Iranian leadership faces critical challenge as deal hangs in the balance

Iranian supreme leader Ayatollah Ali Khamenei lashed out angrily at the western powers for trying to "bring Iran to its knees" following the failure to reach a deal over Iran's nuclear programme by Monday's deadline. Khamenei can lash out but cannot pull out.

Khamenei has backed negotiations, risking his religiously rather than democratically derived position as ultimate decision-maker and putting himself at odds with the powerful Revolutionary Guards and Basij militia commanders, hardliners in the regime and parliament and businessmen who have profited from sanctions, which would be lifted in stages once an agreement is finalised.

Adopting the verbal tough line tweeted by Khamenei, President Hassan Rouhani declared in a televised address that the powers negotiating with Iran had "reached the conclusion that pressure and sanctions . . . will not bear fruit".

Arguing that Iran would retain its nuclear programme, he said the talks in Vienna were positive and had made considerable progress. He pointed out that “reaching an agreement” on a framework could take three months and another three or four months would be needed on technical and political issues.

Rouhani must now convince Khamenei that Iran has no option but to carry on with negotiations and to maintain suspension of enrichment and construction of its Arak power plant in exchange for the release of $5 billion in oil revenues from $100 billion frozen in foreign banks.

If he agrees, Khamenei will have to tackle his traditional allies, who oppose the talks. The ayatollah, who deeply distrusts the US, could urge patience since the extension is to be for a short length of time.

He is also aware that failure to achieve a deal could be disastrous for Iran, the clerically dominated regime, the region and the international community. The collapse of negotiations would mean Iran would remain a pariah state, ostracised, isolated and targeted by punitive sanctions imposed by hardliners in the US Congress and European governments.

Alienating citizens

Eager for a deal that would lift sanctions, Iranians could blame their government as well as the US and its allies. Khamenei cannot afford to alienate a populace already critical of regime corruption and mismanagement.

For the time being, Iran’s nuclear programme, sanctions, and negative fall-out due to the failure of negotiations are on hold. As long as talks continue, Iran and the US will remain on more reasonable terms than at any other since since the fall of the US-allied shah 35 years ago. They are on same side in the battle against Islamic State (IS) and can be expected to avoid provocations on other regional issues. This will not continue if there is no deal. The region and world will become less safe. Several scenarios are possible.

Feeling even more under challenge and surrounded by enemies, Iran could adopt a defiant stance. Tehran could reverse its declared policy of renouncing the bomb, send International Atomic Energy Agency (IAEA) inspectors home, and opt for nuclear “break-out” by restarting centrifuges and enriching uranium to the 90 per cent level needed for bombs.

As soon as IAEA teams depart, Israel could make good on threats by mounting attacks on Iranian nuclear facilities, compelling the US to strike Iranian military bases to prevent Iranian retaliation against Israel or US allies in the Gulf. A war on Iran could ignite anti-US sentiments throughout the Muslim world.

Iran could take a more cautious line by permitting IAEA inspections of known sites while building secret nuclear facilities underground and promoting Shia dissidence in vulnerable US-allied countries such as Bahrain, Saudi Arabia, Kuwait, Pakistan, and Afghanistan.

The Iranian-backed Houthi rebellion in Yemen is an example of what Tehran can do. It could also complicate the US-led campaign to crush IS cultists in Iraq and Syria as Iran has close ties with Baghdad and Damascus.

Lifting sanctions

Russia, China and Asian powers could blame Washington’s hard line for the failure of negotiations and lift sanctions on Iran even if it is suspected of resuming underground uranium enrichment.

Iran could also do its utmost to sabotage the sanctions regime by offering advantageous concessions to multinationals already drawing up ambitious plans to invest in the Iranian oil sector and firms seeking to export their wares to Iran.