In Tehran, oil revenues are more important than ideology right now

That might lead to a new breakthrough in nuclear talks

With food and commodity prices rising, Iran is under intense economic pressure. Reuters
Powered by automated translation

Remarkable developments are shaping the relationship between energy and ideology in Iran. The intersection between these two dynamics lies in the Vienna talks aiming to revive the 2015 nuclear deal between Iran and major global powers, which would result in the lifting of sanctions.

The negotiations, which the parties had hoped to conclude with an agreement by the end of May, have stalled. But despite the impasse, thought to be caused by Tehran's insistence on the removal of its Islamic Revolutionary Guard Corps from the US list of designated terrorist organisations, they remain alive.

Indeed, the need for Iran's oil to offset the fallout from a new EU embargo on Russian oil has become a key consideration for all players in the Vienna talks, including Russia, after the war in Ukraine changed the rules of the game. The US administration needs fuel prices to be at a level that averts backlash from American voters prior to the mid-term elections in November, because many Americans judge their government at the fuel pump.

European governments are in dire need for Iran's oil, and are pressuring Washington to make concessions, reminding the Americans that Europe has met their call to ban Russia's oil and, soon, gas as well.

China, especially, will benefit from a deal in Vienna, in terms of Iranian oil flow.

As for Iran itself, it appears ready for interim arrangements that remove the sanctions and allow it to sell its oil to save its economy and calm its streets, where protests have raged in recent days. It has thus hinted that it may be willing to postpone a decision about its demand to delist the IRGC as part of a staggered agreement that gives priority to oil exports and the economy, yet without fully abandoning the core of the regime's ideology and the central position of the IRGC in it.

In such a scenario, Iran would not give up its demands, but could display some understanding of US President Joe Biden's circumstances in Congress when it comes to Washington’s designation of the IRGC (something that has become even harder for Mr Biden to backtrack on since he recently promised Israeli Prime Minister Naftali Bennett it would not change). For this reason, there have been hints of Iranian consent to place contentious issues in a separate basket to discuss at a later stage, while a basket of priority issues are agreed now. These could include the commitment of the Biden administration to fully lift sanctions on Iranian oil sales, financial institutions and the Iranian Central Bank, in return for Iran freezing uranium enrichment, and perhaps complying with US insistence on better monitoring mechanisms led by the International Atomic Energy Agency for the Iranian nuclear programme.

European governments are in dire need for Iran's oil, and are pressuring Washington to make concessions

Seyed Hossein Mousavian, security and nuclear policy expert at Princeton University who has promoted some of these ideas, has written that, after a year of negotiations, "there is an agreement on the choreography of how Iran and the US would re-join" the nuclear deal, arguing that the circumstances arising from the US election in November necessitate understanding the existence of temporary hurdles. Therefore, "an interim deal could still salvage the accord and potentially provide the basis for full compliance by both sides after the [US elections]". In Mr Mousavian's view, in the absence of the possibility of a full revival of the 2015 nuclear deal, an interim deal would be a better option than war, citing the shadow war ongoing for years between Israel, the US and Iran on land, in the sea and in cyberspace.

Perhaps the tone and substance of US envoy for Iran Robert Malley's testimony to the Senate Foreign Affairs Committee two weeks ago was a wake-up call for Iranian decision makers to come up with new ideas. Mr Malley said there were big question marks surrounding the possibility of reviving the nuclear agreement, adding that the odds for success in Vienna were smaller than the odds for failure.

Mr Malley does not typically speak in pessimistic language, and has persisted in his goal of achieving success at the Vienna talks. His remarks may have alerted the Iranians to the possibility of the collapse of the talks without an outcome – that is, without lifting the sanctions on Iran, bringing certain economic and political ruin to Tehran.

From an economic and financial perspective, any agreement at all in Vienna will benefit Iran. Oil revenues right now are more important than ideology, which the rulers of Iran may decide to put in suspended animation until Iran stands back on its feet economically, before reviving its ideology and regional instruments and commitments with a greater momentum later.

Iran could therefore agree to relax its demand for the delisting of the IRGC and even rein in the direct regional activities of its proxies, such as Hezbollah in Lebanon. However, this would be a temporary gesture of good faith, not the kind of permanent guarantees sought by the Biden administration and the European governments regarding Iran's regional behaviour. Iran has refused to provide such guarantees, but could perhaps improve its behaviour in a de facto, temporary manner to reassure its counterparts.

Tehran would be relying on European pressure to push the Biden administration to agree to such an interim deal, based on its potential for offsetting Russian oil supplies to Europe at a better price. The equation is simple: A quick and huge cash windfall for Iran through the sales of oil to Europe at a lower price; immediate European access to an alternative to Russian oil; a boost for the Biden administration from the reduction in oil prices; and a boost for China from the lifting of sanctions on Iranian oil and financial institutions.

But what about Russia? It could lose financially and economically if Iranian oil begins to flow in places where Russian crude was previously king. Interestingly, however, Russia does not seem to object. Its endorsement of a western-Iranian deal, despite its costs to Russia, will restore President Vladimir Putin's status as an international player and break Russia's isolation. If the talks succeed, Mr Putin would be able to say that had he not facilitated the talks, their failure would have been inevitable. He could then use that breakthrough as a starting point not only to regain Moscow’s role as a serious diplomatic power, but also to reinvigorate the strength of a tripartite alliance with China and Iran that could serve as something of a strategic consolation prize after failures in Ukraine. Another consolation prize is that freeing Iran from sanctions and giving it a windfall from oil sales would allow it to pay Russia for potential bilateral transactions, such as arms deals.

Iran could pursue a 'pocket it' approach to save the Vienna talks. That is, it could secure an economic victory by returning to the oil markets, then cross further bridges when it gets to it. All the while, however, Tehran will be smiling.

Published: June 05, 2022, 2:00 PM