Situation
Iran tentatively agreed on 22 May to allow the UN’s nuclear watchdog, the International Atomic Energy Agency (IAEA), to launch inspections of nuclear facilities, while Iran and P5+1 countries began negotiations in Baghdad over Iran’s nuclear program on 23 May, where the West put forward a new proposal for Iran’s consideration.
Dynamics
The current heavy-handed US-led sanctions are taking their toll on Iran. Sources on the ground in Iran tell Oilprice.com that the situation is not as grim as US media is depicting it; however, inflation is soaring, the rial has lost 60% of its value and unemployment is at about 35%. For this reason, Iran has adopted a more conciliatory tone ahead of the Baghdad talks, hoping to see sanctions somewhat eased, or a promise of incremental easing. This would resolve a battle that is currently being undertaken in parliament, where certain forces are pushing for a cut food, fuel and cash subsidies, while other forces had succeeded in resisting such a move, which could engender socio-economic unrest as some 60% of the population is receiving cash handouts from the government. The US Senate is currently considering additional sanctions focusing on foreign banks handling transactions for Iran's national oil and tanker companies.
Prognosis
There is not likely to be any concrete progress or any specific deals struck at the Baghdad summit, but the point will be to buy more time to delay an intensification of conflict. The Obama administration secretly would like the EU to drop its sanctions on Iran oil planned to go into force on 1 July, as this move could lead to higher oil prices and hit hard at the Obama campaign. There will be no immediate ease of sanctions even if Iran makes some initial concessions, but there should be a calming of the situation, however temporary. There is little chance of a military strike against Iran at this point, unless Israel determines that unilateral action to this end would ensure the defeat of Obama at the polls due to a significant rise in oil prices.
By. Charles Kennedy for Oilprice.com
