TOWARD A ""SOFT ESCALATION"" IN THE IRANIAN NUCLEAR CRISIS?

Less than a month before the end of the deadline set by resolution 1737 as unanimously adopted by the UN Security Council on December 23, the situation seems deadlocked. Tehran immediately rejected UN measures, which ban the import and export of materials and technology used in uranium enrichment, reprocessing, and ballistic missiles, as Iran's President Mahmoud Ahmadi-Nejad vowed that Iran would not suspend its nuclear program, but would speed up uranium enrichment. However, Iran carefully calibrated its reaction to avoid burning all the country's bridges to the international community.

* The weak set of UN sanctions is unlikely to alter Tehran's nuclear policy. Although imposing sanctions on Iran, resolution 1737 is the lowest common denominator among the five permanent members, as it had to take into account Russia's and China's efforts to minimize the impact on Iran.1
* A parallel change of tack, which is designed to hamper Iran's economic performance, is bearing fruit. Aware of the difficulties of reaching a consensus at the UN Security Council on tougher sanctions, the United States is gathering support to increase financial pressure on Iran, which is starting feeling the bite.
* Oil development will be affected by both political and financial pressure. Upcoming new buyback deals are not expected to significantly revive Iran's upstream sector. CERA projects Iran's production capacity to stay flat.
* Iranian elections add complexity. Ahmadi-Nejad's severe setback at the December 15 elections provides both a long-term hope and a short-term challenge for the international community. Fine-tuning the reaction to the nuclear crisis will be needed. Economic hardship is bound to undermine the Iranian president, but a preemptive strike would coalesce the population around the hardliners.

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