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| A Gamble in Iran Talks: Easing of the Sanctions | A Gamble in Iran Talks: Easing of the Sanctions |
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| WASHINGTON — In its delicate negotiations with Iran over freezing its nuclear program, the Obama administration is gambling that the gradual relaxation of punishing sanctions will whet Tehran’s appetite for greater economic relief, inducing the country’s leaders to negotiate a further deal to roll back its nuclear progress. | WASHINGTON — In its delicate negotiations with Iran over freezing its nuclear program, the Obama administration is gambling that the gradual relaxation of punishing sanctions will whet Tehran’s appetite for greater economic relief, inducing the country’s leaders to negotiate a further deal to roll back its nuclear progress. |
| Yet, President Obama’s biggest critics — in Congress, the Arab world and Israel — argue that he has the strategy entirely backward. By changing the psychology around the world, they argue, the roughly $100 billion in remaining sanctions will gradually be whittled away. Wily middlemen, Chinese eager for energy sources and Europeans looking for a way back to the old days, when Iran was a major source of trade, will see their chance to leap the barriers. | Yet, President Obama’s biggest critics — in Congress, the Arab world and Israel — argue that he has the strategy entirely backward. By changing the psychology around the world, they argue, the roughly $100 billion in remaining sanctions will gradually be whittled away. Wily middlemen, Chinese eager for energy sources and Europeans looking for a way back to the old days, when Iran was a major source of trade, will see their chance to leap the barriers. |
| Secretary of State John Kerry arrived in Geneva Saturday for his second visit in two weeks, again heightening expectations that negotiators are close to agreement on a pact to suspend Iran’s nuclear program for six months. But Mr. Kerry cautioned that his poresence and that of the five other foreign ministers might not be enough to guarantee that a deal could be reached. | |
| Nevertheless, with a deal seemingly in reach, the focus is now shifting to the details, and particularly what sanctions would be reversed, in return for the freezing or dilution of Iran’s uranium stockpile. | |
| To some critics, almost any relief is too much. | To some critics, almost any relief is too much. |
| “We know who we’re dealing with, and you know, we’ve watched this same type of activity occur in North Korea where you begin to alleviate sanctions,” said Senator Bob Corker, the top Republican on the Senate Foreign Relations Committee, invoking the example that many cite of a sanctions relaxation, begun in the Bush administration, that backfired. | “We know who we’re dealing with, and you know, we’ve watched this same type of activity occur in North Korea where you begin to alleviate sanctions,” said Senator Bob Corker, the top Republican on the Senate Foreign Relations Committee, invoking the example that many cite of a sanctions relaxation, begun in the Bush administration, that backfired. |
| “The concern is that whatever you do on an interim basis becomes the new norm,” Mr. Corker told reporters as he left the White House the other day, unconvinced by Mr. Obama’s counterarguments. | “The concern is that whatever you do on an interim basis becomes the new norm,” Mr. Corker told reporters as he left the White House the other day, unconvinced by Mr. Obama’s counterarguments. |
| The Senate narrowly avoided this week a vote on new sanctions against Iran that the White House feared would blow up its chances of getting a preliminary agreement in Geneva this weekend, but Senator Harry Reid, one of President Obama’s greatest allies, has made it clear a vote may well come soon after the Thanksgiving break. | The Senate narrowly avoided this week a vote on new sanctions against Iran that the White House feared would blow up its chances of getting a preliminary agreement in Geneva this weekend, but Senator Harry Reid, one of President Obama’s greatest allies, has made it clear a vote may well come soon after the Thanksgiving break. |
| At the heart of the dispute is a fundamental disagreement about how best to negotiate with a savvy, skilled adversary, one whose own decision-making processes have long baffled American intelligence agencies. | At the heart of the dispute is a fundamental disagreement about how best to negotiate with a savvy, skilled adversary, one whose own decision-making processes have long baffled American intelligence agencies. |
| Mr. Obama and his aides have argued that unless they give President Hassan Rouhani and his Western-educated chief negotiator, Mohammad Javad Zarif, something to take home and advertise as a victory from the first round of negotiations, there is little chance they will return to negotiate a second, permanent deal. | Mr. Obama and his aides have argued that unless they give President Hassan Rouhani and his Western-educated chief negotiator, Mohammad Javad Zarif, something to take home and advertise as a victory from the first round of negotiations, there is little chance they will return to negotiate a second, permanent deal. |
| “Zarif says he has at most six months to get a deal before the hard-liners rise again,” one of the Obama administration’s strategists said recently. “And we believe him.” | “Zarif says he has at most six months to get a deal before the hard-liners rise again,” one of the Obama administration’s strategists said recently. “And we believe him.” |
| The belief that Mr. Zarif’s warning was real set off a lengthy debate among the United States and its fellow major powers — Britain, Germany, France, China and Russia — about how to give Iran a taste of relief without giving up too much. They settled on unfreezing a portion of the long-frozen assets that Iran has hungered to tap — roughly $3.6 billion in oil revenue parked in foreign banks. A senior administration official said the money would be doled out in still-to-be-determined increments over the six months of the agreement. | The belief that Mr. Zarif’s warning was real set off a lengthy debate among the United States and its fellow major powers — Britain, Germany, France, China and Russia — about how to give Iran a taste of relief without giving up too much. They settled on unfreezing a portion of the long-frozen assets that Iran has hungered to tap — roughly $3.6 billion in oil revenue parked in foreign banks. A senior administration official said the money would be doled out in still-to-be-determined increments over the six months of the agreement. |
| The other calculation is that if Tehran is allowed to sell some petrochemicals, its second-largest export at roughly $11 billion last year, and to build autos from kits brought into the country, the Iranian economy will begin to create new jobs. The idea is to create a constituency for a bigger deal — one in which rolling back nuclear facilities, dismantling centrifuges and allowing inspectors far greater access to suspect sites would be traded for a far greater lifting of sanctions. | The other calculation is that if Tehran is allowed to sell some petrochemicals, its second-largest export at roughly $11 billion last year, and to build autos from kits brought into the country, the Iranian economy will begin to create new jobs. The idea is to create a constituency for a bigger deal — one in which rolling back nuclear facilities, dismantling centrifuges and allowing inspectors far greater access to suspect sites would be traded for a far greater lifting of sanctions. |
| There are arguments about what all the initial sanctions relief would add up to. The Obama administration has estimated that relief at $7 billion to $10 billion. That is far less than the $30 billion or so Iran will lose over the same period in forgone oil exports, prohibited by sanctions that will remain in place until a broader deal is struck. | There are arguments about what all the initial sanctions relief would add up to. The Obama administration has estimated that relief at $7 billion to $10 billion. That is far less than the $30 billion or so Iran will lose over the same period in forgone oil exports, prohibited by sanctions that will remain in place until a broader deal is struck. |
| Mr. Obama’s bet is that the need to restore Iran’s oil exports — which are down by well more than half from early 2011 — will bring Mr. Rouhani back for more. | Mr. Obama’s bet is that the need to restore Iran’s oil exports — which are down by well more than half from early 2011 — will bring Mr. Rouhani back for more. |
| “We’ll retain huge leverage — the leverage that comes from cutting into their oil sales,” says R. Nicholas Burns, the former under secretary of state for policy who organized the first sanctions against Iran during the Bush administration. “No good negotiator is going to give that up, and Barack Obama and John Kerry are smart negotiators. But it’s in the American national interest to try to make this negotiation work. If it’s not in the Israeli interest or the Saudi interest, so be it.” | “We’ll retain huge leverage — the leverage that comes from cutting into their oil sales,” says R. Nicholas Burns, the former under secretary of state for policy who organized the first sanctions against Iran during the Bush administration. “No good negotiator is going to give that up, and Barack Obama and John Kerry are smart negotiators. But it’s in the American national interest to try to make this negotiation work. If it’s not in the Israeli interest or the Saudi interest, so be it.” |
| The Saudis and the Israelis clearly believe that the negotiation is not in their interest. One Saudi official visiting Washington recently called the effort “a fool’s game” because once the momentum to impose sanctions is reversed, every deal maker and middleman in the Middle East will find ways to evade other elements of the sanctions regime. | The Saudis and the Israelis clearly believe that the negotiation is not in their interest. One Saudi official visiting Washington recently called the effort “a fool’s game” because once the momentum to impose sanctions is reversed, every deal maker and middleman in the Middle East will find ways to evade other elements of the sanctions regime. |
| Israeli officials have annualized the sanctions relief at $20 billion, and some have doubled the figure to $40 billion to cover what they call “indirect effects.” The markets may agree: The rial, the Iranian currency, which has been pounded over the last two years, is already recovering on the black market. | Israeli officials have annualized the sanctions relief at $20 billion, and some have doubled the figure to $40 billion to cover what they call “indirect effects.” The markets may agree: The rial, the Iranian currency, which has been pounded over the last two years, is already recovering on the black market. |
| “We have the Iranians in boiling water right now,” a senior Israeli official said the other day. “Bring it to a simmer, and they will have a nuclear capability they can live with and the sanctions will erode.” | “We have the Iranians in boiling water right now,” a senior Israeli official said the other day. “Bring it to a simmer, and they will have a nuclear capability they can live with and the sanctions will erode.” |
| Much of this argument is based on psychology as much as economics. The fear heard in Congress — echoed in arguments the Israelis have made in an intense lobbying campaign — is that any easing of the business climate around Iran from toxic to tolerable will erode the fear businesses now have of dealing with the country. Once Iran’s economy improves even slightly, its incentive to negotiate will disappear, they argue. | Much of this argument is based on psychology as much as economics. The fear heard in Congress — echoed in arguments the Israelis have made in an intense lobbying campaign — is that any easing of the business climate around Iran from toxic to tolerable will erode the fear businesses now have of dealing with the country. Once Iran’s economy improves even slightly, its incentive to negotiate will disappear, they argue. |
| “There is one very important element that you cannot measure, which is the one of the psychological atmosphere,” said Sima Shine, who works on Iran at Israel’s strategic affairs ministry. “It will open an opportunity, and the business community is eager, eager to jump into Iran. It will be kind of an understanding that we are in the direction of relieving sanctions. Everybody will be looking to both sides to see that the others are not jumping before them.” | |
| The administration dismisses that argument as overblown, an effort to kill a deal that Israel has made clear it detests, because it could enshrine the current status quo — with Iran close to the capability to build a weapon. | The administration dismisses that argument as overblown, an effort to kill a deal that Israel has made clear it detests, because it could enshrine the current status quo — with Iran close to the capability to build a weapon. |
| David S. Cohen, the senior Treasury official responsible for enforcing sanctions, has told Congress that the United States and its allies would be vigilant, cracking down on any violators. | David S. Cohen, the senior Treasury official responsible for enforcing sanctions, has told Congress that the United States and its allies would be vigilant, cracking down on any violators. |
| “I think the sanctions won’t erode as fast as some fear,” said Robert Einhorn, who left the State Department this year after several years as its top diplomat for widening and enforcing the sanctions effort. | “I think the sanctions won’t erode as fast as some fear,” said Robert Einhorn, who left the State Department this year after several years as its top diplomat for widening and enforcing the sanctions effort. |
| “Yes, there are businesses that would like to get back into the Iran market. But the financial sanctions will remain in place against Iranian banks, so getting financing for commercial operations with Iran will not be easy.” | “Yes, there are businesses that would like to get back into the Iran market. But the financial sanctions will remain in place against Iranian banks, so getting financing for commercial operations with Iran will not be easy.” |
| For that reason, access to cold cash is critical to the Iranians at a time when their gross domestic product is shrinking. | For that reason, access to cold cash is critical to the Iranians at a time when their gross domestic product is shrinking. |
| Mark Dubowitz, director of the Foundation for Defense of Democracies in Washington, said that an extensive analysis of the sanctions estimates that Iran has about $80 billion in foreign exchange reserves, but can gain access to only about a quarter of that amount. An additional $10 billion is frozen in European banks. The remaining $50 billion is in China, India, Japan, South Korea and Turkey — Iran’s largest buyers of oil. Under current sanctions, Iran is allowed to spend the money only on humanitarian goods or nonsanctioned products from the country where the money is held. It cannot be returned to Tehran. | Mark Dubowitz, director of the Foundation for Defense of Democracies in Washington, said that an extensive analysis of the sanctions estimates that Iran has about $80 billion in foreign exchange reserves, but can gain access to only about a quarter of that amount. An additional $10 billion is frozen in European banks. The remaining $50 billion is in China, India, Japan, South Korea and Turkey — Iran’s largest buyers of oil. Under current sanctions, Iran is allowed to spend the money only on humanitarian goods or nonsanctioned products from the country where the money is held. It cannot be returned to Tehran. |
David E. Sanger reported from Washington, and Jodi Rudoren from Jerusalem. Rick Gladstone contributed reporting from New York, and Michael R. Gordon from Geneva. | David E. Sanger reported from Washington, and Jodi Rudoren from Jerusalem. Rick Gladstone contributed reporting from New York, and Michael R. Gordon from Geneva. |
| This article has been revised to reflect the following correction: | This article has been revised to reflect the following correction: |
| Correction: November 23, 2013 | Correction: November 23, 2013 |
An earlier version of this article misidentified the agency for which Sima Shine works on Iran. It is Israel’s strategic affairs ministry, not the strategic affairs department of the office of Prime Minister Benjamin Netanyahu. | An earlier version of this article misidentified the agency for which Sima Shine works on Iran. It is Israel’s strategic affairs ministry, not the strategic affairs department of the office of Prime Minister Benjamin Netanyahu. |