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War Clouds Iran Nuclear Talks

Mar 08, 2022

February 2022 will go down in history as a momentous month. Though the shortest month of the year, it was eventful in many ways, with highlights such as the successful Winter Olympics in Beijing, making it the first city in the world to have hosted the Games both in summer and winter. The eighth round of negotiations on the resumption of the Iran Nuclear Comprehensive Agreement, an ongoing process for nearly 10 months, was in full swing in Vienna, heralding the proverbial light at the end of the tunnel.

However, the outbreak of war between Russia and Ukraine on Feb. 24 has not only shaken the existing international order and architecture but also the Iran nuclear negotiations.

Throughout the eight rounds of talks held since April 2021 under the watch of the Biden administration, the basic question is which side will make the first move. Iran demands the lifting U.S. sanctions and the U.S. insists on Iran returning to its obligations under the original deal.

The Trump administration unilaterally withdrew from the Iran nuclear agreement in May 2018 and went on to impose sweeping sanctions on the country covering finance, metals, minerals, automobiles and oil exports. Since May 2019, Iran, left with no choice, opted to gradually suspend some of the provisions under the original deal, one year after the U.S. withdrawal — but it committed to the reversibility of its response.

In all eight rounds of negotiations, Iran has insisted that since it was the U.S. that withdrew from the agreement in the first place, it should break the ice by lifting sanctions, rather than demanding that Iran reverse itself first. In fact, the two countries are moving closer in their prolonged negotiations. Both sides have a strong desire to reach a compromise and sign a new agreement. But the Biden administration is keener than the Iranian side. After all, Biden has the midterm elections later this year on his mind, hence the need to salvage his public standing — eroded by America’s clumsy Afghanistan withdrawal — by generating some flashy headlines on the diplomatic front.

Soon after its extrication from the inherited chaos of the Middle East, the Biden administration pivoted to the “Indo-Pacific Strategy.” The eighth round of negotiations is expected to make a breakthrough and return Iran to its earlier commitment of capping uranium enrichment at 3.67 percent, as well as to unfreeze related Iranian funds, accelerating the U.S. return to the nuclear deal. But things could change in the blink of the eye. The war between Russia and Ukraine broke out on Feb. 24 and its fallout could present both boon and bane for the nascent negotiations with Iran.

First, the war between Russia and Ukraine has led to a surge in energy prices that will amplify the need to lift sanctions — a favorable factor. In the past month or two, international oil prices have been rising as a result of the intensifying crisis, and after the war broke out, Brent crude oil prices rose above $100 per barrel for the first time since oil prices plunged in 2014.

The challenge on the supply side is even more severe, as Germany called off the Nord Stream 2 gas pipeline project, which had taken years to develop with Russia. The disruption of the Russia-Europe gas trade has created an annual gas shortfall of 170 billion cubic meters in Europe, while the U.S. and its gas-producing allies simply cannot fill the void in the short term.

Therefore, quickly lifting sanctions on Iranian oil and gas could help stabilize international oil prices, erode Russia’s oil revenues and offer a respite to the European market. The release of Iran’s oil and gas is one of the best options for the United States and Europe. As the world’s fifth-largest oil producing country, Iran currently has a production capacity of 4 million barrels per day. Due to the sanctions, Iran’s daily oil exports dropped from nearly 2.5 million barrels in 2017 to 400,000 barrels in 2020. Without the sanctions, Iran’s oil exports would be expected to return to 2017 levels next year.

Second, on the “bane” side, trust between the U.S. and Iran will take a hit because they take different positions on the war between Russia and Ukraine. The U.S. strongly condemned Russia's “invasion” of Ukraine and joined European countries in imposing a series of sanctions against Russia, including the expulsion of selected Russian banks from the dollar-dominant SWIFT messaging system.

In a phone call with Russian President Vladimir Putin, Iran’s president expressed his understanding of Russia’s military action and blamed the West and NATO’s eastward expansion for the crisis. In addition, with Putin’s order to transfer Russia’s strategic deterrent forces to a special state of alertness, the world has been spooked by the prospect of a nuclear war. Israel, a mediator in the war, will become more vocal in its opposition to Iran’s nuclear development and resist the return of the U.S. to the Iran nuclear deal.

In short, the driving forces spurring a U.S. return to the deal seem to be stronger than the impeding factors. But as the 2024 U.S. presidential election approaches, the shifting political scene in the U.S. could become one of the biggest wild cards for the fate of the deal. 

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