Iran’s economic pain deepens as new nuclear talks begin

As Iran prepares for a fresh round of nuclear talks Monday, the country is facing an unprecedented tide of bad economic news, led by sharply falling petroleum exports that are expected to plummet further when new international sanctions kick in two weeks from now, diplomats and financial analysts say.

The economic woes, which already have stripped Iran’s currency of half its value in 10 months, are piling up at a fortuitous time as the Obama administration and its allies pressure Tehran to give up a sizable chunk of its enriched uranium stockpile.

The United States and five other world powers will meet with Iranian officials in Moscow for two days of talks on proposed cuts to Iran’s nuclear program amid rekindled hopes that Tehran’s worsening financial plight may force the country’s leaders to cut a deal that could ease concerns about Iran’s nuclear ambitions and lessen chances for new military conflict in the Middle East.

New reports by government and independent analysts show Iranian oil exports — the country’s economic lifeblood — are down by 40 percent compared with a year ago, as more of Iran’s traditional customers turn to other suppliers to avoid economic sanctions. A report last week by the International Energy Agency said Iran was storing tens of millions of barrels of unsold oil in offshore tankers and would probably soon run out of space, forcing it to drastically cut production.

Meanwhile, the “full implementation of the most severe sanctions to date on Iran’s oil and banking sectors is just weeks away,” the IEA’s monthly Oil Market Report noted, referring to a European embargo of Iranian oil set to begin July 1.

The revenue loss from falling imports amounts to about $4.5 billion a month, a financial wallop that comes on top of other economic pressure from Western sanctions targeting Iranian banks and key industries, said Cliff Kupchan, a former State Department official who is an analyst on Iran for the Eurasia Group, a consulting firm.

The effects have rippled across the Iranian economy, driving consumer prices up by 40 percent. At the same time, the 50 percent drop in the value of the rial, Iran’s currency, has put many imported goods out of reach for average Iranians, and Kupchan said currency traders are bracing for the broader sanctions set to take effect next month.

“After July 1, Iran’s world of hurt becomes a lot worse,” Kupchan said.

Despite the economic squeeze, Iranian and Western officials offered mixed views on the prospects for a deal during the Moscow talks, the third round of nuclear negotiations since April between Iran and the six-nation bloc known as the P5-Plus-l.

After the last round of talks in Baghdad ended without progress, prominent Iranian hard-liners proposed halting the talks.

But last week, conservative leaders of Iran’s parliament hinted that they would be willing to accept a key Western demand: freezing production of a more purified kind of enriched uranium — known as 20 percent enriched — that can be more easily converted to weapons-grade material. While insisting that Iran would never give up its right to civilian nuclear energy, Parliamentary Speaker Ali Larijani suggested that there could be flexibility in limiting the type of nuclear fuel the country produces.

“Concerning the level of uranium enrichment, Iran can define it according to its needs and desires,” he told reporters in Tehran.

But the Moscow talks could bog down quickly if Iran persists in demanding immediate relief from Western economic sanctions in exchange for any downsizing of its nuclear ambitions, U.S. diplomats and Iran experts say. Obama administration officials have said they would oppose a significant easing of sanctions until Iran makes verifiable cuts that sharply restrict its ability to develop nuclear weapons.

“We need to see a step-by-step process, with the core issue being an agreement by Iran on 20 percent enriched uranium,” said a Western diplomat involved in preparations for the Moscow talks. “Our hope is that the sanctions will focus minds in Moscow, because we’re not in the mood to let talks continue just for the sake of talking.”

Joby Warrick joined the Post’s national staff in 1996. He has covered national security, intelligence and the Middle East, and currently writes about the environment.
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