The battle lines are familiar and clearly drawn in the unresolved policy struggle over Iran within the Bush administration. Vice-President Richard Cheney and his allies in the Pentagon and Congress, prodded by the American-Israel Public Affairs Committee (AIPAC), not only want the United States to bomb the Natanz uranium enrichment facility, but are also calling for air strikes on Iranian military installations near the Iraq border.

Secretary of State Condoleezza Rice wants to test diplomacy first by broadening the US-Iran negotiations on stabilising Iraq that began in Baghdad in May. But, as the price for postponement of a decision on military action, she has agreed to a self-defeating compromise that has directly undermined the Baghdad negotiations: increased covert action to destabilise the Islamic Republic, formalised by a presidential “finding” in April.

Covert action to undermine the Tehran regime has already been under way intermittently for the past decade. Until now, however, the CIA has operated without a finding (authorisation for covert action) by using proxies. Pakistan and Israel, for example, provide weapons and money to insurgent groups in southeast and northwest Iran, where the Baluch and Kurdish ethnic minorities, both Sunni Muslim, have long fought against the repression of Shia-dominated Persian regimes.

The presidential finding was necessary to permit accelerated non-lethal activities by US agencies. Besides expanded propaganda broadcasts, a media disinformation campaign and the use of US and European-based Iranian exiles to promote political dissent, the programme focuses on economic warfare, especially currency rate manipulation and the disruption of Iran’s international banking and trade.

Although the finding was nominally secret, it did not stay secret for long after it was reported to the House and Senate Intelligence Committees, as required by law.

On a recent visit to Tehran, everyone was talking about it, and both conservatives and reformers agreed that it came at an unusually damaging moment of genuine opportunity for cooperation with the United States in Iraq and Afghanistan. Senior officials in the foreign ministry, the National Security Council, the office of President Mahmoud Ahmadinejad, and pro-government think tanks all said that stability in Iraq and Afghanistan is in Iran’s interest. Cooperation with the US is possible, they said, but only in return for a gradual accommodation between Washington and Tehran, starting with a complete cessation of covert and overt regime change policies.

“The United States is like a fox caught in a trap in Iraq,” said Amir Mohiebian, editor of the conservative daily Reselaat. “Why should we free the fox so he can eat us? Of course, if the US changes its policy, there is scope for cooperation.”

At the other end of the journalistic spectrum, Mohammed Adrianfar, editor of Hammihan, identified with the moderate former president, Akbar Hashemi Rafsanjani, said: “The atmosphere here is for starting negotiations and relations. People want stability. The slogan ‘Death to America’ doesn’t work, and our leaders know it. It’s an irony that two governments which are now enemies have many of the same interests in Iraq and Afghanistan.”

While officials would not discuss whether Iran is aiding Shia militias in Iraq and, if so, which ones, Alaeddin Boroujerdi, chairman of the Majlis (parliament) Foreign Affairs Committee, criticised US “coddling” of Baathist and Sunni elements and made it clear that Iran expects Shia domination as the prerequisite for stability in Baghdad and for US-Iranian cooperation there as part of an overall accommodation.

“The US occupying authorities are not truly pursuing de-Baathification of the security forces,” he said, “and should give the Iraqi government greater freedom to do so. That is the key to cooperation between our countries in Iraq.”

US-backed militia

The best way for the United States to start rolling back its regime change policy, both editors and several officials said, would be to dismantle a US-backed militia of Iranian exiles based in Iraq, known as the Mujahideen-e-Khalq (MEK). The MEK supported Saddam Hussein in the 1980-88 Iran-Iraq war and subsequently its 3,600 fighters, many of them women, stayed on in Iraq.

According to US sources, since the invasion of Iraq US intelligence agencies have disarmed the fighters but have kept the MEK camps near the Iranian border intact, using MEK operatives for espionage and sabotage in Iran and to interrogate Iranians accused of aiding Shia militias in Iraq.

Until recently, MEK radio and TV stations broadcasting to Iran were based in Iraq, but Iranian pressure on the Baghdad government forced their relocation to London. When the moderate Mohammad Khatami was elected president of Iran in 1997, the State Department made a conciliatory gesture by listing the MEK as a terrorist organisation guilty of human rights violations, and it is still on the list.

Dismantling the MEK paramilitary forces would be an effective way to signal US readiness to accommodate Tehran, suggested Abbas Maleki, an adviser to the National Security Council, since it is the only militarised exile group seeking to overthrow the Islamic Republic and is the darling of the Washington lobby for regime change in Iran. Alireza Jaffarzadeh, chairman of the MEK’s front group, the National Council of Resistance of Iran, appears regularly on the conservative TV channel Fox News as its Iran expert, rather like the pro-US Iraqi politician Ahmad Chalabi before the Iraq invasion, rallying Congressional and media support for military action against Iran.

As its terrorist listing of the MEK showed, the Clinton administration hoped for a diplomatic opening to Iran. When the Republican House speaker, Newt Gingrich, pushed through an $18m appropriation for non-lethal covert action to force the replacement of the current regime in Iran, the White House restrained the CIA. But the Bush administration was quick to change course. Cheney shared Gingrich’s goal of regime change and he persuaded doubters that pressure on Tehran would strengthen the United States in negotiations to end the uranium enrichment programme. First, the administration revived and expanded the dormant plans for direct US non-lethal covert action. Then, in February 2006, it obtained a $75m appropriation from Congress for an overt State Department programme “to promote openness and freedom for the Iranian people”. Finally, it cast about for covert ways to harass the regime militarily without the need for a formal presidential finding.

The most readily available means of doing this was to get Pakistan and Israel to arm and finance already-existing insurgent groups in the Baluch and Kurdish areas through well-established US ties with Pakistan’s Interservices Intelligence Directorate (ISI) and the Israeli intelligence agency Mossad.

The ISI channelled weapons and money to an already established Iranian Baluch dissident group, Jundullah (Soldiers of God), which inflicted heavy casualties in raids on Iranian Revolutionary Guard units in Zahedan and southeast Iran in 2006 and 2007. The US made no effort to hide its support for Jundullah. On 2 April 2007, Voice of America radio interviewed its leader, Abdolmalek Rigi, introducing him as “the leader of the popular resistance movement of Iran.” Several of my Baluch contacts recently provided detailed proof of Rigi’s ISI ties.

Mossad contactsM

Mossad has built up contacts in the Kurdish areas of Iran and Iraq since it used bases in Iran during the days of the Shah to destabilise the Kurdish areas of Iraq. Against this background, Seymour Hersh’s report that Mossad is giving equipment and training to the Iranian Kurdish group Pejak is credible. Jon Lee Anderson interviewed a senior Kurdish official in Iraq who said that Pejak is operating out of bases in Iraqi Kurdistan to conduct raids in Iran and has “received covert US support." In retaliation, Iran bombarded these bases for two weeks in late August, prompting Iraqi protests.

The most dangerous latent separatist threat facing Tehran is in the southwestern province of Khuzestan, which produces 80% of its crude oil revenue. The Arab Shia of Khuzestan share a common ethnic and religious identity with the Arab Shia across the Shatt-al-Arab waterway in Iraq. Ahwaz, the capital of Khuzestan, is only 150km east of Basra, where British forces in Iraq have been headquartered.

Not surprisingly, in the light of history, Tehran accuses Britain of using Basra as an intelligence base for stirring discontent in Khuzestan.

Backed by British forces and British oil interests, the Arab princes of Khuzestan seceded from Persia in 1897, and established a British-controlled protectorate, Arabistan, which Persia did not recapture until 1925. Although most of Iran’s oil wealth is produced in Khuzestan, separatist groups charge that Tehran denies the province a fair share of economic development funds. So far, the scattered separatist factions have not created a unified military force like the Jundullah and no evidence of foreign help has surfaced. But they periodically raid government security installations and bomb oil production facilities.

Several broadcast propaganda in Arabic from foreign locations that are not clearly identified. The National Liberation Movement of Ahwaz, which advocates independence, operates Ahwaz TV, a satellite channel with an on-screen caption giving a fax number with a California area code. Another satellite channel, Al-Ahwaz TV, broadcast by Iranian exiles in California, is linked to the British-Ahwaz Friendship Society, which advocates regional autonomy for the province in a federal Iran. Nearly half ($36m) of the $75m 2006 US appropriation goes to support for the US-operated Voice of America and Radio Farda and to anti-regime broadcasting outlets run by Iranian exiles in the United States, Canada and Britain.

Another $20m goes to NGO human rights activists in Iran and the US. Undersecretary of State Nicholas Burns has revealed that “we are working with Arab and European organisations to support democratic groups within Iran,” since getting direct US funding into Iran “is a very difficult thing for us to do” given “the harsh Iranian government response against the Iranian individuals."

One Iranian participant in a US-sponsored workshop in Dubai last year told the Iranian-American journalist Negar Azimi that “it was like a James Bond camp for revolutionaries." Four Iranian participants were later arrested.

Counter-productive attempts

My clear impression in Tehran was that covert and overt efforts to destabilise the Islamic Republic and pressure it economically to abandon its nuclear programme have been counter-productive. They have given hardliners an excuse to harass Iranians working internally to liberalise the regime, and visiting Iranian-American dual citizens such as Haleh Esfandiari of the Woodrow Wilson International Center for Scholars, who was imprisoned for three months on vague espionage charges.

By aiding ethnic minority insurgencies, the United States has enabled Ahmadinejad to cast himself as the champion of the Persian majority. The minorities constitute at most 44% of the population. The largest, the Azeris (24%) have been mostly assimilated, and the rebellious Baluch, Kurds, and Khuzestani Arabs are bitterly divided between advocates of secession and of a restructured federal Iran. Ahmadinejad can also blame external economic pressures for economic problems that are mainly the result of his own mismanagement.

Negotiated compromises on stabilising Iraq and Afghanistan are possible, but only if destabilisation stops and not if President Bush takes the military steps implied in his 28 August threat “to confront Tehran’s murderous activities” in Iraq. Even if the pressure is relaxed, a definitive nuclear compromise is unlikely in the absence of changes in the US Persian Gulf security posture, though a suspension of the Natanz facility might be possible if Israel would agree to a parallel freeze of the Dimona reactor. “How can we negotiate denuclearisation while you send aircraft carriers to the Gulf that, for all we know, are equipped with tactical nuclear weapons?” asked Alireza Akbari, deputy defence minister in the moderate Khatami government. “How can you expect us to negotiate when you won’t talk about Dimona?”

The covert and overt pressures so far applied to Iran are just sufficient to infuriate Iranians of all political persuasions, strengthening the hardliners, but are not nearly enough to undermine the regime. The economic pressures are more effective than the covert insurgency aid. Out of 40 European and Asian banks doing business with Iran, though, only seven have cut ties with Iran in response to US sanctions. In any case, Iran is routing its international business though 400 Dubai-based financial institutions, mostly Arab. With trade between Iran and the United Arab Emirates, including Dubai, nearing $11bn this year, US Undersecretary of the Treasury Stuart Levey’s threat of reprisals against firms dealing with Iran, in a speech in Dubai on 7 March, were pointless. The administration is now pushing more sharply-targeted measures against enterprises linked to the Revolutionary Guards and the conglomerates run by clerical interests, but their impact has been limited.

Likening the US-Iran tussle to a bull fight, a respected European ambassador long resident in Tehran asked: “What’s the point of all this? What good does it do to keep waving the red flag? It just makes the bull more and more angry. It doesn’t kill.”

Selig S. Harrison is director of the Asia Program at the Center for International Policy, senior scholar of the Woodrow Wilson International Center for Scholars (both in Washington DC), and author of In Afghanistan’s Shadow: Baluch Nationalism and Soviet Temptations (Carnegie Endowment for International Peace, 1980).