Supporters of the Iranian President Hasan Rowhani, a former nuclear negotiator, before he was elected, at a campaign rally in Mashad, Iran  

An “historic mistake” that had made the world a “much more dangerous place” is how Israeli Prime Minister Benjamin Netanyahu described the recent agreement between Western leaders and Iran. The deal set out in Geneva and negotiated in November between Iran and the so-called P5+1 group of nations – the US, UK, France, Germany, Russia and China – took many sleepless nights to finalise.

The hope, however, is that it will lead to far greater engagement between the West and what has been a thorn in the side of the pursuit for peace in the Middle East. With this renewed, if tentative, step towards cooperation with the rest of the world, Iran is at an intriguing crossroads.

On one path is further engagement with the international community, potentially leading to an inflow of foreign capital and a boost to its industries. On the other is a continuation of the double-dealing, mischievous approach that has caused the country to be shunned – and sanctioned – for so long.

The country’s rumoured intention to secure a nuclear weapon has caused strife across the Middle East for more than a decade now. While it has always maintained it is purely pursuing a peaceful nuclear energy programme, concerns from the international community meant burdensome sanctions have decimated its economy.

Getting to a point where Iran sat round a table with world leaders – and most importantly the US – has been a long and torturous affair. Since the revolution in 1979, the country has presented the US as the ‘Great Satan’, stirring up anti-Western sentiment for more than 30 years. Its relations with its regional neighbours have been fraught with conflict and distrust, and Iran is seen as a troublesome presence by Israel, Saudi Arabia and Iraq.

A wolf in sheep’s clothes?
The election of 64-year-old Hassan Fereydoon Rouhani in June 2013 was heralded by many as a move towards moderation for the country, an encouraging sign after the pantomime-villain that was President Ahmadinejad. With a campaign slogan of “moderation and wisdom”, he has been praised for his stance on civil rights, the economy and his willingness to seek a diplomatic solution to the issue around Iran’s nuclear capabilities.

However, some are sceptical of his moderate credentials, pointing out that he was approved by the conservative Guardian Council that has the ultimate control in the country. They point out that the Twitter-using Rouhani may just be the acceptable face of a still extremely conservative, religious regime.

Author Cyrus Massoudi, whose Land of the Turquoise Mountains covers his account of a modern Iran, said that while it was important to be wary of previous examples of candidates not matching their moderate rhetoric, the new strategy of engaging with the West was encouraging.

“Every candidate that runs for presidency has been approved by the regime and in the majority of cases will have been a part of it at some stage. Rouhani is no exception. As has been seen in the past, genuine progressive intentions do not necessarily translate into lasting reform, but this new rapprochement with the West may herald a need to revise certain attitudes.”

Economic reforms
With an economy that is 50 percent planned by the government, Iran’s government needed to make some form of concession to the West in order to loosen the sanctions. Dominated by oil and gas production, the country’s exports have been hampered by an out of control currency and restrictions on the export market.

Both the food and energy markets are heavily subsidised by the regime, which has placed a considerable burden on the economy. While recent years have seen attempts to reduce the subsidies, more reforms are needed if the country is to attract private-sector growth and foreign investment.

The overreliance on oil and gas – Iran has the second largest natural gas reserves in the world, and the third largest oil reserves – has meant that restrictions on energy exports have seriously damaged the economy (see Fig. 1). The deal with the West should, in theory, lead to the economy getting a much-needed shot in the arm.

However, according to Massoudi, wider reforms are still needed. “The longer-term implications are dependent on whether the terms of the deal are upheld by the Iranian regime. That there has been successful dialogue for the first time in over 30 years is in itself a positive step – everywhere outside of Israel and Saudi Arabia at least – but only the start of what will no doubt be a long and tortuous process.

“In the short term, the freeing up of vital oil revenues will give the economy the shot in the arm it desperately needs but President Rouhani’s stated goals of stabilising the currency and curbing inflation are still a long way away and will be reliant on a more permanent loosening of the sanctions.”

News of the deal caused Iran’s currency – the rial – to immediately jump more than three percent against the dollar, as hopes were raised that the economy would recover from the sanctions. Iran’s currency has fluctuated wildly in recent years as a consequence of the currency rates.

The government’s attempts to bring it under control, as well as reducing the key problem of an inflation rate of about 40 percent, has been erratic over the last couple of years. Former President Mahmoud Ahmadinejad was heavily criticised for his policies, and so it is hoped that the more moderate Rouhani will be able to get things under control.

As part of the deal, $4.2bn worth of oil revenues will be unfrozen, as well as $1.5bn worth of revenues from trade in gold and precious metals. Although negligible compared to the $30bn worth of revenues from oil that the country will miss out on over the next six months due to sanctions, it will certainly help things.

Despite the deal, US President Obama has maintained oil sanctions on Iran

Massoudi also believes that President Rouhani will try to put a block on cheap foreign imports in order to help the country’s agricultural and industrial sectors. “President Rouhani has identified the need to curb the reliance on cheaper foreign imports in an effort to revitalise the largely ailing industrial and agricultural sectors as a means to future economic stability, but more immediately oil and gas revenues should see the sharpest increase.”

Despite the deal, US President Obama has maintained oil sanctions on Iran. He said in a statement, “There is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions. I will closely monitor this situation to ensure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran.”

US Secretary of State John Kerry, who helped to broker the deal, added, “The Joint Action Plan agreed in Geneva does not offer relief from sanctions with respect to any increases in Iranian crude oil purchases by existing customers or any purchases by new customers.”

However, Iranian oil minister Bijan Zangeneh told reporters in December that the country planned to increase oil output, regardless of whether crude prices fell. “Under any circumstances we will reach five million barells per day even if the price of oil falls to $20 per barrel. We will not give up our rights on this issue.”

Israeli scepticism
The issue of Iran obtaining a nuclear weapon is still of great concern to Israel, however. The country has led the calls for sanctions to continue, having been the main cheerleader for the policy that has restricted Iran for the last decade. While the deal will see Iran’s uranium enrichment programme be restricted to the five percent civilian level, as well as daily inspections from UN observers, it is not enough for Netanyahu.

The morning after the deal was announced, he condemned what he perceived to be an overly generous concession that Western leaders had made to Iran. “What was achieved last night in Geneva is not an historic agreement, but an historic mistake. Today the world has become a much more dangerous place because the most dangerous regime in the world has taken a significant step toward attaining the most dangerous weapon in the world.”

Speaking in a subsequent trip to Rome, Netanyahu said, “There is a rush to accommodate Iran as if it has changed anything in its policies. The Iranian regime, though it smiles, continues to butcher people in Syria and sponsor terrorism.”

In an attempt to justify the sanctions over the last decade, Netanyahu said, “Great work has been done over the past decade in putting powerful, binding sanctions on Iran. These sanctions have been eased, but for what in return? We need substance, we cannot be satisfied with political theatre.”

He was also dismissive of Rouhani and the supposed moderate tone the country was now taking. “I would like to dispel any illusions. Iran aspires to attain an atomic bomb. It would thus threaten not only Israel but also Italy, Europe and the entire world. There should be no illusions about this charm offensive.

“Today there is a regime in Iran that supports terrorism, facilitates the massacre of civilians in Syria and unceasingly arms its proxies – Hamas, Hezbollah and Islamic Jihad – with deadly missiles. If tangible steps are not taken soon, it is liable to collapse and the efforts of years will vanish without anything in exchange,” he said. “But at the same time, I tell you and promise in the spirit of the Maccabees, we will not allow Iran to receive a military nuclear capability.”

A country that has such a rich and varied cultural history, as well as the foundations to be an economic powerhouse, has been in the international wilderness for far too long

Equally concerned about Iran’s new acceptance by the West was Saudi Arabia. The country worries that its regional dominance in the energy market would be under threat from a newly unshackled Iran. However, Iran’s Foreign Minister, Javad Zarif, has been keen to stress his country’s determination to engage with the Saudis. On a recent tour of the Gulf, Zarif said the deal with the West should not be “at the expense of any country in the region.”

“We look at Saudi Arabia as an important and influential regional country and we are working to strengthen cooperation with it for the benefit of the region,” he added.

Improving relations with its neighbouring countries is essential if Iran wants to be welcomed back into the international community. For years it has sought to antagonise the likes of Israel and Saudi Arabia, while stirring up trouble in Iraq and Syria, with no bigger proponent of this tactic than former President Ahmadinejad.

Massoudi believes that until it addresses these issues, sanctions will not be removed. “Iran will need to revise its foreign policy towards these countries if it is serious about building long-term bridges and working towards a more permanent alleviation of the sanctions.”

A new era of calm
A country that has such a rich and varied cultural history, as well as the foundations to be an economic powerhouse, has been in the international wilderness for far too long. While it has been an antagonistic presence in the region for many years, increasing cooperation with the international community is the only way that calm will be brought to the region.

As sanctions have tightened their grip on the country’s economy, the regime has been faced with a choice of continuing with decade-old policies or engaging with the world and moving forward. More sanctions would push the country to the brink of doing something drastic, and it should be welcomed that it has now sought to engage with the rest of the world in order to improve the lot of its people.

Israeli concerns may well be justified, but more of the same strategy would not have helped matters, and in fact may have led to the US considering military action. All should welcome the fact that the world appears to be a step further away from that prospect. The tentative agreement reached in November should herald a new dawn of cooperation for Iran, but more steps are needed before it is fully accepted back in the international fold.

In six months time, both sides want to begin discussions over a wider-ranging deal, and so this first step must be grasped by the regime to show it is serious about international engagement again. “There is a genuine desire to carry on down this path from the more pragmatic sectors of the regime but only time will tell,” says Massoudi.