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U.S.-Iranian Dialogue in Obama's Second Term

February 5, 2013 | 1000 GMT

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.

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