"It is entangled with too much pride – however misguided – and sunk costs simply to be abandoned," the report's authors, Ali Vaez of the International Crisis Group and Carnegie's Karim Sadjadpour, said of Iran's five-decade-old nuclear program, which began under the US-allied shah.
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"Given the country's indigenous knowledge and expertise, the only long-term solution for assuring that Iran's nuclear program remains purely peaceful is to find a mutually agreeable diplomatic solution," the report said.
Iran says its nuclear work has medical uses and will produce energy to meet domestic demand and complement its oil reserves.
The United States and other states suspect Iran is covertly seeking a nuclear arms capability. Israel has threatened military action to prevent the Islamic Republic from acquiring atom bombs. Tehran denies pursuing nuclear weapons.
The US and its allies have demanded that Iran curb its enrichment of uranium and have imposed increasingly tough sanctions on Iran's energy, banking and shipping sectors that have cut Iranian oil exports by more than half since 2011.
Iran and six world powers are due to meet in Kazakhstan this week in the hope of finding a solution to the standoff. Their last meeting in February failed to achieve a breakthrough.
The report, titled "Iran's Nuclear Odyssey: Costs and Risks", seeks to tabulate the opportunity costs of the nuclear program, and puts these at "well over $100 billion" in terms of lost foreign investment and oil revenues.
Relatively small uranium deposits will keep Iran from being fully self-sufficient in nuclear energy, it said, while Tehran has neglected to maintain existing infrastructure and develop other resources that could better secure its energy needs.
For instance, Iran's 1,000-megawatt Bushehr nuclear reactor, which came on-stream in 2011 after repeated delays, accounts for just 2 per cent of its electricity production, while about 15 per cent of "generated electricity is lost through old and ill-maintained transmission lines", the report said.
Iran has vast oil and gas reserves, but sanctions have forced major Western firms to abandon the petroleum sector, making crucial upkeep difficult. Iran's solar and wind energy sectors have also gone undeveloped, the report said.
"No sound strategic energy planning would prioritize nuclear energy in a country like Iran," the report said.
"Instead of enhancing Iran's energy security, the nuclear program has diminished the country's ability to diversify and achieve real energy independence."
The authors recommended that outside powers engage with Iranians through "grassroots public diplomacy" and make clear what they could gain by compromise.
"The Iranian people have been largely absent from the nuclear discussion," they wrote.
"While US officials and members of Congress frequently speak of 'crippling sanctions', they rarely impress upon Iranians the concrete costs of their country's nuclear policies and the potentially myriad benefits of a more conciliatory approach."
A lasting deal would have to include commitments by Iran to abstain from activities vital to weapons production, which could give confidence that Iran could continue to enrich uranium to low levels needed for power generation, it said.
"There is virtually no chance that Iran will abdicate what it and many developing countries now insist is a right – a right to enrichment," the report said.
Negotiators should also discuss less politically charged topics such as nuclear safety cooperation and alternative energy options for Iran, "increasing the chances of breaking free of zero-sum games and creating win-win opportunities", it said.
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