.S. military action as long as they are not the battleground, and that the U.S. had a goal in Iran at least as definitive as that which finished Iraq as a military threat to the GCC in 1990. As for an Israeli strike, they might, at best, view it as having a short-term beneficial military effect, but undoubtedly would fear Iranian retribution against them and over the long-term would deem it more threatening than useful. 

Another Scholar argued that GCC states engage in “magical thinking” in their attitude toward military action. While the King of Saudi Arabia may say that military action should “cut the head off the snake” in Iran, the Saudis and other Gulf leaders want a “clean cut” military solution without repercussions to them, such as reprisals that could foul their desalination plants, threaten their oil production and delivery facilities, or roil their Shiite populations.  Theirs is still not a completely integrated view so far. 

Proliferation and the Strait of Hormuz

Some scholars felt that containment would drive Saudi Arabia to seek nuclear weapons, probably by buying them from Pakistan, because the Saudis would not be content to rely on a U.S. nuclear guarantee.

The Scholars also debated the vulnerability of the Strait of Hormuz. Iranian threats to close it are mitigated in part by the fact that any Iranian action toward closing the strait would likely have the largest effect on Iran’s own oil exports, and the U.S. Fifth Fleet has committed substantial assets to dealing with such a contingency. Moreover, the UAE has just inaugurated a new pipeline to bypass the Strait.  While Iranian threats undoubtedly are posturing to drive up oil prices and meet Iranian domestic needs, the Strait remains a vulnerability that could crucially affect Gulf security and the world economy.

Turkey

Several Scholars commented on the role of Turkey, one seeing the emergence of parallels to the ancient rivalries between the Ottomans and Persians, and another opining that Turkey will only become greatly involved if it were affected directly, such as by Syrian refugees caused by Iranian backing of the Assad regime.

In this regard, another Scholar observed that Turkey has long been concerned about the possible use of its territory along the Syrian and Iraqi borders as a strike path for potential Israeli air strikes against Iran.  Any Israeli use of this route violating Turkish airspace could well be interpreted by the Iranian leadership as evidence of Turkish complicity in such an Israeli strike, something Ankara very much would like to avoid in any Israeli strike scenario.

Iraq

An attack by Israel could potentially impact on U.S. relations with Iraq as well because Iraq is also a likely avenue for an Israeli attack, either ingress or regress. While Iraq is buying 36 F-16s to defend its airspace, it currently has no capability to do so and the U.S. has had no commitment to assist with Iraq’s air defense since the end of 2011. 

In general, Iraqi issues impact on perceptions of the security posture of the Gulf. Iran’s opponents in the region are generally hostile to the Iraqi regime as well. Turkey, Saudi Arabia, the Arab Gulf States, and Jordan find themselves at odds with the policies of PM Nouri al-Maliki in Baghdad over treatment of the sectarian and ethnic minorities in Iraq.

One MEI Scholar reinforced the point that it was a mistake to think of Iraq as a puppet of Iran.  Given the two countries’ long border, trade and cultural ties, however, Iraq could not afford to alienate Iran.  The substantial Iraqi trade with Iran largely does not violate UN or U.S. sanctions, with the possible exception of heavy fuel oils (HFO). Oddly enough, another Scholar observed that the Maliki government’s biggest supporters are Iran and the United States.

Russia and the P5+1

Russia 

A visiting scholar expressed the view that the Russian role with regard to Iran, and for that matter Syria, will continue to be marginally helpful at best and obstructionist at worst. Russia is obsessed with its “position” and “influence” vis-à-vis the United States. To demonstrate their importance and influence, they will continue to exact a price for any grudging cooperation in dealing with Iran.  They cooperated in passing UN Security Council Resolution 1929 authorizing sanctions against Iran out of pique because the Iranians had deceived them about the secret facilities at Fordow near Qom. 

Syria and Iran are the Russians’ most important trading partners in the region and the only remaining sources of any kind of influence. Moscow will refuse to agree to policies that will give Washington or the West the appearance of a free hand with regard to Iran and Syria. As one senior analyst from the Russian Institute for USA-Canada studies was quoted as saying, “We support anyone that opposes U.S. policies of domination in the region.” This situation promises to remain tense with the return of President Putin.

Russian support for Tehran does not necessarily equate to Iranian acquiescence to Russian influence. The Russians and Iranians have a long history of conflict. The Iranians are almost as hypersensitive to the appearance of Russian influence as they are to American influence. Iran increasingly believes it is the equal of the now diminished Russians, and the refusal of the Russians to accept this view of the relationship creates problems – nevertheless the enemy of my enemy is my friend.

One MEI Scholar observed that this portrayal of Russian policy does not account sufficiently for Russia’s consistent support of the P5+1 consensus in dealing with Iran.  In addition to the patterns of Russian policy the expert cited, there has been “a reset” of U.S.-Russian relations, and in general Russian policy has shifted toward a tougher line on Iran, including Russia’s suspension of the delivery of S-300 missiles.

The European Union

An expert called the EU “the unsung hero” of Iranian sanctions because the EU has agreed to tighten sanctions even though they hurt its weakest economies - Greece, Italy and Spain - the most.  The most effective sanctions the West has are the EU’s oil embargo and the EU’s sanctions on insurance of Iranian oil shipments.  An economist urged that these sanctions be the last to be lifted because they are the most effective.

China

Another outside expert opined that China, like Russia, opposes sanctions generally out of its own experience but nonetheless cooperates with the P5+1 because it wants to maintain good relations with the U.S.  This expert explained that Sinopac, the largest importer of Iranian crude in China and probably in the world, had accounted for most of the 25 percent drop in Chinese imports of Iranian crude.  While Chinese officials have claimed that “U.S. relations are more important than cheap Iranian prices,” in fact Sinopac has had longstanding commercial disputes with the National Iranian Oil Company concerning both prices and payment periods.  Thus, Chinese political and commercial interests have coincided at the moment.  The expert was less sure whether the two interests will continue to do so; thus, the recertification in 180 days of the CBI waiver for China granted by the Obama Administration on June 28 is problematic.  Like Russia, China fears the consequences of a nuclear-armed Iran less than the U.S. does.

World Energy Markets

The Scholars reviewed the sanctions aimed at denying Iran oil revenues (for its nuclear programs) without disrupting the world oil market.  The law provides the Executive branch some flexibility in monitoring the marketplace and recalibrating the implementations of sanctions as may be necessary, because some level of Iranian exports is necessary for market stability.

The world consumes 89 million barrels of oil a day (MBD).  Existing spare capacity of approximately 3 MBD is largely in Saudi Arabia.  Iranian oil production is roughly 4.3 MBD, with Tehran able to put 2 MBD in the marketplace.  While Saudi Arabia can surge production to keep the marketplace stable, assuming sanctions succeed in achieving reduced Iranian oil sales, the margins are tight.  The health of oil fields, the marketplace, and political goals will need constant monitoring.  Room for other mishaps (other natural disasters affecting supply, transportation disruptions due to piracy or sabotage, sudden demand fluctuations resulting from economic recovery/recession, etc.) is minimal. 

The marketplace is exceedingly uncertain.  The movement in Europe and Japan, following the March 2011 tsunami and the ensuing nuclear disaster at Fukushima last year, has resulted in greater demand for traditional hydrocarbons in the face of a global retreat from nuclear power generation.  Tolerance for sanctions to demonstrate effectiveness over time will be competing with urgency to see progress in the nuclear talks, political priorities, and election calendars.   

The group also discussed the energy game-changer of shale oil and gas in North America, and its potential to relieve some of the pressure on the oil market.  While increasing the universe of available fuels can affect market perceptions positively, the infrastructure to make a difference in the marketplace will require years.  For the immediate term, many countries have been stockpiling in anticipation of increasing tensions, mindful that policy reviews regarding pricing and the release of strategic reserves may be the more immediate tools in dealing with current tensions.

Summing Up

There was easy agreement that the best scenario involved resolving the dispute through diplomacy, but sharp disagreement as to whether it has a decent chance of succeeding.

One group argued that the Iranians would not dismantle their nuclear program unless the very existence of the Islamic Republic is at stake; the Israelis see an Iran with even the capability to produce nuclear weapons as an existential threat that they will not tolerate; the United States has stated that it will not allow Iran to develop nuclear weapons; and leading Gulf states are adamant in their opposition to Iran’s pretentions in the Gulf. Given these trajectories, the potential for a military confrontation over the Iranian nuclear program is significantly high.  The worry is that we are backing into another Middle Eastern war.

Another group did not deny the significant risk of military confrontation but believed that real margins for diplomacy still exist.  A deal that would allow Iran the right to enrich with stringent safeguards and strict monitoring may not be possible now, but could be later after the U.S. elections.  The margins for negotiation include the fact the Iranians certainly do not want war on their territory; the Israelis’ best option is not to go it alone but at least with U.S. support; the U.S. profoundly does not want another war on the heels of the ones in Iraq and Afghanistan; and world’s fragile economy would suffer yet another severe blow. 

The common ground was a realistic view of possible hostilities while acknowledging that there is time for a redoubling of efforts on the diplomatic front.  These include keeping the negotiations open until after the U.S. elections, moving toward at least discussion of the enrichment issue at some point soon thereafter, establishing a second track where non-nuclear issues could be discussed, and making clear to the Iranians what has to be done for sanctions to be lifted.