May 18, 2010 | 21:00 GMT

4 mins read

Brazil: Balancing Iranian Mediation and U.S. Ire

Brazilian President Luiz Inacio Lula da Silva's recent trip to Iran, during which he proposed a nuclear fuel swap deal, has burnished Brazil's reputation as broker for the developing world.
Brazilian President Luiz Inacio Lula da Silva's May 16-17 trip to Iran gave him the diplomatic credentials to underpin Brazil's rise. During that trip, Lula and Turkish Prime Minister Recep Tayyip Erdogan jointly announced a nuclear fuel swap deal with Iran. Regardless of whether the deal actually pans out, critics of Lula who claimed Brazil was overreaching in involving itself in a thorny issue far removed from Brazilian interests have been silenced, at least for the moment. By contrast, many will remember May 17 headlines heralding Brazil as the next big global mediator for the developing world. But beneath the diplomatic fanfare of the Turkey-Brazil nuclear fuel swap proposal, Lula and his delegation carefully maintained their distance from Tehran and have continued the Brazilian relationship with Washington. In the days and weeks leading up to Lula's trip to Iran, the United States expressed frequent unease with Brazil's expanding role in areas such as the Middle East. The United States called on Brazil to act "responsibly" in negotiating with Iran over the nuclear issue, indicating that Washington did not want to see deals emerge from the visit that would blatantly flout sanctions efforts against Iran or allow Iran access to technology that could aid its nuclear program. During the trip, Iranian media reported on the signing of a slew of trade deals between Brazil and Iran, including an agreement under which annual trade reportedly will increase from $1.2 billion in 2009 to $10 billion within one year. The Iranian press reports claimed that Brazil would help Iran avoid the hassle of making transactions through foreign banks — many of which have declined Iran letters of credit as sanctions pressures on Iran have increased — by having Brazil directly finance $1 billion worth of food exports to Iran. Of particular concern to the U.S. Treasury Department would be if, like Venezuela, Brazil proposed setting up banking facilities in each other's countries that could be used to launder Iranian money and grant Iran indirect access to U.S. financial markets. The Brazilian press also rumored that Brazilian energy firms such as Petrobras could sign deals to provide training and technology to modernize the Iranian energy sector. This would be especially crucial to easing Iran's refining woes, since even though it is a major energy exporter, Iran imports roughly 40 percent of its gasoline to compensate for its ailing refining sector. While these deals would signify a provocatively deep Brazilian investment in Iran, there is little evidence that any such deals actually materialized. Beyond the nuclear fuel swap proposal, the only deal signed that STRATFOR has been able to confirm with the Brazilian Ministry of Foreign Affairs is a relatively vague memorandum of understanding calling for joint programs between Iran and Brazil for exploration and extraction of minerals. Iran is one of the world's major countries for untapped mineral resources, and Brazilian mining giants such as Vale already export to Iran. While Iran would likely lack the capital and expertise to make much headway in the Brazilian mining sector, Brazilian mining companies could expand their investment in Iranian mining, an area not currently impacted by U.S. sanctions on Iran. In short, Brazil appears to have obtained precisely what it wanted out of this visit to Iran: a high-profile diplomatic coup that catapulted Brazil on to the global scene while avoiding the political risk that would accompany establishing a tighter relationship with Iran in defiance of the United States. Substantial aid to Iran's energy sector, in addition to providing an alternative for Iranian financing, would have put Brazil squarely under the sanctions radar and risked harming Brazil's trade relationship with the United States. Iran simply does not appear worth that risk for Brazil. Whether any of the other rumored deals between Iran and Brazil manifest into something substantial bears watching, but so far, it appears that Brazil is continuing to walk a careful political balance while reaping the benefits of the diplomatic spotlight.

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