Both sides have floated trial balloons jockeying for position in preparation for high stakes nuclear talks in Istanbul on Saturday.
Behind the rhetoric, Iran and US hint at nuclear compromise
Iran's populist president, Mahmoud Ahmadinejad, warned yesterday anyone seeking to violate his country's nuclear rights "will get a blow to the mouth so bad they will forget the path to their homes".
He maintained Iran's economy could survive without selling a single barrel of oil "for two or even three years".
Despite the rhetoric there are grounds for cautious optimism. Both sides have floated trial balloons jockeying for position.
Iran signalled this week it could be prepared to compromise over its stockpile of 20 per cent enriched uranium, a key issue for the West because that level of purification is a simple step away from producing 90 per cent bomb grade fissile material.
The US, meanwhile, hinted it could accept Iran's enrichment of uranium to less than five per cent for use in a civil nuclear programme in return for verifiable guarantees that no material is diverted to military use.
Recent remarks by Iran's supreme leader, Ayatollah Ali Khamenei, have piqued Washington's interest. The hardline cleric offered rare praise of the US last month, commending President Barack Obama for denouncing "loose talk of war" by Israel and his Republican rivals over the nuclear standoff.
Ayatollah Khamenei also pledged his country will never seek nuclear weapons, describing them as a "grave sin".
Intrigued, Mr Obama reportedly sent him a message via Turkey's prime minister, Recep Tayyip Erdogan, saying that if he could back up that claim, the US would accept an Iranian civil nuclear programme.
"For this to be of value to the Iranians, which Obama clearly hopes it will, it must imply that he can accept enrichment for civil purposes," said Peter Jenkins, a former British ambassador to the International Atomic Energy Agency, the UN's nuclear watchdog. "Keeping a capability to produce nuclear fuel is essential for Iran," he added in an interview.
Iran's leaders have invested much national and personal prestige in their country's popular civil nuclear programme, which Iran insists it has a right to develop under the Nuclear Non-proliferation Treaty.
All sides have a strong incentive for a diplomatic solution. Iran faces unprecedented tough sanctions targeting its vital oil sector while the Obama administration believes a military conflict would be catastrophic.
Iran will expect an easing of those sanctions in return for any significant concessions. It will also require guarantees that the US is not seeking regime change, a fear that drives Iran's alleged pursuit of a nuclear weapons capability.
Many analysts see the contours of a possible deal emerging in the renewed talks between Iran and five permanent members of the UN Security Council - the US, China, Russia, Britain and France - along with Germany. This would entail Iran relinquishing its 20 per cent uranium in return for western acceptance of Tehran's continued enrichment to the lower, 3.5 per cent level required to fuel electricity-generating nuclear reactors.
Even Israel, an undeclared nuclear weapons power that has threatened to attack Iran's atomic facilities, suggested this week it would accept, as a first priority, world powers focusing on persuading Iran to stop higher-level enrichment and relinquishing its 20 per cent stockpile.
Iran insists its nuclear programme is solely peaceful in nature. US intelligence chiefs have said Tehran has not decided to seek a nuclear weapon but is keeping the option open by developing various capabilities to do so.
The head of Iran's Atomic Energy Agency Organisation, Fereydoon Abbasi, said on Sunday his country could halt 20 per cent enrichment. It was easy, he explained, to change the centrifuges to make 3.5 per cent nuclear fuel instead.
But he indicated Iran would not transfer its stockpile of 20 per cent enriched uranium out of the country, a demand the West is expected to make. He also ruled out shutting down a facility producing the 20 per cent enriched uranium that is buried deep inside a mountain at Fordo near the holy city of Qom.
The New York Times reported on Sunday that the site's immediate closure and ultimate dismantling would be an opening demand by the US and its European allies. Iran has invested heavily in Fordo because it is the most hardened against potential enemy air strikes.
Farideh Farhi, an Iran expert at the University of Hawaii, said Tehran would be "truly foolish" to shut down that facility unless Washington ruled out any possibility of an attack on Iran.
Mr Jenkins agreed "insistence on closing down Fordo would be a deal-breaker", but speculated the reported demand by the US might be an "opening bid, designed to sedate" Israel long enough "for talks to turn into negotiations".
Iran will also expect to be treated with respect as an equal in the nuclear negotiations rather than, as Mr Jenkins put it, "be made to feel like criminal suspects given an opportunity to engage in plea-bargaining".
He said the "scope for any process to be derailed by distrust, misunderstanding and political infighting in both Tehran and Washington remains formidable".