EUobserver opinion: Will Iran's sanctions end divided Washington Vs apprehensive EU?

Peter Wittig, German Ambassador to the US, recently said that alternatives to a deal to curb Iran’s nuclear programme are “not very attractive.”

He added that Germany and other nations are ready to move beyond sanctions, despite what the US Congress might do.

It was a reference the US Senate last week passed a controversial bill that will ensure a role for Congress in any nuclear talks between President Obama, Iran and half a dozen world powers.

Despite the White House’s opposition, the bill gives Congress the ability to review and to reject a final deal with Iran. In the latter case, President Obama could still resort to executive action to offer sanctions relief, in cooperation with EU and UN - but it would be only a temporary measure.

Indeed, Washington’s deep differences over the Iran policy have the potential to undermine progress in the nuclear talks.

Years ago, Kissinger liked to ask: “Who do I call if I want to call Europe?” Today, Iranians are asking the same question - but about America.

In Europe, the question is, will Brussels copy the US President, or US Congress - or will it act on its own?

Reforms or sanctions

While Ambassador Wittig argues that military strikes are no alternative to a negotiated deal, military intervention has a number of supporters in Congress.

Despite the sanctions, Iran recently exported a record 7 million barrels of oil per day. And despite decades of international insulation, it is the second largest economy in the Middle East and North Africa, right after Saudi Arabia.

In 2014, its GDP amounted to an estimated US$ 406 billion. Like Egypt, the region’s most populous nation, it has almost 81 million inhabitants.

Nevertheless, sanctions have led to severe stagnation. Inflationary pressures peaked on a year-to-year basis at 35 percent in 2013, while the unemployment rate climbed to 12-13 percent and every fifth Iranian fell below the poverty line.

Last year, Iran’s economy rebounded out of recession with growth estimated at 3.0 percent. The turnaround came on the back of a temporary and partial easing of sanctions imposed on Iran’s oil exports.

Petrochemical products account for more than an estimated 80 percent of Iran’s exports. Iran has the world's fourth-largest proved crude oil reserves and the world's second-largest natural gas reserves.

Iran’s economic potential is fuelled by large buyers of its crude and condensate in China, India, Japan, South Korea, and Turkey. As Europe remains highly reliant on Russian energy supplies, Iran holds potential as a potential alternative supplier.

What makes Tehran’s role even more attractive is the fact that Iran has pressed ahead with economic reforms - as even the International Monetary Fund (IMF) acknowledged already a year ago.

In late 2013, former EU foreign relations chief Catherine Ashton i brokered a vital deal with Iran. On 2 April, 2015, Iran and the so-called 5+1 parties - the US, the UK, France, Germany, Russia and China - reached a mutual understanding.

In Lausanne, Federica Mogherini i, Ashton’s successor, chaired the final-stage talks, which were hailed by EU leaders, including German chancellor Angela Merkel i and French president Francois Hollande i, and greeted by street parties in Tehran.

The critical point in the Lausanne statement involves the lifting of the sanctions imposed on Iran as soon as agreement is reached, presumably by 30 June. But will that happen?

Stability - not further destabilisation

In a slow progress scenario, the talks would result in a final deal, a gradual phase-out of sanctions but heavy compliance requirements, which would mean incremental improvement in 2015-16.

If there is no deal, Iran’s oil production would remain weak, which would work against Iran’s energy clients in the emerging world, particularly in Asia.

While a no-deal scenario would cast a dark shadow over global growth prospects, it would benefit those that stand to gain from Brent oil’s rebound to US$65 by the end of 2015 and significantly higher a year later.

There is a third scenario, but it is currently the least likely to materialise.

In a rapid-progress scenario, sanctions would be phased out swiftly, which would push investment into the oil sector. It would benefit consumer welfare worldwide (Brent oil prices could fall below US$50 per barrel), particularly in emerging Asia (which unlike advanced economies is amid an energy-intensive development phase). But this scenario would force new adjustments in non-OPEC producers (particularly the US), which many of them oppose.

Yet, the simple fact remains that both advanced Europe and emerging Asia would benefit from a rapid progress scenario.

What’s needed in Lausanne is great restraint to reach the right outcome and to ensure it prevails - even after the next US elections.

Dr. Dan Steinbock is the research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China). For more, see http://www.differencegroup.net