On 15 November 2004, Iran and the EU-3 (France, Germany and the UK) signed a new agreement on the nuclear standoff, with Iran accepting more comprehensive suspension of uranium enrichment, and the Europeans dangling more detailed economic rewards. This will keep the matter from the Security Council for now and, like its predecessor agreement in 2003, is a positive step that could temporarily interrupt nuclear efforts. But at best it is only a prelude to more critical negotiations over long-term arrangements that must include the U.S.

One year ago, Crisis Group (ICG) called the deal between Iran and the Europeans a crisis deferred, because it did not address the underlying issues.^[fn]ICG Middle East Report N°18, Dealing with Iran's Nuclear Program, 27 October 2003.Hide Footnote  What little has changed since then is mainly for the worse: added mistrust, fewer options available and, critically, less time as the nuclear clock ticks. That deal collapsed, Iran's conservatives strengthened their hold, and the country has pursued its nuclear program. It is imperative that the U.S. become engaged in seeking a comprehensive resolution that also meets legitimate Iranian security interests.

Washington stayed on the sidelines, acquiescing in the deal but not believing in it, refusing to table incentives while warning Iran was moving closer to a bomb. It has two assumptions. First, the current regime is determined to develop a nuclear weapon, so the international community ought not to be fooled into a policy of engagement. Secondly, this problem can only be addressed by a new regime in Iran that either abandons the nuclear program or at least renders it far less threatening -- to offer the current regime diplomatic or economic incentives would only strengthen it and delay the necessary change.

There is some reason -- based on track records -- for such scepticism. Tehran plays the EU and International Atomic Energy Agency (IAEA) skilfully while acting as if it has something to hide. De facto violation of its commitment to suspend enrichment activity, production of significant amounts of uranium hexafluoride, and continued work on a heavy water reactor -- among other suspicious activities -- hardly inspires confidence. Leadership in Tehran that pursued different policies on issues such as support for violent groups or opposition to Arab-Israeli peace certainly would alleviate concerns and, given high popular dissatisfaction, eventual political change cannot entirely be ruled out. Finally, EU and other international players such as Russia or China often appear to give political and economic interests precedence over non-proliferation concerns. Still, the U.S. posture is self-defeating, for the following reasons:

• With regard to the nuclear program, if Iran is prepared to trade away military ambitions, only the U.S. can give it the political, economic or security compensation that it wants; and if Iran is not prepared to deal, then only rejection of a good faith U.S. offer will persuade the world. Nor should one assume Tehran's position is static, impervious to influence: dangling normalised relations with Washington could shape views within the regime and heighten costs of a military program for those who would benefit from expanded trade. Under either scenario, the U.S. must add its incentives to Europe's to achieve its objectives.
   
• With regard to regime-change, there is no assurance it will occur anytime soon. Events this year -- rout of the reformists in parliamentary elections; sharp rise in oil prices; U.S. difficulties in Iraq -- have bolstered hard-liners and raised regime confidence to the highest level in a decade. As reformists argue, Washington should exploit fault-lines within the regime, pitting those who favour economic liberalisation and trade against those who benefit from a closed economy. Instead, it is generating nationalistic unity leading to the combination it should most try to avoid -- a regime hostile to U.S. interests and moving toward the bomb. In short, the nuclear clock is ticking at a faster and more reliable rate than the regime-change clock.

Nor has the U.S. offered a realistic alternative to EU-3 policy. Counter-proliferation efforts have mixed prospects at best. Iran's program appears sufficiently advanced as to be immune to sanctions. A pre-emptive U.S. or Israeli strike would carry great risk for uncertain gain.

The U.S. has threatened Iran for four years but offered no tangible incentives to change behaviour. It overestimated the ability of Iran's youth to foment political change, while underestimating the hardliners' capacity for political revival. It vocally pressed for regime change, thus boosting Iran's ambitions for a nuclear deterrent. The second Bush administration will need to confront rapidly the issue it so far has studiously avoided. This is what needs to happen:

• Iran must immediately and unconditionally implement its new agreement with the EU-3, in particular suspending uranium enrichment activities.
   
• Once the IAEA has verified Iranian implementation, negotiations on longer-term arrangements should begin. For these to have any chance, the U.S. will need to back EU incentives with its own. Iran has legitimate economic, political and security concerns. Assuming it would forsake a military program, it will only do so if these will be met. Enhanced integration in the world economy (e.g., through the WTO) would exacerbate latent divisions within the regime, strengthen pragmatic voices, and heighten the opportunity costs of a military program. Ideally, Iran would permanently forego the right to an indigenous fuel cycle, but if it is in compliance with the Nuclear Non-proliferation Treaty (NPT) and Additional Protocol requirements, the West may have to settle for less. Joint Iranian/international management of its nuclear facilities -- not required under the NPT -- should be considered an acceptable compromise.
   
• If Iran rejects a comprehensive good faith offer, a plan of graduated sanctions will be needed. In order to persuade the U.S. to go down the diplomatic path, the EU and others -- China, Russia and Japan -- should commit upfront to such sanctions -- preferably backed by a Security Council resolution -- in the event negotiations fail.

Amman/Brussels, 24 November 2004