Iran Nukes: Why a Compromise May Be in the Works

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When it comes to anticipating Middle East crises, the oil futures market plays the canary in the coalmine. And the political risk factor that has done most to propel oil prices to record highs over the past six months has been the prospect of war between the United States and Iran. It's not hard to see why: Iran is the fourth-largest supplier in an already tight world market, and its threat to respond to any attack by closing the Straits of Hormuz — the maritime bottleneck through which oil from Saudi Arabia and the Gulf States must pass — could send oil markets into shock. But oil futures fell to just under $64 a barrel this week, from close to $77 a month ago, suggesting that oil markets are not expecting a confrontation with Iran any time soon.

Oil traders' anxieties may have been soothed by the fact that Iranian and European leaders are now actively pursuing a compromise aimed at defusing the crisis over Tehran's nuclear program. And the U.S., which began lobbying for sanctions when Iran failed to heed the U.N. Security Council demand that it cease enriching uranium by August 31, may have little choice but to give European diplomacy more time. Even key European allies have little appetite for a confrontation beginning with sanctions — particularly while Iran is offering a diplomatic alternative, however imperfect, for pursuing the same goals.

Tehran has responded to the West's deadline and incentive package with a counter-offer, which reportedly includes offering to negotiate a temporary suspension of uranium enrichment as a confidence-building measure. Negotiations over sanctions are on hold while talks continue between the Europeans and Tehran. And while remaining officially committed to sanctions, Secretary of State Condoleezza Rice has indicated that once the Iranians have implemented a temporary suspension of uranium enrichment, the U.S. would join the Europeans in talks with Iran.

The immediate problem is a case study in diplomatic hairsplitting. Iran is not currently offering to suspend enrichment before talks begin, as the U.S. and Europe have demanded. In its formal response to the U.S.-backed incentive package offering economic rewards for ending uranium enrichment, Iran rejected the principle that it suspend enrichment as a precondition for negotiation. Instead, the Iranians appear to be offering the possibility of suspending enrichment for a defined period in the course of negotiations — a position reiterated last weekend in talks between Tehran's top negotiator, Ali Larijani, and EU foreign policy chief Javier Solana.

Talks is the operative word: Even though Solana and Larijani appear to be seeking to find a way to bridge (or perhaps fudge) what appear to be mutually exclusive positions over when Iran would suspend enrichment — i.e., before talks, or after they begin — they can't use the word negotiations to describe their conversations since the U.S.-EU position precludes negotiations until Iran suspends enrichment. Whatever they call their meetings, Larijani and Solana are clearly engaged in a process designed to avert a confrontation. They were due to meet on Thursday, but postponed that discussion to allow their aides more time to finesse proposals aimed at bridging the divide.

Although Tehran has offered less than the West had demanded, it is making a smart calculation that the Europeans will resist heading down the path of confrontation as long as Iran is willing to offer a credible mechanism for addressing Western concerns over its uranium enrichment.

The visit to Tehran by Iran's Prime Minister Nuri al-Maliki on Tuesday underscored some of the reasons why even Washington might gain from avoiding a confrontation with Iran at the present time. The prospects for U.S. success in Iraq have deteriorated steadily over the past three years, as the insurgency has raged and sectarian conflict has threatened to turn into full-blown civil war. Without cooperation from Iran, which is far closer than Washington is to the Shi'ite parties that dominate the new Iraqi government, the U.S. is unlikely to reverse the slide in Iraq.

And for the U.S., the idea of effecting a temporary suspension in Iran's program through negotiations has substantial appeal — after all, most experts agree that even military strikes on its infrastructure would only achieve a temporary halt to the program, perhaps longer in duration but at a much higher cost.

A new compromise, however, may prove tricky for the Iranian leadership, because uranium enrichment has been turned into matter of national pride by President Mahmoud Ahmedinajad. His populist appeals on the issue, in fact, have been designed to limit the diplomatic wiggle room available to his superiors and rivals in the Iranian power structure. But like the Europeans, Iran's leaders appear to want to avoid a confrontation whose consequences could be unpredictable, so their domestic message would likely emphasize the temporary nature of any suspension, and the political rewards they would gain for doing so.

That's if things even get that far. It's not yet clear that Larijani and Solana will succeed in building a bridge between the two sides, and even if they do, many skirmishes lie ahead. Still, at least there's been sufficient shift in the posture of the two sides to convince the hyper-sensitive analysts who determine the price of oil futures to allow prices to fall.