Taking on Tehran

Kenneth Pollack and Ray Takeyh

From Foreign Affairs, March/April 2005

Summary:  If Washington wants to derail Iran's nuclear program, it must take advantage of a split in Tehran between hard-liners, who care mostly about security, and pragmatists, who want to fix Iran's ailing economy. By promising strong rewards for compliance and severe penalties for defiance, Washington can strengthen the pragmatists' case that Tehran should choose butter over bombs.

Kenneth Pollack is Director of Research at the Saban Center for Middle East Policy at the Brookings Institution and the author of The Persian Puzzle: The Conflict Between Iran and America. Ray Takeyh is a Senior Fellow in Middle East Studies at the Council on Foreign Relations.

Reform is possible, but it would require selling off public enterprises and scaling back the government's onerous subsidies. Iran's clerical elite is too implicated in corrupt arrangements and too fearful of losing its prerogatives to endorse measures that would fundamentally alter the structure of the economy. Concerns that an aggressive privatization program would unleash popular dissatisfaction are discouraging reform. Any attempt to restructure the public sector would exacerbate an already inflamed unemployment crisis. The reactionary Council of Guardians is unlikely to countenance privatizing key sectors such as the banking industry, as such measures run counter to Iran's constitution. And a serious campaign against corruption would alienate the regime's remaining loyalists.

Iran's technocrats recognize the country's deepening economic predicament. Muhammad Khazai, the deputy minister of economy and finance, has acknowledged that Iran will need $20 billion in investment every year for the next five years if it is to provide sufficient jobs for its citizens. The oil industry--the lifeblood of Iran's economy--faces an even more daunting challenge. The National Iranian Oil Company estimates that $70 billion is needed over the next ten years to modernize the country's dilapidated infrastructure and is counting on foreign oil companies and international capital markets to provide approximately three-quarters of those massive investments. Given the clerical elite's inability to reform the economy, foreign investments have become critical to Iran's economic revival. Khazai insists, "We should be thinking of drawing foreign investments and [of] prepar[ing] the ground for [an] inflow of foreign capital."

Some officials have gone so far as to suggest that Iran's economic difficulties cannot be redressed if Tehran continues to have such a tense relationship with the United States. The exasperated head of the Management and Planning Organization, Hamid Reza Baradaran Shoraka, has noted that among the major obstacles to the country's development are the economic sanctions imposed by Washington. Continued antagonism toward the United States would hardly ensure that these sanctions are lifted.

As a result, the realists have tried to leverage Iran's nuclear intentions to secure a more favorable security and economic relationship with the United States. Like the North Korean leadership, Iran's clerical oligarchs are hoping to use Tehran's nuclear ambitions to force negotiations with and extract concessions from Washington. In a press conference in September, the powerful secretary of the Supreme National Security Council, Hasan Rowhani, acknowledged that Tehran had held constructive talks with U.S. officials on the war in Afghanistan and suggested that "such negotiations on the nuclear file [are] not totally out of [the] question." Fearful that Iran's feeble economy could not withstand more multilateral sanctions, Iran's pragmatists are willing to back down on the nuclear question to help save the economy.

So far, these competing pressures have resulted in inconsistent government positions. Even as it has agreed to suspend efforts to acquire nuclear capabilities, the Iranian government has insisted that it would never give up its nuclear weapons program and, in fact, has prodded it along. Meanwhile, in an attempt to head off international sanctions, Khamenei has temporarily sided with the realists. Despite calls by clerical firebrands and the Iranian parliament to discard the Nonproliferation Treaty (NPT), in October 2003, he agreed that Tehran would sign the NPT's Additional Protocol, including provisions for a fairly intrusive inspection regime. Last November, Tehran also accepted a deal brokered by France, Germany, and the United Kingdom to suspend uranium-enrichment activities and forgo completion of the nuclear fuel cycle.

A NEW APPROACH

With Tehran divided over how to balance its nuclear ambitions with its economic needs, Washington has an opportunity to keep it from crossing the nuclear threshold. Since the economy is a growing concern for the Iranian leadership, Washington can boost its leverage by working with the states that are most important to Tehran's international economic relations: the western European countries and Japan, as well as Russia and China, if they can be persuaded to cooperate. Together, these states must raise the economic stakes of Iran's nuclear aspirations. They must force Tehran to confront a painful choice: either nuclear weapons or economic health. Painting Tehran's alternatives so starkly will require dramatically raising both the returns it would gain for compliance and the price it would pay for defiance.

In the past, dissension among the United States and its allies allowed Tehran to circumvent this difficult choice. Throughout the 1990s, the United States pursued a strategy of pure coercion toward Iran, with strong sanctions and a weak covert action program. In the meantime, the Europeans refused even to threaten to cut their commercial relations with Tehran, no matter how bad its behavior became. Iran played Europe off against the United States, using European economic largesse to mitigate the effects of U.S. sanctions, all the while making considerable progress with its clandestine nuclear program.

Today, the situation is different. A fortunate result of Iran's unfortunate nuclear progress is that Tehran will now have a much harder time hedging. Revelations that Iran has moved closer toward producing fissile material over the past two years could help forge a unified Western position. In the 1990s, Europeans could ignore much of Iran's malfeasance because the evidence was ambiguous. But with the IAEA recently having uncovered so many of Iran's covert enrichment activities--and with Tehran subsequently having admitted them--it will be far more uncomfortable, if not impossible, for Europeans to keep looking the other way. It is still unclear just how seriously Europe takes Iran's nuclear activities, but in public and private statements, European officials no longer try to play them down. Moreover, when during negotiations with the EU in November Tehran requested that 20 research centrifuges remain active, the Europeans refused. Such resolve marked a drastic departure from Europe's fecklessness during the 1990s. That Tehran quickly complied was a sure sign that it fears incurring the wrath of its economic benefactors.