fbpx

Analysis

BICOM Analysis: Iranian nuclear threat – close to the tipping point

[ssba]

Introduction

In the coming days, two reports will be published which will set the context for the next round of international decision-making on how to deal with Iran’s nuclear programme. The IAEA will report on Iranian compliance with a ‘work-plan’ aimed at clarifying the more shrouded aspects of its nuclear programme. EU Foreign Policy Chief Javier Solana will also report on his attempts to persuade Iran to accept its demands to suspend its uranium enrichment programme – he is due to report from the EU Council Secretariat on further progress, and is also to report back on information from EU heads of mission in Iran on any positive developments. Last night, Prime Minister Gordon Brown gave the annual Mansion House speech, which traditionally focuses on foreign policy, and reaffirmed his willingness to “lead in seeking tougher sanctions both at the UN and in the European Union.”

While Iran has emphasised the peaceful purposes of its nuclear programme, international analysts widely believe that Iran’s goal is to develop its nuclear technology and materials in order either to build a nuclear bomb as soon as possible or to have the capability to build one very quickly. With the basic technological building blocks already in place, all Iran now needs to achieve this is time. Nearly all members of the United Nations Security Council, in addition to the other key international player on the issue, Germany, agree that a nuclear-armed Iran would be a very bad thing. That being the case, it has two primary ways (that we know of) to stop Iran. The one currently being pursued is to persuade Iran to stop its nuclear programme through a combination of carrots – the offer of upgraded diplomatic and economic relations – and sticks – the imposition of trade and economic sanctions. The alternative is to destroy Iran’s nuclear capability with military force.

However, the major powers do not all appear equally determined to stop Iran. There are two reasons. Firstly, a nuclear-armed Iran does not pose an equal threat to all the relevant states. Secondly, there is a great range in the extent to which different states depend on economic and trade relations with Iran. The US has very little to lose from sanctions against Iran, since it does not trade with Iran anyway. Germany, on the other hand, is the world’s biggest supplier of imports to Iran1; for Russia, selling nuclear technology and fuel to Iran is a lucrative business; and China is increasingly turning to the Islamic republic to quench its growing thirst for fuel.

Iran has been nimbly exploiting the gaps in interest of the various global powers since its illegal uranium enrichment programme was exposed in 2003. While pressure has intensified in the past 12 months with two rounds of limited UN sanctions, Iran, under the leadership of the uncompromising and populist President Mahmoud Ahmadinejad, has forged ahead undeterred. This raises a number of interrelated questions. How long before Iran achieves its goal – and what exactly is its goal? How effective are sanctions against Iran? And what happens if they don’t work?

How long before Iran achieves its goal?

Many people speak about the development of a nuclear weapon as Iran’s main goal. Significantly, international experts agree the attainment of the necessary skills and know-how for enrichment is the critical ‘bite point’ on the nuclear timeline. This is because once the technical knowledge for enrichment is gained, that knowledge can never be taken away and it is then only a matter of time until nuclear weapons or dirty bombs can be manufactured. It is this bite point, rather than the physical quantity of enriched uranium that Iran holds, which presents the real long-term threat. Therefore, it is key that Iran not be allowed to reach this point.

President Ahmadinejad claimed on 7 November that his country now had 3,000 centrifuges processing uranium at the Natanz facility.2 The centrifuges are making Iran’s uranium supply more rich in the isotope-235, the fissile form of the element which is used for power generation, and if enriched sufficiently, nuclear weapons. Between 20 and 25 kg are needed to manufacture a single nuclear warhead. Under optimum conditions, 3,000 centrifuges would have to be running for about nine months to make this much fuel.3 However, there are two unknowns: one is whether or not Iran has yet genuinely succeeded in getting 3,000 centrifuges working smoothly – an IAEA report in August found that the centrifuges at Natanz were working below capacity; the other is whether or not Iran has undeclared operations working simultaneously elsewhere in the country, at secret sites unknown to the international community or the IAEA. This highlights a key difficulty in dealing with Iran – that an explicit timeline is assumed, but that in actuality there may be a whole other face to Iran’s nuclear programme that remains highly secret. Even if Natanz is Iran’s only functioning enrichment facility, if Ahmadinejad’s claims are true, it seems that the earliest point at which Iran could have all the necessary know-how and infrastructure for the industrial processing of uranium would be next summer. Once the critical point is reached – and it seems we are dangerously close – military strikes to destroy physical sites where enrichment is known to be taking place will only delay Iran, since they will have the knowledge to re-establish the programme.

What is the impact of sanctions?

Iran placed its right to enrich uranium for peaceful purposes under threat in 2003 because it was found to have lied to the international community about its programme for many years. However it has ignored international demands to stop, leading to two key UN Security Council Resolutions: 1737, which targets nuclear related technology, and 1747, which extends sanctions to other areas including arms. At the end of October, the US applied unilateral economic sanctions including the restriction of transactions with Iranian state owned banks, as well as the Iranian Revolutionary Guard and other individuals and companies.4 The US does not do any direct trade with Iran itself, but the financial sanctions have the effect of closing off parts of the international banking system to Iran when it comes to trading with other countries. The sanctions are backed by a broader US attempt to dissuade the world from doing business with Iran. Large multinational companies are starting to fear doing business with Iran, for fear that it will damage their business interests in the United States.5

US diplomatic pressure has targeted countries exporting goods to Iran. Many of those exports are crucially backed by government funded export guarantees, through which the government insures the exporter from non payment from the importing country. These guarantees help support industry and jobs in the exporting country, and cutting them means a negative impact on jobs and growth at home.6 France, now adopting a far more pro-American foreign policy stance under President Nicolas Sarkozy, seems particularly receptive in this respect. While not telling its businesses to stop doing business in Iran, it is advising them not to do so.7 The French diplomatic corps have historically approached the Iran issue in a steadfast way, and Sarkozy is now giving this stance a more public face. Britain is now understood to be engaged in a thorough study of its options in dealing with Iran. However, Germany, which accounts for 12% of all Iranian imports, the largest single source in the world, has most to lose economically and domestically from severe international sanctions against Iran and currently has been lagging behind Britain and France on the willingness to back the US’s tough stance.8 Still, German Chancellor Angela Merkel, who has been meeting with President George W. Bush in the last few days, has said she is willing to step up sanctions in principle. Italy, meanwhile, seems reluctant to accept Anglo-French pressure for the EU to impose more stringent sanctions ahead of the UN, likely due to a feeling of resentment of being pushed into doing so by the EU-3, of which it is not a member. For both Germany and Italy is the fear that China and Russia may take advantage by stepping in to provide the goods instead.9

For their part, China and Russia appear even less susceptible to US pressure than Germany and Italy. China is both Iran’s second biggest supplier of imports and its second biggest consumer of Iranian exports – principally energy. While Russia does not have this scale of economic ties to Iran, it nonetheless makes a lot of money by developing its civilian nuclear power plants and to some extent by selling Iran arms. It also plans to be Iran’s main supplier of nuclear fuel when its Bushehr power plants go online. However, it is said to be privately more sympathetic to Western concerns than the Chinese – and Russia is known to not want Iran to have nuclear weapons. Proliferation weakens the influence of all other nuclear powers, and Russia has its own Islamist fears with Chechnya as well. The key question here is how much Russia is prepared to do about Iran and how it will use its position within the delicate situation to advance its own influence in the region. So far Russia has refused to supply enriched uranium until Iran stops its domestic enrichment programme.10 An additional consideration for Russia may be that Moscow realises that a good deal of Israel’s population are Russian – yet another consideration.

Reports suggest that the beginnings of economic isolation are already having an impact on Iran’s struggling economy. Anticipating the sanctions squeeze, the government introduced unpopular rationing of gasoline – which is heavily subsidised – in July11, and discontent is also being fuelled by sharp price rises in foodstuffs and living costs.12 There are also signs of division within the ranks of the regime, following the resignation of the Iranian chief negotiator on the nuclear issue, Ali Larijani. With parliamentary elections due in 2008 and presidential elections in 2009, some speculate that a moderate leadership may be on the way. But power games in Iran are notoriously difficult to penetrate, and banking on a more accommodating leadership turning up to avert crisis would seem unwise. Ultimate power rests in any case with the Supreme Leader, Ayatollah Khamenei, who is not popularly elected.

Of course the impact of the UN sanctions and the US-led campaign is mitigated to some extent by the surge in oil prices, with high oil revenues being used to fund populist spending commitments. 85% of Iran’s export revenue and more than 65% of government revenue comes from oil.13 However the country’s ability to refine the oil lags a long way behind the quantity of oil it produces; therefore it actually has to import 40% of its refined gasoline. This is provided, along with other products like food and fertilizer, with huge subsidies to the Iranian people. When the government attempted to reduce the subsidies earlier this year it triggered riots. With prices in the bazaar a key element of power in Iran, the need by the government to raise prices – necessitated by the sanctions in place – can have a real impact in the Iranian decision-making echelons. So Iran is heavily dependent both on the export of crude oil and the import of refined oil such as gasoline for cars. So are international sanctions against Iranian oil possible?

The biggest customers of Iranian exports are Japan, China, Turkey, Italy and South Korea in that order.14 While taking Iranian oil, around 9% of the world’s total, off the international market, would very damaging for Iran financially, it would most likely cause a spike in already high oil prices which would have damaging consequences for the global economy. Meanwhile, the impact on the Iranian regime would be double-edged. While it might cause greater dissent against the regime, the Iranian government may equally be able to focus the anger on the outside world, and use the international isolation to garner greater domestic support. So far even the US is not advocating such a measure.15 Another approach may be found in the ability of those states which sell Iran refined oil products (most of which are Arab countries) to cease refining Iranian oil or selling refined products to Iran.

Another source of Iranian vulnerability is the fact that while Iran is rich in oil, it is poor in oil technology. Its aging oil fields are in much need of foreign investment to improve falling production levels. Without the investment, revenues will begin to fall in the years ahead. This, however, is a medium-term threat. Without investment, Iran’s capacity to produce oil will decline, but that is unlikely to bite before Iran achieves nuclear weapons capability.

Conclusion

The logic of sanctions is to convince Iran to change its course by threatening economic and diplomatic isolation so severe that it outweighs any potential strategic benefit to be reaped from independent nuclear weapons capability. The sanctions regime is also meant to show Iran that its pursuit of nuclear weapons will ensure that it does not obtain the status it desires – and which it feels it is entitled to historically – on the world stage. Even if sanctions are applied in the most coordinated and effective way possible, it is very difficult to predict wha
the internal repercussions will be and precisely how long Iran will hold out against them. But to have any chance of success, all the major economic powers have to be behind the moves; otherwise one can step in to fill the trade gap vacated by another. The recent guidance issued by the international anti-terror financing Financial Action Task Force, that countries should show ‘enhanced due diligence’ when dealing with Iran, indicates a growing consensus. But international unity is still liable to be compromised by the fact that the countries that would have to make the biggest economic sacrifice by agreeing to more widespread sanctions are not necessarily those that feel most threatened by an Iran with nuclear weapons.

The sanctions that have been applied up to now and the US-led campaign are likely to make life difficult for Iran, but Teheran may not feel the pinch quickly or harshly enough for it to cause a reversal in Iranian policy. Given the advanced stage of Iran’s nuclear programme, it would seem that sanctions have to be applied more broadly and more quickly to achieve their goal. While Germany and Italy may face the pinch economically in the domestic arena, the potential consequences of not imposing sanctions on Iran and allowing it to pursue its nuclear goals are certainly worse. Europe, including Germany and Italy, need to lead the way on this issue. If sanctions have not succeeded by next summer, global powers will be facing an even tougher choice, over whether or not a nuclear-armed Iran is more dangerous than the consequences of destroying its nuclear capability by force.


1 Economist Intelligence Unit, Country Briefing, Iran, 13 August 2007

2 Iran ‘could have atom bomb in a year’, David Byers, The Times, 7 November 2007

3 Mark Fitzpatrick; Survival vol. 48 no. 3;  Autumn 2006

4 US imposes sweeping sanctions on Tehran, Ewen MacAskill, The Guardian, 26 October 2007

5 Washington tells EU firms: quit Iran now, David Gow and Ewen MacAskill, The Guardian, 9 November 2007

6 Facing disaster in Iran, Europe must finally make the hard choices, Timothy Garton Ash, The Guardian, 1 November 2007

7 Let’s keep squeezing them harder, The Economist, 20 September 2007

8 Merkel resists US pressure over Iran sanctions, Hugh Williamson, Daniel Dombey and Najmeh Bozorgmehr, The Financial Times, 7 November 2007

9 Parallel Purposes, The Economist, 4 October 2007

10 UN talks to consider fresh Iran measures, James Blitz, Daniel Dombey and Harvey Morris, The Financial Times, 31 October 2007

11 Ahmadinejad’s Power Slipping in Iran, Policy Watch 1281, Washington Institute for Near East Studies, Patrick Clawson and Mehdi Khalaji, 6 September 2007

12 Iran Shrugs Off Harsh New US Sanctions, Nasser Karimi, Associated Press, 26 October 2007

13 The Weapon Iran May Not Want to Use, Steven Mufson, The Washington Post, 19 May 2006

14 Economist Intelligence Unit, Country Briefing, Iran, 13 August 2007

15 Iran, Sanctions and War: the Oil Factor, Peter Kiernan, World Politics Review, 17 October 2007