Nuclear Talks: Iran's Reykjavík moment

Presidents Reagan and Gorbachev famously met in the mid-1980s to put a stop once and for all to the arms race between the US and the USSR. At the last minute, talks at the Reykjavik summit failed, creating widespread disappointment and frustration. But this diplomatic episode, in the long-term, was instrumental in paving the way for the first Arms Control Agreement just a year later. Bearing many similarities to the recent nuclear talks in Vienna, Ali Vaez, the Senior Iran Analyst at Crisis Group, has called the incident “Iran’s Reykjavík moment.”

Several days ago, I suggested there could be three possible outcomes to the nuclear negotiations: a deal, an extension of talks or a failure altogether. Yesterday, news emerged that the deadline for an agreement would be extended. Diplomats and negotiators are now aiming to reach a political agreement by March 1, with an ultimate deadline for finalising technicalities of July 1. Diplomats revealed very little on the specifics of the negotiations except that Iran would be allowed to withdraw $700 million worth of blocked oil revenues every month. It is also believed that the terms of the Joint Plan of Action, agreed in Geneva last year, will remain in place.

In many ways this is a frustrating outcome, as exemplified in reactions across Iran. On November 25, ultra-conservative daily newspaper Vatan Emrouz’s main headline was just one word: “Hich”, which translates as “Nothing.” [see image above.] It also reported that the US Secretary of State John Kerry said, "Given how far we have come over the past year, particularly in the past few days, this is certainly not the time to get up and walk away." Reza Marashi, Research Director for the National Iranian American Council, exclaimed via Twitter, “A lot of unanswered questions as #IranTalksVienna comes to a close, but disappointment is the name of the game.” Technocrat publication Donya ye Eghtesad, a staunch supporter of a deal, ran a front-page editorial on Monday, November 24 demanding, “What was Saud Al-Faisal’s mission?” Al-Faisal, the Saudi Arabia Foreign Minister, arrived in Vienna on Sunday to meet with US Secretary John Kerry on his private aircraft, which was parked on the tarmac.

So what does an extension mean for Iran? To begin with, Iranian markets can still hope for a better future. Economist and journalist Ali Farahbakhsh wrote in the November 25 issue of Donya ye Eghtesad, “Remember strategic negotiations take time, a long time, to produce results,” and reminded his readers that, “the economy is run by domestic policy making.” The short truth is that this was not the best outcome for Iran but it certainly was not the worst either – a complete failure in discussions would have been disastrous.

Currently Iran has more than $100 billion worth of blocked oil revenues but it is predicted that, in the following six months, a quarter of this will be returned to Iranian bank accounts overseas. Many people within Iran expect these billions to serve as some kind of magic potion to the country’s economic woes. If the Iranian government were to gain access to the entire $100 billion, the markets would react instantaneously in the expectation that it would bring positive changes to the economy. However, if this amount did not then materialize, a recession would follow. If these revenues are released, it will lead to disagreements among the political elite and in rent seeking — the process of spending wealth on political lobbying for self-profit. At this point in time, the government has greater access to its deposits but not enough to raise expectations.

“Moving Toward the Light”

The most important part of the Vienna talks was not what was agreed in terms of financial assets but Iran’s improved image on the international stage. Javad Zarif, Iran’s Foreign Minister, was widely praised and succeeded in presenting the country in a positive light, something to which the world and the international media is not accustomed. As diplomats worked towards an agreement, Iranians on social media voiced their continued support for and frustration at developments.

The latest round of talks will also considerably increase the number of tourists in Iran, and the country has every incentive to welcome them. Under current terms, Iran needs the revenues tourism can generate, which is why President Rouhani must remain committed to the sector. This in turn may create additional jobs, albeit just a fraction of what the Iranian job market needs.

Iran’s economic recovery remains a painstakingly slow process. The government is not showing any political resolve to promote the private sector, which in many ways is at the mercy of the military and whatever economic reforms are introduced. If Rouhani was counting on the $100 billion to save the economy, he now needs to change that approach.

At the end of business at Tehran's currency exchange market on November 25, there were no significant shifts in exchange rates between the Iranian rial and US dollar or the euro. Frustration in agreeing an extension means the real estate and gold markets will remain idle across Iran and the risk is that this becomes the norm. However, at the same time, some entrepreneurs may be encouraged by the positive tones many diplomats adopted during the most recent talks. President Rouhani appeared on national TV to reassure Iranians that negotiations will bear fruit, saying, “We are in the grey and we are moving toward the light. A bright day will be here.”

In the meantime, Iranians are adjusting their expectations. During last year’s talks in Geneva, when the Joint Plan of Action was agreed, many Iranians expected Iran’s aging air fleet to be renovated immediately. Some aviation enthusiasts and business analysts even suggested that Iran should purchase 300 new airplanes. A year on, the only changes to Iran Air, the national airline, is that it purchased navigation manuals for $120,000.00 and received $300,000.00 worth of parts from Boeing. The business community in Iran is learning that there is no quick fix to sanctions.

The reality is that the path ahead will not be an easy one, and change will not happen quickly. To reach an agreement, there has to be persistence, discipline and optimism. The extension to negotiations agreed in Vienna is merely a reminder of that fact.