Progress in Iran talks?

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Weekly Updates - Traders' Diary

IRAN has been in the news in Pakistan for the past few weeks. This is primarily because of the finalisation of the Iran-Pakistan gas pipeline agreement and the fear that it would attract UN, or at least US, sanctions on Pakistan for breaching the US-led effort to restrict Iran’s fossil fuel exports.

In my view these fears, as I said in a column last year, are unjustified. UN sanctions and even the more stringent US sanctions do not come into effect for the purchase of gas from Iran when such a purchase entails no Pakistani investment in Iran’s energy sector and when payment for such gas is to be made through the export of food stuffs and other commodities that are not the subject of sanctions.

Were this not so the US would have to apply sanctions on the Iranian pipelines that supply or receive gas from Turkey and Turkmenistan.

While American spokespersons might talk about other ways to resolve Pakistan’s energy crisis they know full well that beyond the 900MW that will be added to Pakistan’s national grid by US-financed upgrading and the repair of existing generation facilities there is little that can be done in the short or even medium term to find other sources to meet Pakistan’s burgeoning energy needs.

Equally important, for the next 24 months or more the US needs Pakistani cooperation to effect an orderly withdrawal of foreign troops and equipment from Afghanistan and to promote the intra-Afghan dialogue that alone can ensure a modicum of peace and stability in Afghanistan after the Nato withdrawal. The last thing they want is the Salala type disruption that would inevitably follow any American effort to impose sanctions on Pakistan.

In my mind, there are questions about the Iran-Pakistan pipeline. These include the award of the contract to an Iranian company for the construction of the pipeline at the exorbitant cost of $2 million per kilometre for a 42-inch pipeline when the Iranians have built a 56-inch pipeline at less than $1m per kilometre and other pipelines in the region have cost much less.

It includes the question of the agreement reached on the pricing of the gas and whether we negotiated the best possible deal. It also includes the question of the degree to which the Iranians have made a firm commitment to accept payment in the form of exports of wheat, rice and other agriculture products for the gas they will supply and whether fool-proof arrangements have been devised for this purpose.

The one question that does not arise is US sanctions. It is perhaps too much to ask that our negotiators put out a briefing paper addressing these issues and that our own private-sector experts on oil and gas offer their comments.

Globally, however, it is not the Iran-Pakistan pipeline deal but the resumption of the nuclear issue discussions between the Iranians and the P-5 countries in Almaty late last month and the results of this discussion that have dominated the headlines.

In concrete terms what happened in Almaty can be summed up as a modest proposal being tabled by the P-5 to ease sanctions on Iran’s gold trade and on certain banking transactions in exchange for an Iranian shutdown of the centrifuges at Fordo, the suspension of uranium enrichment to 20 per cent at their other plants and the export of the existing stock of 20 per cent enriched uranium to another country presumably to be stored or to be converted into rods for use in medical reactors.

The proposal was not accepted but the Iranian negotiator termed some of the points raised by the P-5 “as more realistic compared to what they said in the past”. The Iranian foreign minister maintained that “things are taking a turning point” and President Ahmadinejad talked in this context of negotiations being better than confrontation.

Given this positive interpretation, the Iranians agreed to an expert-level meeting in Istanbul on March 18 and the resumption of the Almaty meeting on April 5. Is there reason for hope even though the P-5 would not go beyond terming the exchange in Almaty as “useful”?

To my mind, modification of the demands of the past by the P-5 does offer some hope. After all, the Iranians themselves had proposed in earlier rounds that they were prepared to ship their stock of 20 per cent enriched uranium abroad and to temporarily suspend any further 20 per cent enrichment in exchange for the lifting of all sanctions.

What they are being offered is far less than a total lifting of sanctions but from the Iranian perspective what is important is that their right to enrich uranium has been conceded and at least a modest lifting of sanctions has been proposed.

Optimists are saying that if the change in the Western approach is sustained Iran may well agree to not enrich uranium beyond 20 per cent, allow more intrusive inspections, adopt the additional Protocol to its safeguard agreement with the International Atomic Energy Agency (IAEA) and even agree to the permanent stationing of inspectors in Iran.

On the other hand, the naysayers point to the fact that on Monday the IAEA chief reported to the IAEA board of governors that it was difficult for his agency to provide “credible assurance” that Iran does not possess undeclared nuclear material and that Iran’s failure to provide access to the Parchin military facility, where the West suspects Iran is moving towards developing a nuclear weapon and nuclear weapon delivery capability, meant that the agency “could not conclude that all nuclear material in Iran is in peaceful activities”.

On another plane much is being made in the Western press of the fact that the heavy water plant in Arak has apparently been activated and that this would give Iran the ability to create spent fuel from which plutonium could be extracted for military use. The IAEA has been given only limited access to this facility.

There is no doubt that Iran now has the capability to develop weapons-grade uranium and perhaps will acquire, if it has not already done so, the ability to extract weapons-grade plutonium from its Arak reactor or by diverting fuel from its Bushehr plant.

Most Western intelligence agencies are not sure that using this capability to build a nuclear weapon is a decision that the Iranian leadership has made. The Iranians insist that they have not and have offered to register with the UN, Supreme Leader Ali Khamenei’s edict against nuclear weapons as evidence of this.

Secretary John Kerry, while in Saudi Arabia and perhaps in deference to his hosts, toughened his rhetoric on Iran, ruling out any negotiations with it on any subject other than its nuclear programme. He reiterated the old American line that the window of opportunity for a diplomatic resolution of this issue could not remain open indefinitely.

It is clear, however, that given the new timetable of talks the immediate danger of an armed confrontation, if it ever existed, has receded.

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