The long-drawn standoff between Iran and the West is finally showing some signs of softening. The Istanbul talks that were recently held in Turkey were largely hailed as a "step in the right direction". Curiously enough, inside Iran and in the lead-up to the Istanbul talks, there were growing signs of the leaders of the Islamic Republic , the supreme leader Ayatollah Khamenei as the ultimate arbitrator and decider – preparing to pull off some surprising moves.

The talks between Iran and the 'P5+1' was successful in building a strong foundation and a significant degree of "confidence building" between the two sides which, under the heavy atmosphere of mistrust and media campaigns, had deteriorated to new lows.

Now the ground is set for talks in Baghdad in May 23 when the two sides will be well-poised to "start a serious process". Iran is displaying increasing seriousness in pursuing talks and taking the wind out of the sails of a runaway vessel that has caused it dearly in recent years.

The sanctions on Iranian Central Bank have had the effect of throwing the Iranian economy in an unprecedented turmoil. This has been evident in the plunge of the exchange rate of Iranian currency, the Rial against major foreign currencies. Rial has lost almost 40% of its value in a matter a few months partly causing an inflationary depression that has hit the country's manufacturing sector hard. Thousands of factories and manufacturing units in Iran have since been forced into closure thus aggravating already high unemployment levels. This has happened in the midst of a long recession.

The Baghdad round of talks scheduled for May 23 is going to be groundbreaking. In the lead-up to the talks, we are going to see heightened efforts by the Iranian leadership to prepare the Iranian public opinion for the possibility of a deal with the west. This was evident before the Istanbul talks and even after. One good indication is the weekly Friday prayers in Tehran University campus where Ayatollah Jannati has been telling of the merits of better relations with the West and whipping up the pride of Iranian people regarding a "strong and revolutionary Iran" that is slowly making the mighty West "kneel before the determination of the Iranian people".
The U.S. too for the first time has spelled out a detailed approach to the issue of talks over the Iranian nuclear program. The U.S. negotiator who was also present in the talks in Istanbul has made it clear that, in Baghdad, talks the U.S. and its European allies with focus on those aspects of Iran's nuclear program that are of most concern to the U.S. in terms of enabling Iran to develop nuclear capacity.

The top American negotiator also made it clear that two demands must be met by Iran if the process of negotiations is going to avoid a dead-end. One is that Iran should give up the 20% enrichment and the second is that Iran should stop work on Arak research nuclear reactor. Although the American authority did not clarify what the U.S. would do in reciprocity, it is plausible that the reciprocal approach would be that the U.S. would not go ahead with further sanctions. This is the proverbial stick and carrot policy at its best.

Meanwhile, reports are suggesting that the European Union might not go ahead with its oil embargo after all. The EU has had a tough time weighing the pros and cons of going ahead with the oil embargo. Only the scheduled plan of the embargo set to begin only months later has been enough to force up the price of oil in international markets by 15%. The International Monetary Fund has been warning that if the embargo is enforced, prices would rise by 30% from its mid-2011 levels.

This means the world would face a similar situation in 2008 when a combination of factors drove up the price of oil to 140$ which would bring economic ruin to many poor countries in Asia and Africa. It is becoming increasingly likely that the EU might indeed review the decision to enforce the embargo. Greece is providing the right platform for such backtracking since it is facing difficulty finding alternative suppliers.  

The Western policy makers are well aware of Iran's real intentions as far as its nuclear program is concerned. It has been obvious for long that Tehran indeed does not harbor any intention of taking the extreme step of enriching high grade Uranium and actually assembling a nuclear device. In the heat of sustained psychological and media warfare against Iran and in order to rally international support behind the cause of American mission of stopping Iran, the West has been too keen on promoting this myth.

More sensible heads in the West, including Israel, admit to this fact. The latest has come from Israel's Joint Chief of Staff Lt. Gen. Benny Gantz expressing doubt that Iran would want to actually build a nuclear device. In an interview with Haaretz, he said he believes Iranian leadership has not taken the decision to produce a nuclear weapon and it is unlikely that it will take a decision to that effect. This comes after similar announcements by American defense secretary Leon Panetta not to mention numerous other official and private figures who have voiced similar opinion.

Iran's top leadership, most significantly the supreme leader, are careful not to repeat the mistake that Iranian leadership committed in the wake of the liberation of Khurramshahr during the Iran-Iraq war in 1980s. After the liberation of that important city by Iranian forces, Iraq and Saddam had agreed to a plan of cessation of hostilities brokered by regional countries that, among other things, made Iraq pay war reparations to Iran. The Supreme Leader at the time, Imam Khomeini, had other ideas and the result was the war dragging on for many more years with devastating costs to both sides. It is evident that Iran has found itself in a similar situation.