Iran: Is There a Way Out of the Nuclear Impasse? EXECUTIVE SUMMARY AND RECOMMENDATIONS There is no easy way out of the Iranian nuclear dilemma. Iran, emboldened by the situation in Iraq and soaring oil prices, and animated by a combination of insecurity and assertive nationalism, insists on its right to develop full nuclear fuel cycle capability, including the ability to enrich uranium. Most other countries, while acknowledging to varying extents Iran’s right under the Nuclear Non-Proliferation Treaty (NPT) to acquire that capability for peaceful energy purposes, have a concern – reinforced by Iran’s lack of transparency in the past, continuing support for militant Middle East groups and incendiary presidential rhetoric – that once able to highly enrich uranium, it will be both able and tempted to build nuclear weapons. But EU-led diplomacy so far has failed to persuade Iran to forego its fuel cycle ambitions; the UN Security Council seems unlikely to agree on sanctions strong enough to force it to do so; and preventive military force is both a dangerous and unproductive option. Two possible scenarios remain, however, for a negotiated compromise. The first, and unquestionably more attractive for the international community, is a “zero enrichment” option: for Iran to agree to indefinitely relinquish its right to enrich uranium in return for guaranteed supply from an offshore source, along the lines proposed by Russia. Tehran, while not wholly rejecting offshore supply, has made clear its reluctance to embrace such a limitation as a long-term solution: for it to have any chance of acceptance, more incentives from the U.S. need to be on the table than at present. If this option proves unachievable – as seems, regrettably, more likely than not – the only realistic remaining diplomatic option appears to be the “delayed limited enrichment” plan spelt out in this report. The wider international community, and the West in particular, would explicitly accept that Iran can not only produce peaceful nuclear energy but has the “right to enrich” domestically; in return, Iran would agree to a several-year delay in the commencement of its enrichment program, major limitations on its initial size and scope, and a highly intrusive inspections regime. Both sides inevitably will protest that this plan goes too far – the West because it permits Tehran to eventually achieve full nuclear fuel cycle capability, with the risk in turn of breakout from the NPT and weapons acquisition, and Iran because it significantly delays and limits the development of that fuel cycle capability. But with significant carrots (particularly from the U.S.) and sticks (particularly from the EU) on the table – involving the appropriate application of sequenced incentives, backed by the prospect of strong and intelligently targeted sanctions – it is not impossible to envisage such a negotiation succeeding. This proposed compromise should be compared neither to the fragile and unsustainable status quo, nor to some idealised end-state with which all sides might be totally comfortable. The more likely scenarios, if diplomacy fails, are for a rapid descent into an extremely unhealthy North Korea-like situation, with a wholly unsupervised nuclear program leading to the production of nuclear weapons and all the dangerously unpredictable regional consequences that might flow from that; or a perilous move to an Iraq-like preventive military strike, with even more far-reaching and alarming consequences both regionally and world-wide. RECOMMENDATIONS In Relation to the Preferred “Zero Enrichment” Option 1. Iran, the EU and Russia, with U.S. support, to agree on a proposal under which Iran would indefinitely suspend domestic enrichment activity, verified by a highly intrusive inspections regime, in exchange for an internationally guaranteed fuel supply, access to advanced nuclear technology, U.S.-backed security assurances, and a gradual lifting of sanctions by and resumption of normal diplomatic relations with the U.S. 2. The U.S., in the context of Iran’s agreement to this proposal and subject to its compliance, to: (a) commit not to threaten or use force against Iran; (b) refrain from interfering with Iran’s importation of nuclear technologies and materials for civilian purposes, as permitted under the NPT; (c) support, where needed, EU economic incentives, in particular by backing Iran’s WTO accession; and (d) recognising Iran’s regional role, engage in discussions with Tehran on Iraq’s reconstruction and political future. 3. The U.S., if Iran agrees to take parallel steps on issues of concern to Washington (including support for militant groups), to: (a) unfreeze Iran’s assets in the United States; (b) lift sanctions; and (c) resume normal diplomatic relations. In Relation to the Fallback “Delayed Limited Enrichment” Option 4. The EU to inform Iran about its readiness to recognise Iran’s right to acquire full fuel cycle capability under Article IV of the NPT if it suspends all enrichment activities, resumes application of the Additional Protocol and negotiates the phased implementation of enrichment capability on a basis acceptable to the wider international community. 5. Iran and the EU, with the support of the U.S., Russia and China, to agree on a three-phase “delayed limited enrichment” plan with the following elements: (a) Phase 1 (2-3 years): i. the IAEA continues its assessment under the Comprehensive Safeguards Agreement and Additional Protocol until it can conclude that all declared nuclear activity is for peaceful purposes; ii. Iran suspends all enrichment activities on its territory; freezes the manufacture and testing of all centrifuges, which are to be mothballed and placed under IAEA seal; allows continuous and intrusive IAEA inspections; ratifies the Additional Protocol; and also suspends construction of heavy water facilities and plutonium-separation activities; and iii. the EU recognises Iran’s right to enrich uranium, begins cooperation on a range of non-military commercial issues, concludes a trade and cooperation agreement, encourages investment in Iran’s natural gas sector, and allows European suppliers to participate in the construction and/or procurement of Iranian nuclear power plants. (b) Phase 2 (3-4 years): i. the IAEA continues its work under the Safeguards Agreement and Additional Protocol until it concludes that there are no undeclared materials and activities; ii. Iran carries out limited, closely monitored, low-enrichment activites on its soil with at most several hundred first generation centrifuges, enriching at no more than 5 per cent, sufficient for research and development; enriched uranium is either stored outside the country or immediately converted into fuel rods; and all unused centrifuges to be mothballed and sealed by the IAEA; and iii. the EU expands its economic cooperation. (c) Phase 3 (indefinitely thereafter): i. the IAEA inspection regime reverts to that specified by the Safeguards Agreement and the Additional Protocol, and there is overall normalisation of the relationship between the parties; ii. fuel cycle facilities on an industrial scale, in particular for uranium enrichment, are desirably undertaken on the basis of multilateral co-ownership; and iii. Iran foregoes indefinitely spent fuel reprocessing (the chemical separation of plutonium) and the establishment of heavy water infrastructure. 6. The U.S., in the context of Iran’s agreement to this proposal and subject to its compliance, to agree on the implementation, on a phased basis and in a sequence to be negotiated, of the incentives listed in Recommendations 2 and 3 above. 7. Russia to agree, in the context of Iran’s agreement to this proposal, to: (a) ensure expeditious return by Iran of all spent Russian-supplied fuel from Bushehr; (b) during Phase 1, store nuclear materials from the Isfahan conversion plant; and (c) during Phase 2, store low-enriched uranium from the pilot centrifuge facilities or convert it into fuel rods. 8. The EU, Russia and China to agree that, in the event of Iranian rejection of or non-compliance with this proposal, they will support action by the UNSC and establishment of an escalating sanctions regime, including: (a) a ban on the sale or transfer of all nuclear and missile technology, dual-use technology, and conventional weapons; (b) a moratorium on new economic agreements and a ban on new investment in Iran’s oil and gas industry and infrastructure; (c) restrictions on the importation by Iran of refined oil products and of non-oil or gas products; and (d) imposition of land, air and sea interdiction regimes to prevent Iranian import of nuclear or dual use technologies.