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NICOSIA - In a very interesting type of coup d'etats, former President Ali Akbar Hashemi Rafsanjani has returned to power. But this time he has returned through a back door made open by the Supreme Leader of the Shi'ite theocracy, Ayatollah Ali Khamenei who retains the option of closing it any time he chooses - with Rafsanjani out. It is an opportunity for the Western powers to negotiate a package deal which will be complicated but necessary, if these powers and the theocracy are to avert military confrontation.

Southern Iraq: It is essentially a coup against newly elected President Mahmoud Ahmadi-Nejad, whom a highly-placed source in Tehran describes as an "innocent-looking thug who has done more to frighten his boss than to bully the Western powers out" of Iran's nuclear development programme. An ultra-conservative product of Iran's Islamic Revolutionary Guards Corps (IRGC), Ahmadi-Nejad is no longer the man whom the Iranians last June elected to call the shots in Tehran.

The fact that it was Rafsanjani who announced Iran's readiness to talk on the "country's nuclear dossier without any pre-condition", rather than Ahmadi-Nejad, offers a glimmer of hope for reconciliation with the West on the key nuclear and oil issues. When Rafsanjani, who chairs the shadowy but powerful Expediency Council (EC), on Oct. 15 announced, "Tehran is ready to begin dialogues for transparency on the nuclear dossier", it was a sign that pragmatists were once again calling the shots. This is despite Rafsanjani's shock defeat in the June presidential elections.

It is another matter that Hamid Reza Asefi, a Foreign Ministry spokesman, on Oct. 16 said Tehran would not comply with a demand by the International Atomic Energy Agency (IAEA) that it stop uranium conversion at its Isfahan facility and fall in line with the key European Union condition for resumption of talks. Asefi told reporters the freeze on uranium conversion was made voluntarily and Iran reserved the right to make fuel for its reactors as a signatory to the nuclear Non-Proliferation Treaty (NPT).

Talks between Iran and the EU3 (Britain, France and Germany) broke down in August, when Iran rejected a deal which offered trade and other incentives for a full cessation of fuel-cycle work, the focus of fears that Iran could acquire nuclear weapons. But the intervention by Rafsanjani, regarded as a pro-West politician who now has the ear of Khamenei, was a sign that the days ahead will see a softening of Tehran's approach and a dilution of Ahmadi-Nejad's authority.

Much would depend on what exactly the powers of the EC are, to which Rafsanjani was re-appointed on Oct. 3 by Khamenei. Rafsanjani has since appointed the moderate former president, Mohammad Khatami, to EC's decision-making council. After his election as president in 1997, Khatami had begun a process of reform and reconciliation to undo the isolation of Iran after the 1979 ouster of the Pahlavi Shah and the installation of the Shi'ite theocracy.

The powers of the EC were recently expanded with Speaker Gholamali Haddad-Adel - a close relative of Khamenei - mounting a defence of it in parliament, saying it was in the interests of greater discipline. According to Haddad-Adel, all macro-level policies now could only be made after consultations with the EC, which today is also charged with supervising the execution of those policies.

In other words, say critics, this virtually amounts to an authority being run in parallel to that of the presidency. Rafsanjani is playing down his role and says the EC does not have any contact with the executive.

The Back Door: The test for the EC is how much of a say it will have in the appointment of ministers to the key portfolios of petroleum, education, co-operatives and social security and welfare. These are vacancies which Ahmadi-Nejad has not been able to fill in so far. Ahmadi-Nejad, who claimed his electoral victory was nothing short of a "second revolution" after creation of the Islamic republic in early 1979, has railed at "gangs" with vested interests preventing appointment of his candidate for petroleum minister, and many said the reference was to Rafsanjani and his powerful networks within and outside the country.

The delay in appointing a petroleum minister and top executives for the National Iranian Oil Co. (NIOC) and its various units has caused foreign companies to suspend any pursuit of petroleum E&P deals or buy-back contracts. The delay has caused stagnation Iran's petroleum services sector. Inter Press Service (IPS) on Oct. 20 quoted Ahmad Tofanian, an engineer, as saying: "We are a newly founded private engineering and consulting company seeking oilfields development projects in which the government is the major client. As far as we are concerned, the lack of appointments [at the petroleum ministry & NIOC] means...it will be difficult to decide on tenders".

Rafsanjani told a recent public function: "The EC used to have a supervisory role but now this role is with the Supreme Leader and we report any wrong-doing to him". According to the Secretary of the EC, Mohsen Rezaie, Khamenei had delegated some of his own powers to the EC, which now supervises the affairs of the judiciary, the executive and the legislature.

The new development has prompted critics to say: "Money and the members of the Iranian elite, like Rafsanjani himself, will have the final say in Iran's day-to-day socio-economic and political lives". For those who overwhelmingly voted for Ahmadi-Nejad, the empowering of Rafsanjani after his defeat in June is a blow. But there has been no backlash so far except for some murmuring in parliament.

Ahmadi-Nejad has packed most of the other key jobs with hardliners, including the governors-general who administer provinces. But many believe these adherents to strict Islamic rules could spoil relations with states bordering the provinces they administer. Most of the governors have Ahmadi-Nejad's background: the Islamic Revolutionary Guards Corps (IRGC). For now the concern is mainly the effect hardliners are having on the diplomatic side - where their lack of experience in handling international affairs is beginning to show - and on the economic front.

IPS quoted Hasan Shbazian, an accountant in a civil-engineering company, as saying: "All this has a great impact on [the] economy of the country and slowed [it] down, particularly [in the] stock market and private sector as everything [is] in limbo. A few weeks before the new government took over, the Tehran Stock Market (TSM) had begun to drop and since Ahmadi-Nejad formed his cabinet, the indices have kept on nose-diving". Iran, a stockbroker said, has been kept afloat so far by "the magic of petro-dollars and with [crude] oil-selling at over $50/b, the government-run companies have continued to do well since they are operating within an oil-exporting economy".

IPS quoted Hussain Kadkhodaee, an expert on the TSM, as saying: "About 70% of the...market is under the control of the state-run companies, governmental investment firms - particularly those affiliated to the state-run banks". In an editorial in the Shargh daily on Sept. 24, a prominent economist close to former Petroleum Minister Bijan Namdar Zanganeh, Masoud Nili, wrote: "The oil income [of Iran] is going to reach around $50 bn by the end of this year [Iranian calendar, ending March 21] but it may not bring fortune". The new government, Nili said, while trying to "bring the fruits of the surging oil price to the table" of ordinary Iranians, had better brace for fighting with the highly probable and gallant inflation". It is partly in this context that Khamenei has decided to temper Ahmadi-Nejad's zeal with the practicality of Rafsanjani and give the latter a hand to steer Iran through its crisis with the West over the nuclear issue.

Mohammad Atrianfar, close to Rafsanjani, has broken a public taboo in questioning whether Iran should have a comprehensive nuclear programme. The Financial Times on Oct. 15 quoted Atrianfar, editor of Shargh newspaper and a backer of Rafsanjani's failed effort to win the presidency in the June 24 elections, as saying: "Radicals are using the nuclear issue for domestic reasons. If the West pushes on human rights or Palestinian-Israeli peace, many Iranians might agree. But people strongly support Iran's right to peaceful nuclear energy". So does Atrianfar, who belongs to Rafsanjani's camp of pragmatists. But he questions whether it is in Iran's national interest to pursue a full nuclear fuel cycle.

Iran faces international opposition and the likelihood that the IAEA - which found Tehran in "non-compliance" with the NPT - will refer Iran to the Security Council next month for possible sanctions. Atrianfar back Rafsanjani efforts to negotiate a deal with the West through mediation by third parties - such as Russia. Atrianfar said of the nuclear issue: "We need to discuss this openly. There has been a failure to clarify what will happen if we insist on this technology". Atrianfar formerly served as chairman of the Tehran City Council and editor of the council's daily newspaper Hamshahri, which is the most popular in Tehran.

An IAEA team was in Tehran recently seeking greater transparency, including access to military sites. But hopes for renewed talks between Tehran and the EU3 remain stuck due to the insistence of Ahmadi-Nejad's new government that Iran had a "national right" to enrich uranium.

Atrianfar has been no stranger to controversy since he was jailed by the Shah before the 1979 Islamic Revolution. Shargh was briefly closed last year after publishing an open letter from reformist parliamentarians questioning the role of Supreme Leader Khamenei. The FT on Oct. 15 said Atrianfar was "careful not to portray Mr Rafsanjani as a saviour in the current crisis". Since his election defeat, Rafsanjani has been cautious. In late September, he warned Europe and the US that "the field is mined and dangerous, if you fail to move through it properly, you will inflict a heavy cost on yourself, the region and world". But he also advised Iran to "avoid sloganeering and focus on wisdom [and] negotiations".

Such scepticism suggests that Ahmadi-Nejad and his fundamentalist allies are not able to impose their will on Iranian policy. Disagreements between Ahmadi-Nejad and Rafsanjani have many sources. Ahmadi-Nejad represents a younger generation, strong in the IRGC, and resentful of the economic sway of the pragmatists, which they argue has subverted the egalitarianism of the Shi'ite theocracy. The new president speaks of fighting an "oil mafia" and distributing oil income among the people.

Politically, Ahmadi-Nejad dislikes the pragmatism of Rafsanjani and his allies. Ahmadi-Nejad replaced Iran's nuclear negotiators because he believed two-year talks with Europe produced no benefit. But while Ahmadi-Nejad has dismissed the threat of UN sanctions as "not important", private business which generally backed Rafsanjani in the June election, has expressed concern. Hossein Salimi, of Iran's chamber of commerce, recently said "a glance at North Korea, Cuba and Libya will indicate the effect sanctions could have". Atrianfar said: "This is not a question of left versus right. It's a question of being realistic".