In January 2007, when the Iranian Supreme Leader Ayatollah Khamenei suggested to the Secretary of the Russian Security Council, Igor Ivanov, that the two countries should explore setting up an OGEC or an organization of gas exporting countries similar to OPEC, Ivanov dismissed it as a "general idea" and not a "proposal for discussion". At that time, Russian Trade and Economic Development Ministry officials had also remarked that there was no economic justification for establishing an international natural gas cartel.1 Therefore, President Putin's announcement along with Qatari Emir, Sheikh Hamad bin Khalifa Al Thani, during his recent visit to Doha, that Russia and Qatar were exploring the creation of a gas cartel along with some other gas producers has been the subject of renewed concern, particularly for European States who have been voicing concerns about the reliability of Russian gas supplies in the aftermath of the Ukrainian and Belarus incidents.

Europe's concerns increased following Russia's strengthening of energy ties with Algeria - its largest rival in Europe. In May 2005, Moscow signed an energy co-operation agreement with Algiers, which granted Russian companies monopoly access to Algerian oil and gas fields and potentially increased the Kremlin's control over energy sales to Europe. The two countries have also entered into an asset swap agreement, with Russia hoping to access Algeria's European markets through the deal. As a result, EU energy commissioner Andris Piebalgs has voiced concern that if Russia and Algeria, which together supply 35 per cent of Europe's gas, co-operated in the production and distribution of gas to the EU, they could create a kind of cartel.2

Thus, if Russia is in a commanding position, why would it propose or support the establishment of a cartel?

First, there are signs of oversupply in Liquid Natural Gas (LNG), and a trading market in the commodity has already emerged in the Atlantic basin with the potential to allow LNG ships to alter course in search of the best price. However, Russia is essentially a natural gas exporter, and has yet to develop its LNG infrastructure. But with other gas producing countries developing their LNG sectors, the gas market could, in time, change from a largely regionalised business to a global one, which would make it difficult for Russian companies like Gazprom from controlling supplies based on their pipeline network monopoly. It is therefore no surprise that while the Russian-Algerian agreement also looked at co-operation in LNG, Russian companies are also trying to look beyond Europe to the US gas (LNG) market, with reports that Gazprom is buying spot cargoes of LNG on the open market to ship to the US.3 Although at the time it was set up, its members had stated that the organisation's objective was not intended to create a "gas OPEC," subsequently, the Trinidad oil minister Erik Williams did point out at the 2005 GECF meeting that the same could not be ruled out in future.4 Together the GECF controls 73 per cent of the world's natural gas reserves and 41 per cent of production, and there is the likelihood of these countries joining hands with rivals and developing a set of commercial terms that could lead to a carving up of markets, with each supplier getting a share.

Nevertheless, the establishment of a successful gas cartel would require an increase in global LNG trade, which is currently about 8 per cent of the global gas business. It would also need substantial co-operation and co-ordination amongst the potential members if it has to succeed. Their gas sectors are very diverse in terms of output capacities, reserves, domestic consumption and their export markets, which gives rise to a potential for conflicting interests. Given OPEC members' record of adhering to rules on quotas, this could be difficult. Moreover, a gas cartel would have to be differently structured from that of an oil cartel, because of the very nature of the gas business. These include a largely regionalised business, as against a global one in the case of oil. The market is also structured on long-term bilateral contracts of between 10 and 25 years. Therefore, only when the gas market moves away from long-term contracts towards a more spot market-based system would there be scope for a cartel to influence prices through a quota system akin to that of OPEC. Market analysts opine that it will be several years before sufficient spot market liquidity is developed to create the conditions needed for such a system.5 Finally, there are several substitutes for gas such as coal, nuclear and renewables, unlike oil, which is the staple fuel for the transport sector, amongst others. Also, some large gas producers, like Canada, Australia and Norway, are not members of GECF and are unlikely to join the organisation. According to them, GECF is likely to continue its role as a debating forum and will seek to promote their interests, particularly with regard to market liberalisation.6

Given these above difficulties, the timing of Putin's proposal is indeed interesting. Russia has chosen to revive the idea of a gas cartel precisely at a time when it is trying to strengthen its political leverage in dealing with European countries. Following the incidents of disruption in Russian energy supplies to Ukraine and Belarus in 2006 and 2007, EU governments have been advocating lessening their dependence on Russian energy resources from the current 25 per cent by diversifying supply sources as well as diversifying their energy mix to include alternative energy resources, including renewable energy resources. The EU has also been pressing Russia to ratify the bloc's Energy Charter, which would allow foreign companies access to Russian pipelines to transport Russian gas to its markets in Europe. But Putin has refused to ratify the Charter on the grounds that some of the protocols were damaging to Russian interests, particularly the Transit Protocol which outlines the rules pertaining to transit across third countries as well as the demand for liberalisation of the Russian energy market.7

The fact that Russia has also made no secret of its opposition to US policies in what it considers as its strategic domain was also clear from his speech at the 43rd Munich security conference on February 10, in which he made it clear that Russia was once again ready to resume its position as a major power and is no longer willing to acquiesce in Washington's policy with respect to NATO expansion and the presence of US troops in Central Asia. And the tools that Moscow is ready and willing to employ are its vast energy resources and position as a critical supplier of oil and gas to Europe.

For some time now, Putin has been reiterating that although Moscow's share of Asia's energy market is only 3 per cent, its aim is to increase this to 30 per cent by 2020. Following the Munich conference, the Russian President visited three Gulf countries -Saudi Arabia, Qatar and Jordan. Although the visit was ostensibly to discuss energy co-operation and weapons sales, it is being seen as a reflection of Russia's growing political clout in a region that has come to be widely seen as a traditional American sphere of interest.

Putin's visit to Saudi Arabia was especially significant in that he was the first Russian leader to visit the Kingdom. In Riyadh, he not only stated that Russia and Saudi Arabia were partners rather than rivals in the energy sector, but also offered Russian help in the nuclear sphere. In Doha, Putin proposed the idea of setting up a gas cartel, although subsequently both Putin and Sheikh Thani were quick to point out that it was "an interesting idea" and that there would be "difficulties" in setting it up. In Amman, where he also held talks with Palestinian President Mahmoud Abbas, Putin and King Abdullah discussed means to push forward the Middle East peace process, besides signing a number of bilateral agreements for the promotion of mutual investments and cementing economic co-operation.

On the one hand, Russia is thus using gas diplomacy to drive home Europe's dependence on Russian energy supplies, reminding these countries that they would have to pay a price for establishing close ties with Washington. On the other hand, it is strengthening relations with its oil and gas competitors. Even if a cartel may not be in its interest at present, it is likely to float the idea periodically as a means of exerting political pressure on the West.

The establishment of a gas cartel would not be in India's interests. India's demand for gas is expected to increase from the current 120 million standard cubic metres per day (mmscmd) to 400 mmscmd by 2012, while LNG is expected to comprise around 30 per cent of the total gas demand by 2010.8 Given that long-term contracts are based on assured supplies at more or less fixed prices, India prefers the same, although it has been buying LNG from the spot market as well. It signed a long-term LNG contract with Qatar in 2003 and there is potential for sourcing more supplies from the emirate. Negotiations are also on with several other countries including Iran, Oman, Algeria, Australia, and Russia.

However, the recent rise in international gas/LNG prices and projects could affect demand. As far as India is concerned, which imports LNG at international prices but sells in the domestic market at subsidised rates, a rise in prices would impact the several LNG terminal projects that have been planned. For instance, Iran's decision to increase prices of both piped gas as well as LNG supplies has stalled both projects. Under these circumstances, the establishment of a gas cartel, which would certainly attempt to dictate - and hike - gas prices, is a matter of concern. Given India's burgeoning oil import bill, a surge in gas prices would not only affect many of its planned industrial and power projects that are dependent on gas supplies but also adversely impact its economy.

• 1. "Russian Official Dismisses Talk of Gas Cartel," Mosnews, January 31, 2007,
  http://mosnews.com/money/2007/01/31/ivanovnocartel.shtml
• 2. International Herald Tribune, January 25, 2007.
• 3. The Times, April 26, 2006,
  http://business.timesonline.co.uk/tol/business/columnists/article709312....

  Many see the establishment of a quasi gas cartel in May 2001, comprising some 15 members (plus Norway as an observer), called the Gas Exporting Countries' Forum (GECF), as a first step in cartel formation.Membership currently consists of Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Nigeria, Oman, Qatar, Russia, Trinidad & Tobago, the United Arab Emirates and Venezuela, with Norway as an observer.

• 4. See http://www.oxfordenergy.org/pdfs/NG13.pdf
• 5. Energy Business Review Online, July 1, 2005,
  http://www.energy-business-review.com/
  article_feature.asp?guid=BE742459-2CC6-42FF-BD70-8CAA2CE74827
• 6. Ibid.
• 7. Joseph Curtin, Energy Policy Newsletter, Institute of European Affairs, ed. Jill Donaghue, November 2006,
  http://www.iiea.com/images/managed/publications_attachments/
  Energy%20Newsletter%20November.doc.pdf
• 8. Rediff News, November 1, 2006,
  http://inhome.rediff.com/money/2006/nov/01spec.htm;
  Platts, July 25, 2005,
  http://www.platts.com/Natural%20Gas/Resources/
  News%20Features/LNGguide/index.xml

Earlier speculations negating the possibility of one-on-one talks between the United States and North Korea after Pyongyang conducted a nuclear test have proven wrong. Irrespective of the merits or the disappointments attached to the process, the negotiations that started between US Assistant Secretary of State Christopher Hill and his North Korean counterpart Kim Kye Gwan in Berlin on January 16-18, 2007 made it possible for them to find common ground at the six-part talks held in Beijing on February 13, 2007. On that day, members of the six-party talks process signed a document titled “Initial Actions for the Implementation of the Joint Statement [of September 19, 2005]. The ultimate goal of these talks had earlier been unanimously agreed upon in the Joint Statement of September 19, 2005, which was “verifiable denuclearization of the Korean Peninsula.” In the September 2005 joint statement, North Korea had “committed to abandoning all nuclear weapons and existing nuclear programs” and returning to the NPT and to IAEA safeguards. Acknowledging North Korea's right to peaceful uses of nuclear energy, Washington had undertaken to respect its sovereignty, exist peacefully together, and take steps to normalize bilateral relations subject to the two countries' respective policies.

The significance of the latest agreement needs to be contextualised in the decade-old international effort to achieve de-nuclearisation of the Korean peninsula. The future, however, portends a tightrope walk, since both the US and North Korea need to match their words with action.

Reinventing the Wheel

The outcome of the fifth and latest round of six-party talks can be termed as a recommencement of the process of moving towards a nuclear-weapon free Korean peninsula started in the early 1990s. North Korea had agreed to a Joint Declaration with South Korea in 1992, pledging not to test, produce, receive, store, deploy or use nuclear weapons. Yet, it continued with its efforts to produce weapon grade plutonium. UN Security Council Resolution 825 of May 11, 1993 had expressed regret in the wake of the IAEA's findings on North Korean non-compliance with the safeguards agreement and its expression of concern over Pyongyang's intent to withdraw from the NPT. However, through diplomatic efforts, the US had forged an Agreed Framework with North Korea on October 21, 1994, in which Pyongyang gave the assurance that it would renounce its nuclear weapons ambition.

Though, by that time, Pyongyang already had enough fissile material for one or two devices, both countries tried to resolve the issue through the Agreed Framework, which entailed significant time-lines for actions. They agreed to replace North Korea’s graphite-moderated reactors with a 2000 ME(e) light-water reactor (LWR) nuclear power plant, the target year for completing which was 2003. The freeze on North Korea’s graphite-moderated reactor and related facilities were to be fully implemented within one month. The US also agreed to organise under its leadership an international consortium – the Korean Peninsula Energy Development Organisation (KEDO) – to finance and supply the Light Water Reactor to North Korea. Washington also undertook to deliver heavy oil within three months at a rate of 500,000 tons annually. And the two sides agreed to initiate expert level consultations for implementing the provisions laid down in the Agreed Framework.

Despite the commitments made in the Agreed Framework, neither side could implement them in subsequent years because of continued political mistrust. The history of nuclear diplomacy between North Korea and the United States shows remarkable uncertainty with respect to their actions. The test of the Nodong missile in August 1998, which flew over Japanese territory, alarmed both Japan and the US. Since then, there have been various interpretations of the proliferation dimensions of North Korea’s secret missile and nuclear capabilities. President Bush called North Korea an axis of evil in January 2002. Citing Pyongyang’s failure to meet “the conditions necessary for continuing” KEDO, the US announced the suspension of the construction of the light-water nuclear reactors in November 2002. In response, North Korea expelled IAEA inspectors from the country in December 2002, which marked the end of the “freeze” on its nuclear activities agreed to under the Agreed Framework. Pyongyang was said to have an estimated stock of roughly 28 to 39 kilograms of plutonium by 2003 when it finally withdrew from the NPT. Even during the course of the so-called agreed “freeze,” North Korea was engaged in an undeclared centrifuge enrichment programme and it reportedly began large-scale construction of about 4,000 centrifuges in 2001. The current status of this programme remains largely unknown to the outside world.

After conducting an underground test on October 9, 2006, North Korea announced its intent to rejoin the long stalled six-party talks. This was a throwback to the situation as it existed in the early 1990s though with one difference – North Korea’s uranium enrichment programme. The agreed document of February 2007, “Initial Actions for the Implementation of the Joint Statement,” can bee seen as a major step in breaking the stalemate at the six-party talks, though its contents seem to be a recast of language and contents of the 1994 Agreed Framework with changed references and circumstances.

Lack of Collective Effort

While the US and North Korea failed miserably in delivering on what they had agreed upon and are together primarily responsibility for past failures, the other important actors – China, Russia, Japan and South Korea – have generally played safe and from a distance. Moreover, there has been a general lack of unanimity among the other principal actors in dealing with North Korea.

While the 1992 Joint Declaration between the two Koreas on the denuclearisation of the Peninsula stated that the two sides “shall conduct inspections of particular subjects chosen by the other side and agreed upon between the two sides, in accordance with the procedures and methods to be determined by the South-North Joint Nuclear Control Commission,” there was hardly any progress on this front. Moreover, South Korea and the US could not resolve the issue of sharing the financial burden for setting up reactors in North Korea as was agreed upon in the Agreed Framework. The South Korean media tended to project its own version of the country’s role in dealing with the North Korean issue, suggesting that “the realistic calculation forbids Seoul from taking even the slightest risks to intimidate North Korea.” Seoul thus continued with two major cross-border projects that benefit North Korea to the tune of almost US $1 billion. And it has also been reluctant to participate in Proliferation Security Initiative (PSI) measures against North Korea, being advocated by the US and Japan.

Japan, for its part, insists on continued sanctions and does not seem to be too enthusiastic about the latest compromise reached with North Korea at the six-party talks. Prime Minister Abe has been quoted as saying before the House of Representatives at a Budget Committee session on February 13, 2007 that “We have won the understanding of (other six-party) countries on our position… [and] (our insistence of first dealing with the abduction issue) has not damaged our national interests at all.” And the Japanese Foreign Minister has displayed reluctance to participate in fuel supply or financial assistance arrangements for North Korea.

Even the Russian negotiator responded cautiously to the latest agreement by saying that the joint statement adopted “is not a solution to the problem of the Korean peninsula. But it is the first real step taken over the years of talks on the problems that can move forward the denuclearization process and have far-reaching positive consequences.

Unclear China

Interestingly, the Western media had reported in 1993 that during a meeting in February that year between Kim Il-Sung and Deng Xiaoping, the Chinese leader assured the former that he would protect North Korean interests by playing a mediatory role at the UN even if Pyongyang were to withdraw from the NPT. China’s intent thus was to obtain room for manoeuvre through the process of dialogue. It is likely that Beijing would continue to follow the same approach even now within the six-party framework.

When North Korea conducted its nuclear test on October 9, 2006, the Chinese foreign ministry issued a statement on the same day urging “DPRK to honor its commitment to denuclearization” and to “stop all moves that may further worsen the situation and return to the Six-Party Talk.” China also called on all parties concerned “to be cool-headed in response” and “persist in seeking a peaceful solution through consultation and dialogue.”

In the run-up to and during the fifth round of six-party talks, China played a crucial role in finding a diplomatic breakthrough. It even reportedly circulated a draft text for negotiations. It is not yet known as to how far the latest agreed document contains provisions proposed by China, though for now Pyongyang seems to have provided some space for Beijing to handle the international ire against North Korea. China obviously prefers a solution through the six-party framework instead of being forced to deal with North Korea in harsher ways as insisted upon by the US and Japan. But the level of progress, in reality, has remained abysmally low. It is interesting to note that during the course of negotiations, Kim Jong-il’s eldest son, Kim Jong-nam, who is also reported to be in-charge of North Korea’s military exports, stayed for three days (February 11 to 13) in China, though the purpose of his visit during the crucial period of international diplomatic parleys is not clear.

Left Outs

Even if the latest agreement calls on the parties to follow the principle of “action for action,” verification mechanisms have been left undefined in the document. Nor have the fallback arrangements been appropriately discussed. In such a circumstance, reciprocity in the fulfilment of commitments could become a major hurdle. US negotiator Christopher Hill has said that North Korea has to make the first move by shutting down and sealing the Yongbyon reactor, close the nuclear complex and allow the return of IAEA inspectors. Hill hopes that matters related to financial sanctions would be resolved in the next 30 days. Judging by North Korea’s past behaviour, it is difficult to expect a speedy response from Pyongyang. Similarly, US normalization of relations with North Korea would require Congressional approval.

The February 13 agreement explicitly refers to the implementation of the September 19, 2005 Joint Statement and the reaffirmation of North Korea’s earlier commitment to abandon “all nuclear weapons and existing nuclear programs and returning, at an early date, to the Treaty on the Non-Proliferation of Nuclear Weapons and to IAEA safeguards.” However, it seems less likely that North Korea would display adequate transparency in its dealings with the IAEA. The latest agreement also remains silent about North Korea’s controversial enrichment programme and related facilities, which have extensively benefited from the Pakistan based AQ Khan proliferation network. These would make it difficult for the IAEA to understand the full extent of North Korea’s existing nuclear weapon related locations.

Against this background, one can assume that history would repeat again in terms of North Korean delays and deferments in fulfilling its international commitments in an effort to evade international pressure.

Fallouts

The lack of a clear roadmap in dealing with North Korea reflects poorly on the enforcement of international treaty arrangements, which has far reaching implications for potential non-compliant states within the NPT. The nuclear row over North Korea’s deviations emerged in 2002 out of the disclosures about covert uranium enrichment related activities in that country. The issue of clandestine networks and their sources have not yet been subjected to appropriate international scrutiny.

Even if the denuclearisation of the Korean peninsula seems to be a case of ‘so near, yet so far,’ the way North Korean defiance is being tackled could have consequences for the Iranian case which is due to come up in the next few days. In this regard, one can speculate upon three likely scenarios. First, by following the North Korean example, Iran could continue with partial transparency for a considerably long period of time. Second, the Bush administration is likely to work more closely with Russia and China in order to replicate the temporary success achieved at the six-party talks. Third, the US may be under greater pressure now to go soft on Iran. In any event, it would be interesting to watch how the strategy of engagement contributes to the tackling of non-proliferation challenges.

The disturbing reports about the presence of jihadi forces in India's northeast have added a new twist to the region's multiple insurgencies. Combined with the recent arrest in Delhi of three alleged Lashkar-e-Toiba (LeT) operatives hailing from Manipur once again indicates how vulnerable the northeast region is to the jihadi menace.

Talk about the presence of jihadi forces in this part of India may appear to be the result of 'imagination' or 'paranoia' to some. But to those following developments in the region it constitutes a significant internal security threat for the country. The lack of unanimity on this issue makes it imperative to undertake a thorough evaluation of the available information and evidence.

The Indian security establishment has over the years gathered some alarming evidence on the activities of externally sponsored jihadi forces intent on fishing in the troubled waters of the northeast in collaboration with some militant outfits active there. This evidence suggests that jihadi organisations such as Pakistan-based Lashkar-e-Toiba (LeT) and Bangladesh-based Harkat-ul-Jehad-al-Islami (HuJI) and Jama'atul Mujahideen (JuM) have made significant inroads into certain parts of the region's most populous and most strategically important state of Assam. There is also some evidence, as the arrest alluded to above indicates, that one or more of these organisations could be making attempts to spread their activities to Manipur as well.

In this connection, the General-Officer-Commanding of the Tezpur-headquartered 4 Corps, Lt. Gen. R. K. Chhabra, disclosed the presence of jihadi elements in the Char areas (riverine islands which constitute about 3,608 sq km or 4.6 per cent of Assam's total land area) along the Brahmaputra. Further, unspecified intelligence sources disclosed that jihadi elements as well as the United Liberation Front of Asom (ULFA) have set up several bases in Assam's Dhubri district along the India-Bangladesh border. Moreover, the Commander of the Army's 107 Mountain Brigade, Brig. Kanwaljit Singh, has given the alert that the LeT, HuJI and JuM have started operating in certain minority-dominated pockets of Lower Assam, particularly where suspected migrants from Bangladesh have a sizeable presence.

Police sources in Assam say that jihadi organisations had surfaced in the state way back in 1994, though they became active only after 2001. Their modus operandi is to attack economic installations in the petroleum sector and soft targets like market places. They are looking at the region not only as a playground but also as a corridor to other parts of the country. According to the Assam Police, as many as 198 jihadis were arrested in the state between 2001 and October 2006, while 56 more have surrendered.

More recently, on December 19, 2006, a team of the Special Cell of Delhi Police arrested three alleged Pakistan-occupied Kashmir (PoK) trained LeT operatives hailing from Manipur, identified as Salman Khurshid Kori, Abdur Rehman and Mohammad Akbar Hussain, from a spot near Delhi's Red Fort area. Two kilograms of RDX, two detonators and a hand grenade were seized from them. They were allegedly planning to carry out bomb blasts at crowded market places in the capital. This is the first time that LeT operatives hailing from any state in the northeast region have been arrested in the capital. The LeT, according to Delhi Police sources, has been trying to tie up with local militant outfits in Manipur like the People's United Liberation Front (PULF). This development has caused considerable alarm among security agencies engaged in counter-insurgency in the region. In addition, Assam and Manipur have, in recent years, seen the emergence of several Islamic militant organisations, which Assam Police claim have come under the umbrella of the Bangladesh-based JuM. Prominent among these are the Muslim United Liberation Tigers of Assam (MULTA) and PULF.

JuM has been reportedly sending jihadis trained in Afghanistan to Assam to strike soft human targets and vital economic installations. These jihadis are also learnt to have been associating with outfits like ULFA and MULTA. Besides, the JuM is learnt to have been recruiting unemployed youths in both Lower and Upper Assam. The Inspector General of the Border Security Force (BSF) for Assam, Meghalaya, Manipur and Nagaland Frontier, Jyoti Prakash Sinha, stated: "We have specific inputs that the youths from Asom have been taken to Bangladesh for training and other jihadi activities only to be sent back to Asom. These youths are not few in numbers and they are being taken by agents working for the ISI and the DGFI of Bangladesh." Besides, some jihadi groups are also suspected to be using madarsas as a cover for their activities. Khagen Sarma of the Assam police stated that "Madarsa committees may not be directly involved but these elements do use religious institutions as cover."

There are valid reasons for not taking these developments lightly. Many of the militant organisations in the northeast, including ULFA and MULTA, find safe haven in Bangladesh and have strategic connections with anti-India groups based there. Over the years, there have been reports of increasing ties between ULFA and these groups to cause greater bloodshed and destruction in Assam. Above all, Assam continues to be the 'living space' for Bangladeshi migrants, who are vulnerable to exploitation by these elements.

This development has added a new twist to the extremely complex security environment that besets the northeast region. In this context, strengthening intelligence co-ordination between the State and Central agencies; and strict vigil along the Indo-Bangladesh border assume increasing importance to meet this emerging internal security threat.

In addition to the earlier run two pilot cascades of 164 centrifuges, Iran has set up two more cascades of 164 centrifuges each despite repeated calls from the UN Security Council to halt enrichment related work. Addressing a mass rally on February 11, 2007 in Tehran to commemorate the 28th anniversary of the Islamic Revolution, an unrelenting Iranian President boasted about continuing advancements in the country's nuclear programme and promised to announce a further surprising achievement by April 9, 2007.

Will Iran continue to act in defiance of the UNSC and IAEA resolutions? In such a scenario, the situation is likely to worsen for both Iran and the rest of the international community. Opportunities for future engagement lie in the limitations of the actors involved in crisis management. A step-by-step approach of engagement can provide scope for breaking the long-drawn stalemate over Iran's nuclear programme.

It is unclear as to how far the strategy of coercion would help in resolving challenges related to Iran's nuclear programme. UN Security council members expect Iran to respond positively and that suspension of continuing enrichment work should be the starting point for any future confidence-building process. On the other hand, Iran remains reluctant to discontinue with its nuclear activities. The IAEA has not been able to determine till date whether these nuclear activities are being in any way diverted for military purposes. At the same time, the UNSC has also been facing a dilemma in implementing the provisions of its resolution. The Security Council is already struggling to find ways out to bring nuclear North Korea back to the negotiating table. In the absence of effective enforcement mechanisms, Iran's continuing non-compliance is increasingly becoming an international challenge.

In an attempt to caution the international community against any precipitate action, the head of Iran's Atomic Energy Organisation stated: "In the past 27 years we had experienced many kinds of sanctions. But they should know that the artery of the world energy passes through the straits of Hormuz in the Persian Gulf." Such remarks are bound to further raise US concerns and military presence in the Gulf. However, it is unlikely that either the US or Iran would escalate military tensions in the region. The US is already caught up in the Iraq imbroglio and the Bush administration is well aware that a hostile Iran has the potential to pose difficulties for US policy in the region.

The Bush administration strongly believes that the Iranians are not only arming militias in West Asia and fuelling the Shia-Sunni divide in Iraq, but is also engaged in systematically covering up nuclear weapons development. But at the same time, there also seems to be hope in Washington that Iran might moderate its behaviour if provided with incentives. Media reports disclosed in March 2005 that, as part of the European offer of incentives to Iran, the US agreed to tone down its opposition to Iran's membership of the World Trade Organisation and to allow some spare parts for its civil aviation sector in exchange for an Iranian commitment to freeze its enrichment plan. But Iran considered any such approach to be useful only for improving bilateral relations and not as a quid pro quo for freezing its nuclear endeavours.

Iran cannot, however, continue to remain inflexible for its own long-term interests. No doubt, it holds powerful foreign policy levers of oil and gas, but leveraging these in future crises will be tricky. Any toughening of Iran's posture is likely to involve economic and political costs. It is estimated that oil revenue contributes about 80 per cent of its export earnings and nearly 40 to 50 per cent of the government's total revenue. Yet, Tehran is trying to send strong signals that the West cannot isolate it with sanctions. Iran's supreme leader Ali Khamenei has recently suggested to the Russians that since their two countries possess a major chunk of the world's natural gas resources, they should work together to form a gas cartel like that of OPEC to withstand Western political pressure. Ahmadinejad had also reportedly discussed a similar idea with President Putin in Shanghai in June 2006 about "fixing both gas prices and flows in the interest of global stability." However, there are questions about the efficacy of such a cartel. As a commentary in the Economist (February 5, 2007) points out, gas supply agreements are for considerably long spans of time and it would be difficult to tamper with production and thus control the price.

Conditions for Iran may actually worsen further if it continues to show reluctance in co-operating with the IAEA in accordance with UNSC resolution 1737. China and Russia have already approved UNSC resolutions that call on Iran to act responsibly. However, they have resisted attempts made by the US and European powers to adopt tougher measures. If it continues to be inflexible, Iran is likely to face even greater difficulties in utilizing its levers of oil and gas in its economic interactions with major international actors like Russia, China, Japan and European countries. It is thus unlikely that Tehran would raise its own politico-economic costs by losing the confidence of its sympathisers.

In the prevailing international environment, it is difficult to predict definitively as to how the situation would unfold. The actors involved in Iran's nuclear case are not, however, in favour of escalating the crisis further. While the possibility of an attack on Iran could be the last resort for the United States, Iran is also unlikely to act too provocatively and thus jeopardise its own political and economic stakes.

Scope for Forward Movement: A Phased Approach

In the prevailing mutually suspicious environment, there seems still some space left for the US and Iran to show diplomatic flexibility. The estimates of US official agencies indicate Iran to be still five to ten years away from making the bomb. There should thus no urgency for the US to address Iran's nuclear programme as an issue of immediate threat to international peace and security.

Even if Tehran accepts the UNSC demand for suspension of enrichment and reprocessing related activities, it is not going to be adversely affected in a substantive manner. Iran still needs to do a lot of work on the technology front to start industrial scale enrichment. Also, the construction and operation of a nuclear power plant in which the products of these facilities are to be used may take some more time. Meanwhile, it leaves scope and time for Iran and its European interlocutors to sort out the differences and possibly reach an amicable diplomatic solution.

With regard to the status of safeguards, the IAEA has not yet lost hope on Iran. Despite the recent row over Iran's disapproval of the entry of some inspectors into the country, the visits of a large number of IAEA inspectors to Iranian locations are still continuing. Surveillance cameras are still in place at the conversion plant of Isfahan. The IAEA has reportedly been also allowed to install some cameras over the last few days at new locations in the Natanz complex. These cameras are placed to watch the gas injection and storehouse parts of the complex. And Iran has also expressed its willingness to resolve outstanding issues through negotiations.

Against this background, one can hope that there still remains significant scope for engaging Iran to break the existing stalemate. The need of the hour is engaging Iran through diplomatic means to make it accept the provisions of the UNSC and IAEA resolutions. Can UNSC sanctions be rolled back if Iran shows flexibility in its posture? This could be a future possibility if a step-by-step approach of diplomatic engagement is followed.

A diplomatic process can be resumed to engage Iran with the public assurance by the US not to politically interfere in Iran's economic engagement with the outside world, including the possibility of discussing Iran's membership in the World Trade Organisation. Europeans can simultaneously renew talks on economic incentives and security guarantees for Iran. Towards this end, an assurance may be given by the Europeans on a possible review of all previous confidence-building offers made by the two sides, including the Russian proposal. Simultaneously, Iran may opt for a token halt, initially by stopping construction of the heavy water rector plant and suspending uranium conversion. Both sides would thus be partially fulfilling each other's demands.

In the next phase, Iran may provide additional inputs on the IAEA's queries, in return for an assurance that its case would be taken back to and handled at the IAEA level. Pending ratification, the possibility of Iran accepting the Additional Protocol of safeguards would be a major confidence-building step forward.

Moving further, in exchange for appropriate security guarantees and economic incentives, Iran may also agree to further suspensions by stopping production of rotors and desisting from adding additional cascade of centrifuges, without changing its future plans for enrichment under IAEA supervision. All these doable arrangements would pave the way for devising a long-term solution.