Tensions over Iran's nuclear program are building rapidly again, and Iran's diplomatic actions are confusing and hard to read.  --  On Friday, Iran cancelled a high-level meeting with IAEA officials at the same time that it said it "expected inspectors from the International Atomic Energy Agency (IAEA) to begin preparing for Iran's resumption of research into nuclear activities," the Financial Times (UK) reported.[1]  --  China's Xinhuanet reported that a high-level Russian delegation scheduled to travel to Iran Saturday to present a Russian proposal had cancelled at the last minute[2] as Reuters speculated about possible "discord within Iran's complex power structure over whether to deal with or defy the West."[3]  --  Writing for Asia Times Online, Jephraim Gundzik reviewed the history of the imbroglio, in which tensions now seem likely to escalate markedly.[4]  --  "As matters drift in this sea of uncertainty," wrote Gundzig, "and talk inevitably focuses on the possibility of a military strike against Iran -- either by the Israelis or the U.S., or a combination of both -- international oil prices can be expected to rise higher in late January, propelling the price of gold above U.S.$600 per ounce.  And if a military strike against Iran does materialize, it is reasonable to expect oil prices to leap well above $100 per barrel and the price of gold to approach $800 per ounce." ...

1.

World

Middle East & Africa

IRAN CLAIMS IAEA TO RESUME SCRUTINY
By Gareth Smyth in Tehran

Financial Times (UK)
January 7, 2006

http://news.ft.com/cms/s/b5e59c86-7f22-11da-a6a2-0000779e2340.html

TEHRAN -- Iran's security spokesman said yesterday he expected inspectors from the International Atomic Energy Agency (IAEA) to begin preparing for Iran's resumption of research into nuclear activities, suspended for over two years.

"Inspectors will come from Vienna probably on Sunday or Monday to discuss the level and extent of research activities and remove seals from the [relevant] research projects," said Hossein Entezami, spokesman for the Supreme National Security Council.

His claim came a day after an Iranian delegation abandoned a high-level meeting with the IAEA, the UN's nuclear monitor, putting further strain on Tehran's negotiations with international bodies over its nuclear program -- in spite of talks with the European Union scheduled for January 18.

An Iranian official close to the talks said Iran had cancelled the Vienna meeting because "IAEA criticism of Iran's decision [to resume research] defied logic and denied our rights [as a signatory of the Nuclear Non-Proliferation Treaty]."

Melissa Fleming, IAEA spokeswoman, confirmed inspectors were already in Iran "for routine inspection and monitoring" and would be present to monitor any resumption of "R&D activities." She stressed the clarification requested by the IAEA would usually be given to a higher level than inspectors in situ. "We had expected this information to be presented in Vienna on Thursday in answer to clarifications requested by Mr. [Mohamed] ElBaradei [the IAEA's director-general]," Ms. Fleming told the FT.

But she added there were no set rules for dealing with Iran, which has accepted additional "voluntary" procedures beyond those required by the NPT. "With these activities . . . there is no explicit rule book, but we do expect close consultation over requests made by the agency for information and clarification."

In September the IAEA board found Iran to be in "non-compliance" with the NPT over its nuclear programme, opening the way for possible punitive action.

2.

News

RUSSIAN DELEGATION'S VISIT TO TEHRAN POSTPONED

Xinhuanet
January 7, 2006

http://news.xinhuanet.com/english/2006-01/07/content_4020165.htm

TEHRAN -- A visit by a senior Russian delegation to Iran, originally due on Saturday, has been postponed, Iran's semi-official Mehr news agency reported on Friday.

The visit was to persuade Tehran to accept a Russian proposal over a joint uranium enrichment venture.

Mehr did not elaborate on the delay, nor did it reveal whether the two sides set a new date for the visit.

The delegation, which is reportedly composed of Russian Deputy Foreign Minister Sergei Kisliak and a deputy secretary of the Russian Security Council, was previously expected to formally present its proposal over the Iranian nuclear dispute.

Last month, Moscow delivered a written proposal to Iran, which called on the two countries to establish a joint venture in Russia to enrich uranium for Iran.

However, Iran said the proposal is not concrete and just can be viewed as an immature structure rather than a proposal, calling on Moscow to further complement and support it.

Enriched uranium, a key material for nuclear fuel cycle, can also be used to build atomic bombs.

Based on Washington's accusation that Iran is seeking nuclear weapons secretly, the EU insists that Iran's complete command of uranium enrichment could lead to military use of the technology.

Iran, arguing that its right to build nuclear fuel cycle is a legal and undeniable right, said that it will reject any suggestion on enrichment abroad, including the Russian proposal.

On Tuesday, Tehran announced that it had decided to resume research work on nuclear fuel in a few days. The European Union (EU) warned that such a decision will endanger a new round of bilateral nuclear talks due on Jan. 18.

Bilateral talks, which had been stranded since Iran resumed uranium conversion work, a precursor to enrichment, last August, resumed on Dec. 21 as the EU expected that Tehran would accept the Russian proposal.

3.

News

IRAN'S NO-SHOW AT IAEA FUELS TENSION IN ATOMIC ROW
By Mark Heinrich

Reuters
January 6, 2006

Original source: Reuters

VIENNA -- Iran's no-show for a meeting with the U.N. nuclear watchdog to explain its move to resume atomic fuel research has hardened sentiment that diplomacy may have to give way to action to rein in Tehran, diplomats say.

The "EU3" group, Britain, France, and Germany, dealing with Iran's contentious nuclear program will wait to see if the Islamic republic restarts research work next week, as announced, before deciding whether to seek moves toward punitive sanctions.

But an EU3 diplomat said the "prospect of Iran backtracking looks unlikely" and undermined the rationale for talks set to resume on January 18 on a solution to a stalemate over Western suspicions Tehran is secretly trying to build atomic bombs.

Iran, which says its atomic program is to make electricity not bombs, declared on Tuesday it would resume on January 9 nuclear fuel research and development (R&D) shelved over a year ago to defuse Western pressure. It pledged to coordinate the work with the IAEA and subject it to oversight by IAEA safeguards experts.

But Iran did not spell out what new R&D entailed. It could range from small-scale tests on enriching uranium to assembling centrifuges that purify the mineral to a grade suitable for powering nuclear reactors -- or a higher level for weapons.

IAEA director-general Mohamed ElBaradei called on Iran for explanations. Iran arranged to send envoys to ElBaradei at his Vienna headquarters on Thursday to clarify its intentions.

"First the Iranians phoned to say they'd be late, then phoned to say they wouldn't make it at all. We still expect them to explain themselves before they resume any activities," said a diplomat close to the IAEA.

In the absence of Iranian comment, analysts said reasons for the no-show could run from a decision to pursue R&D work, daring the West to impose sanctions, to discord within Iran's complex power structure over whether to deal with or defy the West.

"Their behavior could mean they have decided to ignore world reaction and dispense with explanations, or some dispute in Tehran about their course of action," said Mark Fitzpatrick of the International Institute for Strategic Studies in London.

"Whatever, this week's events bring us closer to the real crunch point, which is referring Iran to the U.N. Security Council (for possible sanctions). Any research at all with centrifuges could be the tipping point for referral."

Options for the EU, backed by Washington, would include canceling the Vienna talks and mustering an emergency meeting of the IAEA's 35-nation board of governors for a vote to refer Iran to the U.N. Security Council for possible sanctions.

Iran is under world scrutiny for having hidden nuclear work for almost 20 years, for delays and evasions in dealings with the IAEA since, and over calls for Israel's destruction.

Britain has called Iran's announcement of fresh research work "provocative". Washington said Iran appeared averse to a diplomatic deal.

At its last gathering in November, the 35-nation IAEA board put off a referral vote to allow time for diplomacy.

(Additional reporting by Madeline Chambers in London and Saul Hudson in Washington)

4.

Middle East

OPTIONS RUNNING OUT AFTER IRANIAN SNUB
By Jephraim P. Gundzik

Asia Times Online
January 7, 2006

http://www.atimes.com/atimes/Middle_East/HA07Ak02.html

Seemingly oblivious to increasing the chances of potentially fateful confrontation, Iran this week abruptly informed the International Atomic Energy Agency (IAEA) that it would resume nuclear-fuel research next week, and as a follow-up, failed to show up for a scheduled meeting with the U.N. watchdog to explain what it intended doing.

Senior Iranian officials snubbed Mohamed ElBaradei by missing a meeting in Vienna after the IAEA chief demanded an explanation of Tehran's nuclear plans. Earlier, Iran told the IAEA that it was resuming research into nuclear fuel after a two-year suspension, but refused to supply details.

As matters drift in this sea of uncertainty, and talk inevitably focuses on the possibility of a military strike against Iran -- either by the Israelis or the US, or a combination of both -- international oil prices can be expected to rise higher in late January, propelling the price of gold above US$600 per ounce.

And if a military strike against Iran does materialize, it is reasonable to expect oil prices to leap well above $100 per barrel and the price of gold to approach $800 per ounce.

Positions appear to be hardening, with the Iranians showing no signs of backing off, and U.S. Secretary of State Condoleezza Rice warning that "patience is running out."

RIGHTS AND WRONGS

According to Article IV of the nuclear Non-Proliferation Treaty (NPT), signatory countries are specifically allowed the right to convert and enrich uranium for use as fuel in civilian nuclear power plants. Iran was one of the original 43 countries that signed the NPT after its negotiated implementation in 1968, and Tehran began to assemble its civilian nuclear power program in the 1970s.

The 1979 revolution and subsequent U.S. economic sanctions slowed but did not extinguish the program. The program was of little international interest until 2003, when Tehran divulged to the IAEA that it had been building centrifuges for enriching uranium for nearly 20 years. This revelation immediately brought accusations from Washington that Iran was secretly trying to develop nuclear weapons.

To reassure the West that its activities were purely civilian in nature, Tehran voluntarily suspended uranium-enrichment activities. This was intended as a confidence-building measure for nuclear negotiations with Britain, France, and Germany (the EU-3), which opened in October 2003. Initially, the EU-3 sought better international control over Iran's nuclear program through the IAEA.

In late 2003, Iran signed an Additional Protocol to the NPT, which allowed snap inspections by the IAEA of Iran's nuclear facilities. The protocol also gave the IAEA wider power to search for nuclear material in Iran and required Tehran to fully document its foreign nuclear procurement activities. Subsequent IAEA snap inspections in Iran unearthed traces of highly enriched uranium on centrifuge components.

Tehran maintained that the centrifuges were contaminated in their country of origin, not in Iran. This claim was eventually corroborated by the IAEA last September. However, the discovery of the contaminated centrifuges renewed speculation in Washington, supported by Iranian exile groups, that Tehran had a secret nuclear-weapons program. This spurred the EU-3 to try to persuade Tehran to abdicate its right to master the nuclear fuel cycle.

Last March, Tehran submitted to the EU-3 a detailed proposal for even stricter IAEA monitoring than provided for under the Additional Protocol. This was intended to give the world objective guarantees that Iran's nuclear program had no military component. The EU-3 countered in August with an offer of commercial incentives, including nuclear power plants, in return for Tehran's repudiation of its right to master the nuclear fuel cycle. Unsurprisingly, Tehran rejected the EU-3's offer and resumed uranium-conversion work at Isfahan.

Incensed that Tehran restarted uranium conversion (converting raw uranium or yellowcake into uranium hexafluoride gas), the EU-3 threatened to haul Iran before the United Nations Security Council. However, when the IAEA vote was finally held in September, resistance from Russia, China and most members of the Non-Aligned Movement thwarted Iran's immediate referral to the Security Council. Instead, the IAEA passed a resolution describing Iran as having breached its NPT obligations and that these breaches constituted noncompliance.

The resolution further called on Iran to end uranium conversion and to provide additional information to the IAEA about its program. The resolution also threatened Tehran with Security Council referral at an unspecified date. An IAEA governors' meeting, held in November, decided to give Iran time to consider a proposal that would allow Iran to convert yellowcake, but that further enrichment would be carried out in Russia.

Tehran has rejected the Russian plan, insisting that it has the right to enrich uranium in Iran under the terms of the NPT. Hence Tehran's announcement this week that it was resuming research on nuclear fuel -- and that it was not even prepared to talk about it, despite the EU-3's and Washington's demand that it abandon uranium conversion and enrichment.

FRIENDS IN NEED

Though the EU-3 has coordinated its diplomatic efforts with Washington, Iran is by no means isolated. Russia is clearly in Iran's corner. Moscow has repeatedly rebuffed Washington's pleas to take a hard line against Tehran. Several Russian officials, including Foreign Minister Sergei Lavrov, have been emphatic that Iran's nuclear program should be handled by the IAEA and not by the Security Council. Moscow has also maintained, in contradiction to the U.S. and EU-3, that Iran is in compliance with its NPT obligations and that Iran has the right to master the nuclear fuel cycle.

In a very strong show of support for Tehran, Moscow agreed to sell Iran an air-defense system known as the Tor-M1. Arguably the most advanced system of its kind, the Tor-M1 uses a mobile launcher to track and destroy multiple targets, which can include incoming missiles, aircraft, and helicopters.

Moscow's deal with Tehran, which was signed early last month, calls for the delivery of 30 Tor-M1 systems in 2006 and is worth more than $1 billion. According to Russian sources, it is the largest weapons deal between Moscow and Tehran in the past five years.

China also clearly supports Iran. Chinese Foreign Minister Li Zhaoxing told EU-3 representatives that placing Iran's nuclear dossier before the Security Council "could encourage Iran to take extreme measures." While Russia has strong commercial ties with Iran in the nuclear and military fields, China has strong ties to Iran's petroleum sector. Given China's growing thirst for oil, it is unlikely that Beijing would abandon Tehran in favor of the U.S. and EU.

Facing almost certain veto by Russia and China, any U.S.-EU attempt to impose sanctions on Iran in the Security Council will fail -- a situation both Washington and the EU-3 are aware of. Though individually the EU-3 have practically renounced a military solution to the growing diplomatic impasse, the U.S. and Israel have not.

Because of its commitment of resources to the occupation of Iraq, a U.S. military strike against Iran has been generally described as not feasible. The partial withdrawal of U.S. troops from Iraq this year could give the Pentagon's military planners greater confidence in the success of a strike against Iran.

Israel could also mount a major military strike against Iran, with or without Washington's support. Last month, stories surfaced in the international press indicating that Israeli Prime Minister Ariel Sharon had already approved a strike against Iran to be mounted this March. Israel's recent acquisition of "bunker-busting" bombs from Washington indicates that an Israeli strike may well be under consideration.

--Jephraim P Gundzik is president of Condor Advisers, Inc. Condor Advisers provides country risk analysis to individuals and institutions globally.