Hopeful officials in the Obama administration are circulating (paywall) a description of a potential nuclear deal with Iran, suggesting a chance of success after 11 years of talks in one form or another. To follow what happens next, it’s necessary to understand one basic fact—the calendar favors the Western side, and seriously disadvantages Iran.
That’s right—contrary to the prevailing wisdom, Iran should push for a handshake on Nov. 24, the deadline for an agreement, or as soon as possible afterwards, even while speaking blithely that it isn’t bothered one way or another. Conversely, Western leverage increases as time goes on, and hence as a primary negotiating position, the West should both loudly threaten to extend the deadline, and be prepared to do so.
To understand why, start with the fact that both sides want a deal; what separates them is the terms. As a metaphor, think of poker, in which one first must presume that everyone is at the table to gamble.
First, look at the price of oil
To pay its bills, Iran says it needs to sell its oil for at least $100 a barrel (oil economists say the true figure is 30%-40% higher, at $130-$140, but for now we give Iran the benefit of the doubt). For almost four years, oil has comfortably sold for well over $100 a barrel. Despite two decades of sanctions, this has helped shield Iran.
But six weeks ago, the oil price plunged below that threshold; since Oct. 10, it has wallowed below $90 a barrel. This implies that, at about 1 million barrels per day of exports, Iran is selling at a deficit worth at least $10 million a day, which adds up to well over $300 million since the plunge in prices.
The First Law of Petropolitics posits a direct relationship between the price of oil and the behavior of a petrostate’s leader—when it’s high, such leaders are prone to be jerks; when it’s low, they can be pussycats. If one accepts the law (as Quartz does), Iranian supreme leader Ali Khamenei ought to start becoming more pliant with the outside world.
He hasn’t softened his stance yet, and he likely won’t by the deadline. The pain of low prices hasn’t fully set in, and Khamenei particularly covets the pride that comes with the possession of nuclear power (or at least the impression that one can get it). To make this clear, Khamenei recently tweeted 11 red lines in his country’s nuclear talks with the West.
Next, pay attention to who is actually in charge
Tehran’s participation in the talks ostensibly flows from president Hassan Rouhani, who has done most of the talking and conducted a charm offensive in the West. Yet when it comes to actual power, Rouhani is like Russian prime minister Dmitry Medvedev—dressed up with a powerful title but very much a second fiddle.
As regards the nuclear negotiations, this distinction is important in more ways than one: It’s been clear from the start of the latest round of talks that Rouhani—whatever his opinion of nuclear arms—is motivated by reviving Iran’s economy, a primary plank of his 2013 election campaign. But not so much Khamenei, who has suggested that he’s satisfied with muddling along economically; he is going along with the talks largely to let Rouhani have a go at breaking the impasse.
In this regard, the supreme leader is almost certainly bluffing—as discussed above, the talks would not be taking place unless he thought they are necessary.
And it is easy to see why he would think this way. In 2009, Khamenei had to call out goons to crush the Green Movement, a popular uprising by Iranians upset with the announced outcome of that year’s presidential election. The dissatisfaction remains a subtext of Iranian politics—in 2013, when Khamenei disqualified every reform-minded presidential candidate, Iranians rebuked him by turning out in large numbers to elect Rouhani, the closest thing to a moderate.
Khamenei received the message and, despite repeated potshots at the re-energized nuclear talks, he has permitted them to go on. It is mainly for this reason—the calculus of political survival—that Quartz included an Iran nuclear deal among its 2014 geopolitical forecasts back in January.
Another point deserving Western attention is the belief that Khamenei is prepared to keep flouting international opinion as long as the bottom isn’t falling out of the Iranian economy. Too much attention is focused on the flouting and too little on the bottom falling out.
In recent days, Khamenei has suggested that the economy is starting to worry him. The reason is the loss of another 25% of government income, entirely due to the plunge in oil prices. On Oct. 22, he lashed out at his country’s overwhelming economic reliance on oil, saying that until Iran finds other means of supporting itself, it will be “at the mercy of major policymakers in the world.” He said that the country instead had to “rely on the talent and potential of its youth.”
He is correct—all the major petro-economies ought to broaden out so as to be less exposed to the whims of the commodities market. But that is a long slog, and Khamenei does not seem the type to let go in the way that encourages a broad-based economic boom.
Khamenei has not quite blinked, but his eyelids may be getting heavy.
Finally, mind the clock
According to a report in the Wall Street Journal (paywall), Khamenei may have finally budged on his main red line—the number of nuclear centrifuges. All along, the primary tension in the talks has centered on Iran’s centrifuge inventory. The West insists that it sharply reduce the current 19,000; Khamenei has vowed to do no such thing, and in fact wants to quintuple the number. Reports suggest that the two sides may compromise on 4,000.
Looping back to the merciless plunge in the price of oil—the longer that petroleum stays below $100 a barrel, and especially below $90, the weaker Iran’s position becomes and, conversely, the West’s strengthens. Therefore, Tehran’s leverage is unlikely to improve in the days prior to the Nov. 24 deadline.
That knowledge ought to be central in the West’s endgame—to win a hard bargain, it ought to suggest that it may not be satisfied with the number of centrifuges and, in any case, is prepared to extend the talks to iron out the final few wrinkles. If the waiting goes to, say, 70 days, and oil is about where it is now, Iran’s losses against its baseline budget will amount to some $1 billion, a nicely persuasive sum.
For Iran, the best course is to drive for a deal now.