United States Institute of Peace

The Iran Primer

Ex-officials say Reinvigorate Iran Diplomacy

July 15, 2013
The Honorable Barack H. Obama
President of the United States of America
The White House, 1600 Pennsylvania Avenue NW
Washington, DC 20500 

Dear President Obama,
            The election of Hassan Rouhani to be Iran’s next president presents a major potential opportunity to reinvigorate diplomatic efforts to resolve the standoff over Iran’s nuclear program. We strongly encourage your Administration to seize the moment to pursue new multilateral and bilateral negotiations with Iran once Rouhani takes office and to avoid any provocative action that could narrow the window of opportunity for a more moderate policy out of Tehran.
            Once the new president has been inaugurated, the United States should pursue coordinated multilateral engagement on the nuclear issue through the P5+1. Additionally, the U.S. should prepare to redouble its efforts to pursue direct, bilateral negotiations with Iran to engage on issues beyond the nuclear file, such as human rights and regional security. After assessing the orientation of the new Iranian government, the U.S. and partners should prepare to offer a new set of proposals to limit Iran’s enrichment and nuclear materials stockpiles combined with stringent oversight and verification measures.
            While it will take time to secure an agreement to resolve all concerns, diplomacy will only succeed if we are prepared to leverage existing sanctions and other incentives in exchange for reciprocal Iranian concessions. Further, in the leadup to Rouhani’s inauguration, it is critical that all parties abstain from provocative actions that could imperil this diplomatic opportunity. For the U.S., no further sanctions should be imposed or considered at this time as they could empower hardliners opposed to nuclear concessions at the expense of those seeking to shift policy in a more moderate direction.
            It remains to be seen whether this opportunity will yield real results. But the United States, Iran, and the rest of the international community cannot afford to miss or dismiss the potential opportunity before us. In the past, when one side has failed to seize an opportunity to resolve the standoff between the U.S. and Iran, it has only produced worse outcomes and diminishing options. Given the current state of Iran’s nuclear capability, the heightened tensions in the region, and the potential for a confrontation, all parties involved should be ready and willing to seize this opportunity to achieve diplomatic progress towards a peaceful resolution of the standoff.
Barry Blechman, co-founder of the Stimson Center
Prof. Juan Cole, University of Michigan
Prof. Farideh Farhi, University of Hawai'i at Manoa
Amb. Chas Freeman, former US Ambassador to Saudi Arabia
Lt. General Robert G. Gard, Jr. Former President of National Defense University
Col. Sam Gardiner, United States Air Force, Retired
Morton Halperin, former Special Assistant to the President, Senior Director for Democracy at the National Security Council, and State Department Director of Policy Planning
General Joseph P. Hoar, former Commander in Chief, United States Central Command
Amb. Steen Hohw-Christensen, former Ambassador of Sweden to Iran
Amb. Peter Jenkins, former Ambassador of the UK to the IAEA
Amb. Dennis Jett, Professor of International Affairs, Penn State University
Brig. General John Johns, former Deputy Assistant Secretary of Defense
Larry Korb, former Assistant Secretary of Defense
Amb. John Limbert, Former Deputy Assistant Secretary of State for Iran
Reza Marashi, former Iran Desk officer, US Department of State; Research Director, National Iranian American Council
Alireza Nader, Iran analyst
Amb. François Nicoullaud, former Ambassador of France to Iran
Dr. Trita Parsi, President, National Iranian American Council
Bruno Pellaud, former Deputy Director General of the International Atomic Energy Agency
Amb. Thomas Pickering, former Under Secretary of State
Paul Pillar, former National Intelligence Officer for the Near East and South Asia, Central Intelligence Agency
Gary Sick, Iran specialist on National Security Council under Presidents Ford, Carter and Reagan; Columbia University
Anne-Marie Slaughter, former State Department Director of Policy Planning 
John Steinbruner, Director, Center for International and Security Studies at Maryland, University of Maryland
Greg Thielman, former Director of the Strategic, Proliferation and Military Affairs Office in the Department of State’s Bureau of Intelligence and Research
Amb. Roberto Toscano, former Ambassador of Italy to Iran
Dr. Jim Walsh, Massachusetts Institute of Technology’s Security Studies Program (SSP)
Wayne White, former Deputy Director of the State Department's Bureau of Intelligence
Col. Larry Wilkerson, former Chief of Staff to Gen. Colin Powell

Report: New Progress on Arak Reactor

            Iran’s heavy water reactor near the central city of Arak will likely begin operating in 2014, according to a new report by the Institute for Science and International Security. U.N. Security Council resolutions dating back to 2006 have urged Iran to stop construction on the Arak reactor because it could open another potential route to nuclear weapons aside from enriching uranium. David Albright and Christina Walrond warn that the reactor’s operation could “needlessly complicate negotiations and increase the risk of military strikes.”
            The reactor could produce enough weapons-grade plutonium for about two nuclear weapons a year. But the report also notes that Iran has no declared plans to build the necessary separation plant to process the plutonium.
Tehran has claimed its reactors are for generating electricity and medical research. The following are excerpts with a link to the full report at the end.  

            Despite the delays and problems in procuring essential equipment abroad and making fuel domestically, Iran is currently expected to finish the Arak reactor. However, additional delays in commissioning are expected. In any case, the reactor is widely viewed as unnecessary. Sufficient medical isotopes—Iran’s stated justification for the reactor— can be produced in the Tehran Research Reactor or obtained via international commercial markets. Iran has also recently announced its siting of a second research reactor, which would also produce medical isotopes. More importantly, the Arak reactor’s operation would open a second potential route to nuclear weapons for Iran, in this case via plutonium. The first route is its centrifuge program that could make highly enriched uranium. Operating the Arak reactor would heighten concerns that Iran aims to build nuclear weapons. Its operation would needlessly complicate negotiations and increase the risk of military strikes.
            Iran has stated that its IR-40 heavy water reactor, located near the city of Arak, will begin operating in 2014. This reactor has been under construction since June 2004 and development work goes back at least another decade. The IR-40 reactor is designed to produce 40 megawatts thermal (MWth) of power and use natural uranium oxide fuel that Iran is producing at the Esfahan conversion and fuel fabrication facilities.
            United Nations Security Council resolutions, the first of which dates to 2006, have called for Iran to halt construction of this reactor. The reactor poses a notable proliferation threat because it can produce significant amounts of weapons-grade plutonium –about 9-10 kilograms annually or enough for about two nuclear weapons each year. Before it could use any of this plutonium in a nuclear weapon, however, Iran would first have to separate it from the irradiated fuel. Iran has no declared plans to separate plutonium from the irradiated Arak fuel, although it has not agreed to forgo separating plutonium. If it decided to create a secret plutonium separation program, it would also need to divert the irradiated fuel, which would be detected relatively quickly by the International Atomic Energy Agency (IAEA). Nonetheless, suspicions remain that after the reactor operates, Iran will overtly or covertly build a plant to separate plutonium produced in this reactor. Although the reactor still will require significant work before it operates, Iran reported to the IAEA during the last Design Inventory Verification (DIV) visit in May 2013 that pre-commissioning of the reactor using dummy fuel assemblies and light water will begin in the fourth quarter of 2013 and commissioning using real fuel assemblies and heavy water would begin in the first quarter of 2014, with the start-up planned for the third quarter of 2014…

US Report: Limited Sanctions Impact

            The following are excerpts from a new Congressional Research Service report on Iran sanctions with a link to the full text at the end.
            Increasingly strict sanctions on Iran—which target primarily Iran’s key energy sector as well as its ability to access the international financial system—have harmed Iran’s economy, but not to the point where key Iran leaders have been compelled to reach a compromise with the
international community on Iran’s nuclear program. And, the strategic effects of sanctions might
be abating as Iran adjusts to them economically and advertises the adverse humanitarian effects.
Oil exports fund nearly half of Iran’s government expenditures, and Iran’s oil exports have declined to about 1.25 million barrels—a halving from the 2.5 million barrels per day Iran exported during 2011. The causes of the drop have been a European Union embargo on purchases of Iranian crude oil and decisions by several other Iranian oil customers to avoid U.S. sanctions by substantially reducing purchases of Iranian oil. To date, 20 of Iran’s oil customers have received and maintained an exemption from U.S. sanctions for doing so.
The loss of revenues from oil, coupled with the cut-off of Iran from the international banking system, has caused a sharp drop in the value of Iran’s currency, the rial, and caused inflation to increase to over 50%, according to many experts. Iran’s economy shrank slightly from 2012-2013 and will likely shrink again during 2013. There have also been unintended consequences including a shortage of some advanced Western-made medicines.
Iran has found some ways to mitigate the economic and political effects of sanctions. Government-linked entities are creating front companies and making increased use of barter trade. Iranian traders are using informal banking exchange mechanisms and, benefitting from the fall in the value of Iran’s currency, increasing non-oil exports such as agricultural goods, minerals, and industrial goods. Affluent Iranians are investing in hard assets such as real estate.

            Sanctions have not compelled Iran to change its position on its nuclear program, but sanctions may be slowing Iran’s nuclear and missile programs by hampering Iran’s ability to obtain needed foreign technology. However, Department of Defense and other assessments indicate that sanctions have not stopped Iran from developing some new weaponry indigenously. Iran is also judged not complying with U.N. requirements that it halt any weapons shipments outside its borders, particularly for providing arms to the embattled Assad government in Syria. And, sanctions do not appear to have altered Iran’s repression of dissent or its efforts to monitor public use of the Internet.
Effect on Iran’s Nuclear Program Decisions and Capabilities
            There is a consensus that U.S. and U.N. sanctions have not, to date, accomplished their core strategic objective of compelling Iran to verifiably limit its nuclear development to purely peaceful purposes. By all accounts—the United States, the P5+1, the United Nations, the International Atomic Energy Agency (IAEA)—Iran has not complied with the applicable provisions of the U.N. Security Council resolutions requiring that outcome. Five rounds of
P5+1—Iran talks during 2012 and thus far in 2013, the latest of which took place in Almaty,
Kazakhstan during April 5-6, 2013, produced no breakthroughs. The talks have centered on P5+1 proposals that Iran suspend enrichment of uranium to the 20% purity level in exchange for a modest easing of international sanctions…
Counter-Proliferation Effects
            A related issue is whether the cumulative sanctions have directly set back Iran’s nuclear efforts by making it difficult for Iran to import needed materials or skills. Some U.S. officials have asserted that, coupled with mistakes and difficulties in Iran, sanctions have slowed Iran’s nuclear efforts by making it more difficult and costly for Iran to acquire key materials and equipment for its enrichment program. However, International Atomic Energy Agency (IAEA) reports have said that Iran’s capacity to enrich uranium more rapidly continues to expand, as does its stockpile of 20% enriched uranium. And, Director of National Intelligence James Clapper testified on March 12, 2013, that Iran “is expanding the scale, reach, and sophistication of its ballistic missile arsenal.”
Effects on Iran’s Regional Political and Military Influence
            Sanctions do not appear to have materially reduced Iran’s capability to finance and provide arms to militant movements in the Middle East and to Syria. Iranian support to Syrian President Bashar Al Assad appears to have escalated since early 2013, according to U.S. officials. Some press reports, quoting the U.N. panel of experts, say Iran has been exporting arms to factions in Yemen and Somalia. Iran’s arms exports contravene Resolution 1747, which bans Iran’s exportation of arms…
General Political Effects
            Some experts assert that sanctions could accomplish their core goals if they spark dissension within the senior Iranian leadership or major public unrest—either of which could cause Iran to assess as too high the costs of rejecting a nuclear agreement with the P5+1. There has been a split since early 2011 between President Ahmadinejad and Supreme Leader Ali Khamene’i, but the rift has been driven primarily by institutional competition and differences over the relative weight to attach to Islam or to Iranian nationalism—not primarily about international sanctions. These tensions escalated as Iran entered its June 14, 2013, presidential election period, and most of the candidates permitted by the regime to run for president are considered close allies of Khamene’i.
            At the popular level, there has been labor and public unrest over escalating food prices and the dramatic fall of the value of Iran’s currency. However, public strikes and demonstrations have been sporadic and do not appear to threaten the regime. Without an uprising or the major threat of one, the Iranian leadership is unlikely to feel significant pressure to curb its nuclear program.
Human Rights-Related Effects
            U.S. and international sanctions have not, to date, had a measurable effect on human rights practices in Iran. Executions increased significantly in 2012, according to the State Department (human rights report for 2012, released April 19, 2013, but that is likely a result of a continued crackdown against opposition activity stimulated by the 2009 uprising in Iran. Nor has the regime’s ability to monitor and censor use of the Internet and other media been evidently affected to date, even though sanctions have caused several major firms to stop selling Iran equipment that it could use to for those purposes. German telecommunications firm Siemens, accused by Iranian and outside activists in 2009 of selling technology that Iran used to monitor the Internet, announced on January 27, 2010, that it would stop signing new business deals in Iran as of mid-2010…
Economic Effects
Oil Export Declines. Oil sales have accounted for about 80% of Iran’s hard currency earnings and about 50% of government revenues. As noted in Table 1, sanctions have halved Iran’s oil sales from the 2.5 mbd of sales in 2011. This drop is expected to deprive the Iranian government of over $50 billion in revenue for all of 2013.
Falling Oil Production. To try to adjust to lost oil sales, Iran has been storing unsold oil on tankers in the Persian Gulf and it is building additional storage tanks on shore. Industry reports in June 2013 indicated Iran might have as much as 30 million barrels of crude oil in floating storage. The storage represents an attempt to keep up oil production because shutting down wells risks harming them and it is costly to resume production at a shut well. However, Iran’s oil production has fallen to about 2.6 - 2.8 mbd from the level of nearly 4.0 mbd at the end of 2011
GDP Decline. Sanctions have caused Iran to suffer its first gross domestic product contraction in two decades. An IMF global report issued in late April 2013 said that Iran’s economy shrank 1.9% from March 2012-March 2013, and will likely shrink another 1.3% in the subsequent one year period. U.S. officials testified on May 15, 2013, to a larger GDP drop for 2012-2013—on the order of about 5% - 8%. The IMF report predicted the economy would return to growth, at about 1%, for the one year after that (March 2014-March 2015). The recession has elevated the unemployment rate to about 20%, although the Iranian government reports that the rate is 13%. Economists assess that there is a burgeoning number of non-performing loans.
Currency Collapse. The regime has been working to contain the effects of a currency collapse. The value of the rial fell on unofficial markets from about 28,000 to one U.S. dollar to nearly 40,000 to one dollar in early October 2012. Prior to that, the rial’s value had fallen from about 13,000 to the dollar in September 2011 to about 28,000 to the dollar as of mid-September 2012. Observers say the unofficial rate is about 37,000 to the dollar in May 2013.
Hard Currency Depletion. The currency collapse has fed analysis that Iran might deplete its hard currency reserves—hard currency is needed to support the value of the rial. The IMF estimated Iran’s hard currency reserves to be about $101 billion as of the end of 2011. Experts estimated the reserves probably fell below $90 billion at the end of 2012,
but Iran’s economics minister told journalists in late April 2013 that the reserves were still approximately $100 billion…
Inflation. The drop in value of the currency has caused inflation to accelerate collapse. An April 22, 2013 government attempt to unify the exchange rate set off a wave of hoarding of key foodstuffs by Iranians who are expecting the prices of those goods to rise sharply. The Iranian Central Bank acknowledged an inflation rate of 31% rate in April 2013—the highest rate ever acknowledged by the Bank. Many economists assert that these official figures understate the actual inflation rate substantially, and that is between 50% and 70%. Some assert that inflation has been fed by the policies of Ahmadinejad, particularly the substitution of subsidies with cash payments.
Industrial Production. Almost all Iranian factories depend on imports and the currency collapse has made it difficult for Iranian manufacturing to operate. Iran’s production of automobiles has fallen by about 40% from 2011 levels, and will likely fall further as a consequence of Executive Order 13645 of June 3, 2013, discussed earlier. Iran produces cars for the domestic market, such as the Khodro, based on licenses from European auto makers such as Renault and Peugeot.
Shipping Difficulties. Beyond the issue of the cost of imported goods, the Treasury Department’s designations of affiliates and ships belong to Islamic Republic of Iran Shipping Lines (IRISL) reportedly are harming Iran’s ability to ship goods at all, and have fed inflation by raising the prices of goods to Iranian import-export dealers. Some ships have been impounded by various countries for nonpayment of debts due on them.
Domestic Payments Difficulties. Some reports say the government is in arrears in salary payments to military personnel and other government workers. In order to conserve funds, in late 2012, Iran’s parliament—against Ahmadinejad’s urgings—postponed phase two of an effort to wean the population off subsidies. -That effort provides for cash payments to about 60 million Iranians of about $40 per month to 60 million Iranians to compensate them for ending subsidies for commodities such as gasoline. Gasoline prices now run on a tiered system in which a small increment is available at the subsidized price of about $1.60 per gallon, but amounts above that threshold are available only at a price of about $2.60 per gallon, close to the world price. Before the subsidy phase out, gasoline was sold for about 40 cents per gallon.
Flights Curtailed. Because of the decline in Iran’s trade with European countries, KLM and Austria Airlines announced in January 2013 that they would be ending flights to Iran later in 2013. Lufthansa, some other European airlines, and most airlines in the Persian Gulf, Middle East, and South Asia region still fly to Iran regularly.

Secret Nuclear Facility: Claim and Denial

            An exiled opposition group claimed that Iran has been hiding an underground nuclear site since 2006. “The People's Mujahedin of Iran (MEK) has discovered credible evidence of a secret new nuclear site, gathered over a year by 50 sources in various parts of the regime," according to a July 11 National Council of Resistance of Iran statement. The Paris-based MEK said the site is located underneath a mountain about 44 miles northeast of Tehran, near the town of Damavand. The group also claimed that President-elect Hassan Rouhani played a “key role” in the program.
But Tehran has denied the allegations as mere lies by a “desperate” group of exiles. “The terrorist MEK has been so discredited that the publication of such stories by them is not worth a response,” Foreign Ministry Spokesman Abbas Araqchi said on July 12. The United States had previously regarded the leftist MEK as a foreign terrorist organization for killing six Americans in Iran in the 1970s and attempting an attack against Iran’s U.N. mission in 1992. But the group renounced violence in 2001. And the State Department revoked the MEK’s terrorist designation in September 2012. The following are excerpted remarks by Araqchi and the National Council of Resistance of Iran.

National Council of Resistance of Iran
            “The organization of the People's Mujahedin of Iran (MEK) has discovered credible evidence of a secret new nuclear site, gathered over a year by 50 sources in various parts of the regime… The codename of the project is 'Ma'adane-e Charq' (literally 'the mine of the east') or 'Project Kossar'. This site is hidden in a series of tunnels under a mountain near the town of Damavand.”
            Mohsen Fakhrizadeh, a senior Revolutionary Guards official, is overseeing the project’s “nuclear, biological and chemical programs.”
Abbas Araqchi, Foreign Ministry spokesman

            “This report is by no means true and is denied… The terrorist MEK has been so discredited that the publication of such stories by them is not worth a response.”



Iran on Egypt: Range of Reactions

      Many top Iranian officials have condemned the military coup against Egyptian President Mohamed Morsi on July 3. “The interference of military forces in the political scene is unacceptable,” Iranian Foreign Ministry spokesman Abbas Araqchi said on July 8. He charged that Western powers were meddling in Egypt’s internal affairs. But Iranian diplomats, clerics and a lawmaker have also candidly criticized the former Muslim Brotherhood official for his poor performance and warned that deepening divisions could trigger civil strife. Iranian leaders have claimed that the coup was not a setback for the “Islamic Awakening,” Tehran’s term for the Arab uprisings. The following are reactions by Iranian leaders to the Egyptian crisis.
Abbas Araqchi, Foreign Ministry spokesman
            “The Islamic Republic of Iran stresses the fulfillment of the legitimate public demands in Egypt, but we believe… that governments elected by popular vote should be respected and the people’s demands must be pursued through the channels stipulated by law.
            “We witnessed the inefficiency of the government of Mr. Morsi, which had its own consequences and we had seen them in the country’s foreign policy… Islamists and revolutionaries should not be frustrated… The recent developments in Egypt cannot be construed as a failure of the Islamic Awakening or Islamic tendencies; from the outset, we had known and said that the Egyptian revolution would have tough years ahead on its way to stability.” July 7 in a statement
            “The interference of military forces in the political scene is unacceptable and concerning… Driving Egyptian society towards disagreement and division, and polarizing society are [all] dangerous [issues].
            “Definitely there are foreign hands at work, and this issue cannot be denied…. Without a doubt a strong Egypt will not be desired by Westerners and the Zionist regime [of Israel]. Therefore, it is natural to consider their meddling in Egypt a possibility.” July 8 in a statement
Ali Akbar Salehi, foreign minister
            “In the end the Egyptian people have determined their own fate, and it is these people who will define the fate of Egypt in whatever direction it goes…. The Egyptian army has been and is a popular army and has always protected and defended the populace and the integrity of Egyptian soil, but in regards to these events in which a number of innocent people were killed, we must strongly condemn these killings…” July 10 to reporters (translation by AEI)
Hossein Amir-Abdollahian, deputy foreign minister for Arab and African affairs
            “Undoubtedly, the perceptive and insightful people of Egypt will thwart the Zionist regime [of Israel] and enemies’ opportunism as well as bids to stop the growing trend of democracy which is the fruit of the Egyptian revolution.” July 5 in remarks to the press
            “We have already voiced our concern about any conflict that pushes Egypt toward violence. The continuation of the massacre of the Egyptian people by any group is unacceptable.” July 9 in remarks to the press
Alaeddin Boroujerdi, chairman of parliament’s National Security and Foreign Policy Committee
            “The first mistake by the ... [Muslim] Brotherhood was that they thought they would be able to conclude the revolution only by toppling Hosni Mubarak.” July 4 in remarks to the press
            The arrest of Muslim Brotherhood members “will be a provoking act for their supporters to enter the scene, but [the Brotherhood] should accept early elections. It’s a difficult thing, but it’s the only path toward an understanding, because a continuation of the existing situation is dangerous for Egypt and the region. Iran will certainly not interfere in the internal crisis of Egypt. But we are ready to use our capacity to create calm in Egypt.
            “Certainly, the American and Zionist regimes are happy about this crisis. Therefore, Egypt’s national interests must take priority. After one year of ruling, [the Brotherhood] was entangled with many problems, the army interfered and the people became divided. Therefore, if the leaders of the two sides fuel the conflict, it’s possible that Egypt will move toward an internal crisis or even toward violence… They must not give permission to provide the ground for extremist and well- known elements, or Egypt will move toward unfortunate events like [those in] Syria and Iraq.” July 8 in remarks to the press (translation by Al Monitor)
Ayatollah Ahmad Khatami, Tehran Friday prayer leader
            “The people of Egypt are Muslim and they love Islam, and many times in the last year they went to the ballot box and they voted for Muslims. But the people who came to sit on the seat of power through the Islamic Awakening performed so poorly that they themselves prepared the ground for a coup.
            “Instead of inviting the Islamic world to unite, [Morsi's government] supported the murdering infidels. On the political front, they dealt with the Zionist regime in a way that was against their previous principles. They confirmed the Camp David Accords and spread fear of Iran and Shiite Islam.” July 5 in a sermon
Hojatoleslam Hassan Ameli, Ardebil Friday prayer leader
            “Some believe that the developments in Egypt are a second revolution and a tendency toward secularization, but we must not forget that these events are the results of Muslim Brotherhood's imprudence and Morsi's lack of understanding, which encouraged the people to change their leadership.
            “In the past year, Morsi did not even once frown at the U.S. and the Zionist regime, while in the early days of their revolution the Egyptians not only set the embassy of the Zionist regime on fire, but they also confronted the excessive demands of foreign governments.” July 5 in a sermon (translation by Radio Free Europe/Radio Liberty)

Hassan Firouzabadi, Joint Chiefs of Staff chairman
            Egyptians should “stand by revolutionary and elected President Morsi.” June 30 in remarks to the press

Photo credit: Iran Ministry of Foreign Affairs

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