Newly elected Iranian president Hassan Rowhani’s declaration that Iran is “seriously determined” to negotiate with world powers at the next round of talks this fall is not surprising. Supreme Leader Ali Khamenei has been brought to a tangible decision point on the nuclear program, and might finally agree to a series of confidence-building measures proposed last April by the United States and its partners.

Talks are most likely to progress with Iran when it believes the costs of obstinacy risks undermining the stability of the government, and steps towards a final agreement do not compromise its core nuclear rights. The world is the closest it has been to that fine balance in nuclear negotiations with Iran.

For the better part of a decade, sanctions were uncoordinated, weak and riddled with loopholes. The result was that from 2002 to 2011, Iran’s average GDP growth was 5.2 percent, hardly a successful case study for sanctions. But today the United States, working with friends and allies around the world, has systematically enhanced coordination, closed loopholes and tightened the existing sanctions regime. New financial sanctions and restrictions in particular have had the most impact. According to the International Monetary Fund, Iran’s economy has contracted two years in a row. While official Iranian numbers can be unreliable, the best estimates are that inflation hovers around 42 percent and unemployment stands at 28 percent. Oil exports have dropped 40 percent in the past year, with Iran’s currency plunging 50 percent during that same time period. A country that has the fourth-largest proven oil reserves and second-largest natural gas reserves in the world is joined only by Zimbabwe on the World Bank’s delinquent list for failure to pay its loans.

While economic pressure increased, the United States slowly tightened the military noose around Iran. U.S. arms sales to Persian Gulf allies skyrocketed during the Bush administration and have continued to rise under President Obama. From 2007 to 2010, the Gulf Cooperation Council (Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman) led the world in foreign military sales from the United States. In 2011, the Obama administration finalized the largest foreign military sale in U.S. history, with $29.4 billion in new F-15s and upgrades to Saudi Arabia. Last year, a $10 billion arms sale to Israel, Saudi Arabia and the United Arab Emirates was announced (not completed). These deals have provided advanced weaponry to ensure Israel maintains its qualitative military edge in the region, and U.S. Gulf allies retain conventional military superiority vis-à-vis Iran.

The Obama administration has also bolstered the Fifth Fleet in the Persian Gulf with additional ships and air power. Joint exercises between the United States and its Gulf allies have increased in tempo as well, the most recent being a forty-one-country maritime exercise facing Iran’s shores. While some members of Congress may still question whether the Obama administration would resort to force, Ayatollah Khamenei may not be so confident.

Moreover, the pressure for Israel to launch a military strike against Iran’s nuclear program grows with each kilogram of enriched uranium Iranian centrifuges churn out. Israel can afford to wait for negotiations to play out once again this fall, but the endgame is fast approaching. In the absence of a deal, the Supreme Leader risks facing an Israeli strike that may drag America into war.

Political tremors in the region have added weight to Iran’s challenges. In the short-term, the Syrian conflict has distracted Iran’s military proxies in the Levant. Hezbollah is less likely to cause trouble now that its troops and equipment are partially tied down in Syria, and Hamas’ political leadership has distanced itself from Tehran since leaving its headquarters in Damascus as an act of solidarity with the opposition. The more enduring challenge to Iran will be the growth of Sunni extremist groups pouring into Syria. Many of these violent sectarian groups view the battle in Syria as a larger war against Iran and its Shiite brethren. Few experts doubt that if President Bashar Assad ultimately were to fall, Iran would suffer a major strategic blow.

The $12 billion in aid provided to Egypt by Saudi Arabia, the U.A.E., and Kuwait is just the latest example of a much more concerning trend to Tehran: Sunni Arab countries are coordinating their diplomatic, financial and military resources in a manner that has not occurred in the past decade. Strong differences remain in the foreign policies of Arab states, but the common threat of Iran has become a catalyst for united action.

Now that the peace process has begun anew, Washington has also muffled the argument that the Palestinian issue must be addressed before there can be any movement on Iran. The initiation of talks between Israel and the Palestinian Authority has provided Arab governments with welcomed political space.

Domestically, there are promising signs as well. The controversial re-election of President Ahmadinejad in 2009 catalyzed a diverse base of political power brokers and the public to confront the government during the so-called “Green Revolution.” Iran became paralyzed at the negotiating table by its own internal divisions. The new president is a known quantity to the Supreme Leader, and clearly an expert at navigating Iran’s complex domestic politics. President Rowhani lived abroad in exile with the father of Iran’s Islamic Revolution and served for sixteen years as the head of the Supreme National Security Council. Fifteen of his eighteen more centrist cabinet nominees were approved by the parliament, including U.S.-educated foreign minister Mohammad Javad Zarif, who has long sought to normalize relations with the United States.

At the same time, the Iranian public is increasingly frustrated with the costs they have incurred as a result of Iran’s failure to reach accommodation over its nuclear program. The Supreme Leader would be careless to ignore the growing grievances that exist among a populace that has exercised its civil rights through three revolutions in the last century.

This fine balance of domestic forces may provide President Rowhani more flexibility than his predecessor to maneuver in the initial rounds of negotiations.

A final consensus, however, will only be reached if there is agreement on substance. Since April 2012, the P5+1 (United States, Britain, France, Russia, China and Germany) and Iran have met four times. In these discussions, the P5+1 has proposed a series of confidence-building measures (CBMs) that would form the groundwork for a final agreement. The latest offer called for Iran to close its Fordow facility, remove nearly all of its 20 percent enriched uranium, and cease further production of this material. In return, the P5+1 would offer partial sanctions relief and provide support to the medical-isotope-producing Tehran Nuclear Research Reactor. The talks collapsed over Iran’s insistence that all sanctions had to be removed for negotiations to proceed.

Even here, dynamics may be more favorable for a breakthrough in the next round of talks. Iran’s nuclear program has advanced to a point where it loses very little by agreeing to the CBMs that were on the table when all parties met last April. As former chief of Israeli military intelligence Amos Yadlin warned recently, even if the threat from 20 percent enriched fuel were eliminated, Iran’s large stockpile of low-enriched uranium and the near completion of its plutonium-producing reactor provide two additional paths to a bomb. Agreeing to the initial set of CBMs would not undermine Iran’s position that it has a right to enrichment, either.

A final agreement would have to address all of these issues. But it is not a comprehensive package that will be on the table this fall. The most likely proposal will look similar to what was offered four months ago. This June, Russian foreign minister Sergey Lavrov indicated this when he said Iran is prepared to halt “20 percent uranium enrichment at its current levels” for “significant reciprocal steps by the Six.”

This, then, is Khamenei’s decision to make. On the one hand, Iran can accept an initial set of modest confidence-building constraints on its nuclear program as a means to creating a pathway for it to become a secure, strong, integrated and respected member of the international community. On the other hand, he can refuse to engage in serious discussions and continue to govern over a country with a shrinking economy, in an increasingly dangerous strategic environment, with the full pressure of the international community continuously and consistently bearing down on it. Events have converged to create an atmosphere where the former may finally prevail.

Joe Costa is chair of the Truman National Security Project's Nuclear Experts Group.