US and Iran Rely on Shadow Diplomacy Where Open Deals Would Fail

The US and Iran are engaged in broad but largely unacknowledged efforts to reach agreements on everything from prisoner exchanges to oil revenue to nuclear capabilities — while avoiding deals that could be swatted down by opponents on either side.

(Bloomberg) — The US and Iran are engaged in broad but largely unacknowledged efforts to reach agreements on everything from prisoner exchanges to oil revenue to nuclear capabilities — while avoiding deals that could be swatted down by opponents on either side.

Recent weeks have seen Iran and the US come to an understanding on a possible prisoner exchange and the transfer of $6 billion in Iranian oil revenue stuck in South Korea, developments the Biden administration insists aren’t linked. At the same time, Iran is now selling more oil to China than it has in a decade, and there’s talk of limiting its uranium enrichment, a key priority for the US.

The shadow diplomacy — conducted through intermediaries including Oman and Qatar — reflects an understanding from both sides that fully reviving the 2015 deal that put limits on Iran’s nuclear program is a political impossibility.

Yet the stakes are too high not to move ahead, administration officials and experts say. For the US, it’s about tamping down the threat of war in the Middle East over Iran’s nuclear gains, while also securing the release of US hostages and keeping oil prices low. For its part, Iran is desperate to revive its moribund economy.

“Both President Biden and the Iranians were not going to be ready to go for a bigger deal at this point,” said Randa Slim, director of the Conflict Resolution and Track II Dialogues Program at the Middle East Institute in Washington. “This is what’s feasible politically in both places, and let’s see if they can build on it.”

The next measure of Iran’s sincerity is expected by the beginning of September, when International Atomic Energy Agency monitors inform diplomats about changes to the Islamic Republic’s nuclear stockpile. Western observers want to see whether Iran has moderated its accumulation of highly enriched uranium.

That inspections report will be followed by a key agency meeting in Vienna, which will draw senior officials from Iran and the US. Informal contacts may continue on the sidelines of the agency’s annual meeting Sept. 25, according to a European envoy who’s helped broker previous communication between Tehran and Washington.

All the while, US officials have steadfastly refused to detail the scope of their conversations with Iran, whether direct or not.

“Nothing about our overall approach to Iran has changed,” Secretary of State Antony Blinken told reporters Tuesday. “We continue to pursue a strategy of deterrence, of pressure, and diplomacy.”

The signals are clear, whether or not US officials are willing to acknowledge them publicly: Last week, Iran announced it was transferring four US citizens from prison to house arrest. They’ll be released around the same time the US releases some Iranians and allows South Korea to transfer $6 billion in frozen assets back to Iran to be used for medicine and humanitarian goods.

That’s coincided with a boost in Iranian oil sales, with data intelligence firm Kpler saying Chinese imports of sanctioned Iranian oil are now running at the highest level in at least a decade. US officials argue their sanctions stance hasn’t changed but clamping down on the sales isn’t a priority given US efforts to keep oil prices low amid Russia’s invasion of Ukraine and Saudi Arabian efforts to restrict supply.

“As this is not a formal diplomatic agreement, we do not anticipate any announcement of sanctions relief to be forthcoming,” said Helima Croft, head of global commodity strategy at RBC Capital Markets LLC. “What we anticipate is the acceleration of the trend of de minimis sanctions enforcement to enable Iranian barrels to reach the Asian market.” 

A Fragile Breakthrough in US-Iran Diplomacy: Balance of Power

Critics have accused the Biden administration of trying to circumvent congressional oversight in its pursuit of a deal on the detainees and potentially even a limited nuclear agreement. There are also attendant risks. The US has repeatedly cited how Iran is supplying Russia with drones and other weapons for its invasion of Ukraine. Iran has also launched a broad crackdown on women’s rights, clamping down on protests.

For Iran, entering into a new deal would fan criticism that it was making the same mistakes it made by trusting the US in negotiations toward the 2015 Joint Comprehensive Plan of Action, which put limits on its nuclear program in exchange for sanctions relief. President Donald Trump quit that deal in 2018.

“For the Biden administration, the goal appears to be managing, not solving the Iran issue,” said Behnam Ben Taleblu, senior fellow at the Foundation for Defense of Democracies, which is a vocal opponent of the recent diplomacy. “Half measures and moves to deescalate the crises seem to be the name of the game.”

The Biden administration has stated repeatedly that the detainee and nuclear issues are separate, though outside observers have long said the release of wrongfully detained Americans could open the door to an interim or limited agreement on Iran’s nuclear program. But administration officials have also made clear that they consider the nuclear issue an existential threat.

“Part of deterring people is if they do bad stuff, bad things will happen. But if they do the stuff you want, they have to be guaranteed the good things will happen,” said Jon Alterman, director of the Middle East program at the Center for Strategic and International Studies. “If all they can get is pounded, pounded, pounded, then there’s no reason for them to comply.”

–With assistance from Jonathan Tirone and Grant Smith.

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