SPECIAL REPORT IRAN November 1st 2014

The revolution is over

20141101_SRIran.indd 1 21/10/2014 11:21 SPECIAL REPORT IRAN

The revolution is over

After decades of messianic fervour, Iran is becoming a more mature and modern country, says Oliver August FROM THE MOUNTAINS of the Caucasus to the waters of the Indian CONTENTS Ocean, Iranians are watching intently as their government haggles with foreign powers over trade sanctions imposed to restrain its nuclear pro- 3 Religion gramme. Pointing to a corner of his office, the owner of a struggling can- Take it or leave it nery says: “See that television set? I watch it hour by hour, hoping for 5 Domestic politics news that sanctions will be lifted.” Rush to the centre Iran says its nuclear programme is for peaceful purposes only. The West, not unreasonably, fears that Iran is building a bomb. In the hope of 6 The hardliners preventing a nuclear arms race in the Middle East, America and its allies Goon squad have made it very difficult for Iran to engage in international commerce. 8 The economy The country’s oil exports have dwindled to half their former level. The Melons for everyone Iranian government, for its part, has broken a habit ofa lifetime and pub- licly held detailed discussions with countries it regards as hostile, includ- 10 Sanctions ingAmerica. As this special report will explain, its motives are internal as Shackled much asexternal. All sidesare keen to find a solution to this long-running 11 The neighbours ACKNOWLEDGMENTS stand-off. A deadline of November 24th has been set. An agreement to Moving targets The author would like to thank the shackle the nuclear programme would have wide-ranging geopolitical following (as well as many others consequences and could push Iran further towards modernity. 13 Prospects who prefer to remain nameless) for For now, Iran is disliked and mistrusted across much of the demo- We shall overcome, maybe sharing their knowledge and cratic world. Terrible things have been done in the name ofits revolution. insights with him: Parviz Aghili, Ali Alfoneh, Reza Bundy, Patrick Some of its leaders have denied the Holocaust. They have locked up and Clawson, Tony Cordesman, Richard tortured citizens who dared to challenge them openly. The country really Dalton, Coco Ferguson, Haleh could be set on having a bomb. But while the world has been cut offfrom Isfandiari, Foad Izadi, Colin Kahl, Iran, it has failed to notice how much Iranians have changed. No longeris Mehdi Khalaji, Hooman Majd, Suzanne Maloney, Mohammad the country seething with hatred and bent on destruction. Instead, the Marandi, Afshin Molavi, Alireza revolution has sunk into the disillusion and distractions of middle age. A list of sources is at Nader, Vali Nasr, Amir Nayeri, Kelly This is not always a nice place, perhaps, but not a Satanic one, either. Economist.com/specialreports Niknejad, Emanuele Ottolenghi, Trita To be sure, Iran is hard to fathom. It often makes visitors feel unwel- Parsi, Rouzbeh Pirouz, Kenneth An audio interview with Pollack, Ramin Rabil, Hossein come. Journalists who have been able to obtain a precious visa still leave the author is at Rassam, Dennis Ross, Karim Sadjad- with a sense of uncertainty as few Iranians feel free to speak their mind. Economist.com/audiovideo/ pour and Robert Satloff. For years the government even refused to share information with the 1 specialreports

The Economist November 1st 2014 1 SPECIAL REPORT IRAN

forms last longer than radical change.” Ankara ARMENIA AZER- Baku UZBEK- BAIJAN ISTAN The appetite for revolution has TURKEY TURKMENISTAN Caspian waned on all sides. Reformists are tired Tabriz S e a Ashgabat after their failed attempt in 2009 to push Zanjan Ramsar Bonab aside a government they considered ille- CYPRUS Mashhad S Y R I A Qazvin Tehran gitimate because the vote was rigged. Mediterranean LEBANON Fordow Parchin Protests were put down bloodily, remind- Sea Beirut Damascus I R A Q Arak Qom ISRAEL Natanz ing many of the unhappy years after the revolution. Since then, reformists have re- Amman Baghdad Isfahan Saghand AFGHANISTAN Yazd EGYPT coiled at political bloodshed in neigh- JORDAN I R A N bouring countries. Conservatives, for Cairo their part, have come to see revolution as KUWAIT Shiraz SAUDI PAKISTAN a threat to their interests abroad; regimes T Bushehr h ARABIA e they fostered in Iraq and Syria are fighting G Gchine u Strait of rebellions not unlike Iran’s home-grown BAHRAIN l f Hormuz Iranian nuclearRed facilities: one in 1979. “The Arab spring fallout has Sea QATAR Civilian Military scared everyone,” says a Western dip- Riyadh to OMAN Uranium mines 500 km U.A.E. OMAN INDIAN OCEAN lomat in Tehran. “Iran is now a bastion of stability. The question of the validity of Taliban removed Saddam removed Hamas takes Arab US troops from Afghanistan from Iraq power in Gaza spring leave Iraq the regime has been settled.” Yet although revolutionary fervour 2000 02 04 06 08 1012 14 has waned, Iran’s1979 revolution itself re- Khatami Ahmadinejad Ahmadinejad Rohani mains a source of legitimacy for the re- Iran branded part Nuclear negotiations Sanctions Sanctions Currency Nuclear gime. Many Iranians, or at least the ethnic of “axis of evil” with Iran fail tightened tightened collapses talks Persian majority among them, continue further begin to associate it with national liberation from foreign oppression. Not being Arab, Turkic or South Asian, they feel friendless 2 World Bank. John Limbert, an American diplomat held hostage among their neighbours. This is vital to understanding Iranian in Tehran in 1979 who served his country until 2010, points out foreign policyand helpsexplain whythe nuclearprogramme en- that“almostnobodyin Washington hasbeen to Iran in decades.” joys widespread popular support despite the pain that the sanc- Yet the country has unmistakably changed. The regime tions have inflicted. Many regard it as a symbol of national may remain suspicious of the West, and drone on about seeding strength at a time of perplexing social changes. This special re- revolutions in oppressor countries, but the revolutionary fer- port will examine the effect ofthose changes on Iran’s politics, its vour and drab conformism have gone. Iran is desperate to trade with whomever will buy its oil. Globalisation trumps puri- Many regard the nuclear programme as a symbol of tanism even here. national strength at a time of perplexing social changes Revolution as a political lodestar has a limited shelflife. Adam Michnik, a histo- rian who helped to overthrow the Soviets in Poland, once said: economy and its place in the world. “Revolutionshave two phases: firstcomesa struggle for freedom, Hardliners have long railed against “Westoxification” (the then a struggle for power. The first makes the human spirit soar title ofa bookby Jalal Al-e Ahmad, published in 1962), yet in their and brings out the best in people. The second unleashes the daily lives they are now surrounded by Western consumer worst: envy, intrigue, greed, suspicion and the urge for revenge.” goods, computer games, beauty ideals, gender roles and many Iran followed this pattern. First came courageous street protests otherinfluences. Iranian culture has not disappeared, but the tra- during the 1979 revolution, then the infighting started. Thou- ditional society envisaged by the fathers of the revolution is re- sands were executed, properties were seized, bread was short. ceding ever further. The most visible shift is in public infrastructure. Tehran, the Colour me mellow capital, is a tangle of new tunnels, bridges, overpasses, elevated Arguably, there is a third phase to a revolution: the struggle roads and pedestrian walkways. Shiny towers rise in large num- for acceptance. Once power is secure, revolutionaries often seek bers, despite the sanctions. Screens at bus stops display sched- recognition by strong outsiders. In a globalised world, that ules in real time. JackStraw, a former British foreign minister and means engaging with the great trading countries. Children ofIra- a regular visitor, says that “Tehran looks and feels these days nian revolutionaries have long followed this path. Privilege for more like Madrid and Athens than Mumbai or Cairo.” them equals access to Western education and Asian consumer Smaller Iranian cities have changed even more. Tabriz, Shi- markets. Even hardliners allow their children to jet around the raz and Isfahan are working on underground railways. Half the world. The offspring of Ayatollah Ruhollah Khomeini, who led traditional bathhouses in Qazvin, an industrial town west of the revolution, have flocked to Instagram and embrace Western Tehran, have closed in recent years. In a basement with a domed mores. Seven of his 15 grandchildren have openly criticised the ceiling built 350 years ago, the forlorn manager sweeps around regime. Many of the students who took American diplomats two kittens and bemoans the loss of a 700-year-old competitor, hostage 35 years ago have become reformists and wish to see musing that “people now have bathrooms with hot running wa- closerties with the West. Ebrahim Asgharzadeh, who was one of ter.” In Yalayesh, a remote village nearthe Caspian sea, entertain- their spokesmen and then served on Tehran’s city council, now ment remains old-fashioned: a Kurdish strongman, Ismail the says: “I no longer take radical actions and I believe gradual re- Hero, shows offa lion in a cage on the backofhis blue truck. Still, 1

2 The Economist November 1st 2014 SPECIAL REPORT IRAN

2 two years ago the government finished piping natural gas into were tightened in 2011, but even now Iranians live much better every house, making winters with temperatures of -20oC “toler- than most oftheir neighbours. able for the first time”, says a spectator. Prosperity has inspired an obsession with technology that During the eight-year presidency of Mahmoud Ahmadine- restrictions on internet access cannot dampen. Facebook is the jad, which ended in 2013, prosperity spread rapidly. Loans, hand- primary medium forhalfthe country’s youth and Twitteris used outs and social-housing programmes, however corrupt and in- by officials to put out statements—never mind that both are eptly run, showered billions of oil dollars on the poor. Many banned. Freedom House, an American human-rights lobby, found white-collar jobs in government agencies. The middle ranksIran lastin the world in termsofinternetfreedom, butin re- class ballooned. Villagers streamed into Tehran to buy property ality access is cheap and fast. (The fastest speeds are achieved as GDP per person rose from $4,400 in 1993 to $13,200 last year (at nearseminaries, since clericspreach online and getpriority on fi- purchasing-power parity). Despite the sanctions, Iran does not bre-optic cables.) look like beleaguered Cuba; people drive new sedans made lo- Although the media are controlled by the state, uncensored cally, not 1950s Chevrolets. Life became harder when sanctions news is easily available. Foreign websites like Tehran Bureau, 1

Take it or leave it

Ordinary Iranians are losing interest in the mosque BY LAW, ALL public buildings in Iran must southern European diplomat. “Everyone have prayer rooms. But travelling around the professes to believe, but in private we cheat country you will find few shoes at prayer time on our taxes and our wives.” outside these rooms in bus stations, office The clerics’ power has waned and is buildings and shopping centres. “We nap in mostly indirect. Many of them have with- ours after lunch,” says an office manager. drawn to seminaries and retain little say in Calls to prayer have become rare, too. Offi- the day-to-day management of the economy cials have silenced muezzins to appease and foreign affairs, though they are still citizens angered by the noise. The state consulted on matters of principle. Western broadcaster used to interrupt football negotiators in the nuclear talks report that matches with live sermons at prayer time; their Iranian counterparts often shift posi- now only a small prayer symbol appears in a tions after trips to Qom, the cradle of the corner of the screen. Islamic revolution. The clergy also has vast Iran is the modern world’s first and financial resources and thus economic influ- only constitutional theocracy. It is also one ence. And Iranians remain a spiritual people of the least religious countries in the Middle who see Islam as part of their identity. East. Islam plays a smaller role in public life What many have moved away from is today than it did a decade ago. The daughter institutionalised religion—as far as they can. of a high cleric contends that “religious Women still have to cover their hair in public. belief is mostly gone. Faith has been re- They are banned from sports stadiums, and

placed by disgust.” Whereas secular Arab buses are segregated, with women sitting in £

leaders suppressed Islam for decades and the back behind a barrier¤et female Arab thus created a rallying point for political visitors say they feel freer in Iran than at grievances, in Iran the opposite happened. home, where misogyny is “less organised but The transformation of Shia Islam into more ingrained”, as one puts it. Female Signal fading an ideology undermined both the state and students outnumber men by 2:1at many the mosque. The great irony of the Islamic Iranian universities, leading to calls for male as have the clerics. Restricted in their choice revolution is that inadvertently it did more to quotas. A recent survey of young adults by of robes and obliged to spend many hours secularise the country than the tyrannical Iran’s parliament suggests that 80% of studying every day, they splash out on ex- shah, who ruled Iran after a coup in 1953 and unmarried women have boyfriends. pensive glasses, says the owner of an eye- persecuted clerics. By forcing religion on Nowhere is change more apparent than wear shop. Some sport bright yellow slip- people it poisoned worship for many. They in Qom, the religious capital. Pilgrims throng pers, a sign of virility, according to an are sick of being preached at and have the shrines and listen to anti-Western ser- obscure religious text. “Relations between stopped listening. mons given by turbaned ayatollahs. But this the unmarried are tumultuous,” ventures a Some have found salvation in materi- is mostly a veneer. Government offices and former seminary student. “Private lives are alism. Ever more shops and malls have seminaries on Martyr Street, which the locals full of vice. We have the highest rate of

sprung up. In the words of Saeed Laylaz, a call Time To Have Fun Street, are dwarfed by alcohol consumption in the country.”

¢

£

noted economis ¡ou can’t shower a trillion the multi-storey Pearl shopping mall, where Men and women mix openly in cafés dollars in oil money on a society in a decade the female mannequins wear tight jeans. In that once closed early but now stay open into and expect it to stay pious and revolutionary. the past 15 years Qom’s population has risen the night. Face veils used to be common People get comfortable.” This is not unique tenfold, to 1.5m. Tidy suburbs line new ring among women but were banned after three to Iran. “The country is Islamic in much the roads and an elevated monorail. men wearing them entered a local school and same way that Italy is Catholic,” says a The city has grown rich on the pilgrims, groped the girls.

The Economist November 1st 2014 3 SPECIAL REPORT IRAN

2 based in London, fill the gaps. Iranians access them using virtual private networks (VPN). Almost everybody has one. Sitting un- A nation of scholars 2 der a tree in the Alborz mountains, a group of farmers nod cau- Enrolment in tertiary education tiously when asked about internet access. One of them explains Iran, m Per 100 people later that most download “sexy films”, hence the shy response. 5 6 Pornography, although strictlybanned, blazesa trail for freedom. Turkey “The government tries to put up controls, but people are 4 5 Iran well versed in evading them,” says one of Iran’s first bloggers. A 4 lot ofeffort has gone into trying to mimic China’s strategy ofnur- 3 Egypt turing local websites that can be controlled, such as salam.ir, a 3 search engine. But most of these have failed spectacularly be- 2 Saudi Arabia cause access to superior foreign competitors is easy. So-called 2 VPNtrepreneurssell the software and accesscodesto bypass con- 1 1 trols. A 21-year-old wearing cordless headphones says he charges a dollar a month or $10 a year and has 80,000 clients. His day job 0 0 at an IT company is a cover. Occasionally he pays the cyber-po- 2002 04 06 08 10 12 2002 04 06 08 10 12 lice a few hundred dollars in bribes. Source: UNESCO The hunger for free information is fuelled by rising educa- tion levels, which are now comparable to those in Western coun- tries. In 2009, 34% of Iranians in the relevant age group went to pean rates. In neighbouring Iraq it is 3.5. The calming impact on university. Three years later the number had gone up to 55% and politics is unmistakable. The largest age bracket now is 25- to 29- is said to have climbed further since then, mostly thanks to the year-olds. Soon most ofthem will be married and lose interest in huge expansion of Azad University, which now has over 100 street protests. campuses and 1.5m students. Iran’s cabinet has more members Nor are they much interested in religion (see box, previous with PhDs from American universities than that of America it- page). The majority of Iranians are Shia Muslims; they generally self; the president, Hassan Rohani, got his in Scotland. According put less emphasis on public worship than Sunnis, but that alone to SCImago, a Spanish firm that monitors academic journals, cannot explain the many empty mosques. Friday prayers at Teh- Iran’s scientific output has increased by 575% in the past decade. ran University—often the place for ideological pontificating by The country also publishes three times more books than all Arab clerical leaders—are well attended, butin the provinces itisdiffer- nations combined. ent. Few believers turn up in the main mosque in Zanjan, a soar- The vastly expanded education system, which makes par- ing concrete structure with double-glazed windows and power- ticularefforts to reach poorand rural families, has acted as a cata- ful air-conditioning near the Azeri border. lyst forindependent thinking. The art world has opened up. Film All these social changes have had a palpable effect on Irani- scripts still require approval, but religious themes have faded. an politics. In the presidential election last year most of the de- Culture is no longer a mere propaganda tool. bate was focused on which candidate was the better manager, One of the knock-on effects of these social changes has even among conservatives. Few tried to bring in religion, which been a demographic shift. Iran is fast becoming a middle-aged was seen as a vote-loser. Nasser Hadian, an academic and gov- country (see chart 1). After the revolution the birth rate soared, ernment adviser, says that “ideology has been losing its potency but as Iranians became more prosperous and educated it started in domestic politics.” Ten-storey-high murals showing martyred falling and eventually dropped below pre-revolution levels. The fighters still stare down from the façades ofprominent buildings, size of the population has doubled since the 1980s but the num- but Iranians are generally fed up with mass mobilisation and in- ber ofbirths has halved. There are no reliable figures, but experts doctrination, and most of them prize individualism above pub- put it at 1.6-1.9 children per woman, broadly in line with Euro- lic duty. The death-loving idealism of the past has become a mi- nority interest. The winner of last year’s election, Mr Rohani, is pursuing a moderate agen- Middle-aged spread 1 da. His government is staffed by prag- Population, by five-year age group, m matic technocrats rather than messianic Iran Iraq Turkey nationalists. It has allowed Iran’s people more freedom, though many restrictions MEN WOMEN MEN WOMEN MEN WOMEN remain. As one local journalist puts it, 4 2– 0+ 2 4 2– 0+ 2 4 2– 0+ 2 4 “We can now print things that were off- 100+ 100+ 100+ limits last year, but of course not every- 90-94 90-94 90-94 thing.” Headscarves have crept back- 80-84 80-84 80-84 wards, yetwomen who discard them alto- 70-74 70-74 70-74 gether may still be detained by the 60-64 60-64 60-64 “morality police”. Mr Rohani seems to recognise that 50-54 50-54 50-54 past belligerence has hurt Iran. In an arti- 40-44 40-44 40-44 cle in the Washington Post last year he 30-34 30-34 30-34 wrote: “We must work together to end the 20-24 20-24 20-24 unhealthy rivalries and interferences that 10-14 10-14 10-14 fuel violence and drive us apart.” But does 0-4 0-4 0-4 he mean it, and ifso, will the rest ofthe po- Source: UN litical establishment support him? 7

4 The Economist November 1st 2014 SPECIAL REPORT IRAN

Domestic politics bia University and doyen ofAmerica’s Iran-watchers. Who might succeed the 75-year-old Mr Khamenei is the subject of endless speculation. No heir apparent has emerged, Rush to the centre and some observers worry that when he dies a destructive pow- er struggle could ensue. But the Islamic Republic’s system of go- vernance, or nezam in Farsi, has a strong collective identity and seems quite capable ofcoming up with a successor. Even though members compete fiercely with one another, they acknowledge that without a supreme leader who is acceptable to all sides the Iran’s political elite maintains a delicate balance nezam cannot survive. Still, competition can get out ofhand. In the late 1990s, after AYATOLLAH KHOMEINI, THE founder of the Islamic Re- Mohammad Khatami, the first true reformist, was elected presi- public, was essentially an anarchist. Having been persecut- dent, tensions rose to the point where competing power centres ed by the shah’s secret police, he despised state structures. Yet were in open revolt. Conservatives more or less declared war on after grabbing power he quickly realised that the gains ofthe rev- their own government. The supreme leader feared the system olution could be cemented only with the help of permanent in- might crash unless he curbed reformist ambitions. In 2005 Mr stitutions. So he set out to build them, lots of them, sometimes Ahmadinejad, a conservative provincial politician thought to be with the explicit intention that they should keep an eye on each a loyal standard-bearer, succeeded to the presidency. other: the army held in check by the revolutionary guard, justice But the new president turned out to be very much his own dispensed by clerics as well as by civilian judges in separate man. He had no interest in unifying the system and instead built courts, militiasperformingsome ofthe same functionsas the po- a separate power base for himself. He took on vested interests in lice, an elected president facing an appointed supreme leader. much the same way his predecessor had done but offended re- Khomeini mimicked America’s Founding Fathers, creating formists as well as conservatives. He won re-election in 2009 by checks and balances and occasional gridlock. rigging the vote. The supreme leader and other conservatives Three and a halfdecades later, Iran’s political system is nei- supported him in this, given that the likely winner was another ther a free-flowing democracy nor a monolithic dictatorship. As reformist. The subsequent revolt by millions on the street, one dissidentsays, “We have freedom ofexpression, justnot free- though quickly put down, again threatened the system’s surviv- dom after expression.” Public debates are fierce, but often al. The plan to achieve greater coherence had failed. amountto little more than shadow-boxingbyan elite that makes decisions behind closed doors. What is remarkable is the size of A semi-democratic legitimacy this elite. Thousands ofpoliticians, clerics, generals, judges, jour- So forlastyear’spresidential election the system reverted to nalists, academics, businessmen and others participate in deci- its old ways. Four conservatives and two moderate candidates, sion-making in one way or another, shaping government policy all carefully vetted, were given a more or less equal chance to in endless and overlapping private meetings, conversations and win power. Before the vote the supreme leader said publicly that conclaves, listening to and lobbying each other. he was not supportingany one candidate, and that “all votes will Often described as a constitutional theocracy, Iran also re- be counted.” sembles a democratic oligarchy. No one man orgroup within the That Mr Rohani won the election was part accident and semi-representative elite holds anything more than a sliver of part fallout from the previous election. In the complicated taxon- 1 power. Acoalition ofnaysayers can usual- ly stop the executive from moving too far ahead. Big decisions require ifnot consen- sus then at least sizeable majorities. As- sembling them takes time and stand-offs are common. But once made, decisions have a good chance ofholding. All this is achieved in the near-ab- sence of political parties. Groupings and factions form for a time, but few have for- mal hierarchies and most fail to impose discipline. Compromise for the sake of a common agenda is rare. This anarchic system just about works because at its centre sits a supreme leader (always a high cleric) who draws his authority from the revolution. Ali Kha- menei, who was appointed for life in 1989, is only the second person to hold the job. His way of operating is to wait for consen- sus to form in debates and step in only when he has to in order to break a dead- lock. He seeshimselflessasa decider than a referee. “He listens to his advisers and opponents, constantly weaving and tack- ing to stay in the mainstream,” says Gary Sick, an academic at New York’s Colum- Rohani, the face of moderation

The Economist November 1st 2014 5 SPECIAL REPORT IRAN

2 omy of Iranian politics he might best be described as a centrist. The hardliners During the campaign the reformist camp stood squarely behind one oftheirown, Mohammad Reza Aref, a formervice-president under Mr Khatami. But shortly before the vote Mr Aref’s suppor- Goon squad ters persuaded him to stand aside in favour ofMr Rohani, believ- ing that only he had a chance of defeating the conservative can- didates. MrRohani would probablyhave won in anycase, buthe also benefited from the conservatives’ failure to agree on a unity candidate. Will the conservative camp sink a nuclear deal? Given the reformists’ previous intransigence, it was an ex- traordinary decision forthem to unite behind MrRohani. One of AT THE CENTRE of Iran’s establishment sits a shadowy or- the senior people involved in making it explains: “We went ganisation responsible for defending the ideals of the revo- through a lengthy and painful process, but ultimately it led to a lution. The Islamic Revolutionary Guard Corps (IRGC) is a para- sort of success.” From wanting to challenge the system, the re- military force rolled into an intelligence agency wrapped in a formists moved towards working within it. Before the election giant business conglomerate with security-related interests. It is their leaders had hotly debated whether to take part in it at all. directly controlled by the country’s supreme leader, Mr Khame- Pragmatists led by Mr Khatami won. According to the senior re- nei, who is chosen by regime insiders for life and outranks the formist, “The hot-headed young learnt to play politics during the elected president. Ahmadinejad years. They saw that fielding candidates who are Many guard commanders eventually end up in senior gov- diehard reformists does not get results. They had to be more ernment posts, but they exert political influence long before moderate, less ambitious. That’s the lesson from the many de- then. Their baseej militia, made up oftens ofthousands ofyouth feats ofthe past.” volunteers, helpsto keep domesticorder. Baton-wielding militia- men dispersed protestersin 2009. In social clubsacrossthe coun- Pick your battles try they are moulded into conservative storm troopers. Their na- Many reformists had been broken by the protests in 2009. tional snooping hotline is advertised on billboards: call 114. Given the size of the demonstrations, the number of people The guards are dedicated to a strong Iran, both at home and killed was not huge, perhaps a few hundred. But thousands en- abroad. The means by which they pursue their goals are often dured periods of detention and abuse, saw their friends suffer unconventional, including the funding of terror groups and the and were harassed once released. exploitation of sectarian tensions, all in the name of revolution- Thisseemed to workwell forthe regime. Manyformer prot- ary change for the benefit of the downtrodden. The real aim, esters withdrew to protective cocoons from which they have still though, is to ensure stability at home and win greater influence not emerged. They avoid the streets and take hashish at home. vis-à-vis America and its allies abroad. The Quds Force, a special- Others have left the country or thrown themselves into non-po- operations unit, fights on Iran’s behalf outside the country. Aid- litical careers. Those who remain active in the publicsphere have ing the government of Syria, a long-time client, it is taking part in become more pragmatic and cautious, picking battles carefully a civil war that has so far killed 200,000 people. The guards also and advocating patience. As Mr Hadian, the academic and gov- sponsor Hamas and Hizbullah, the missile-toting tormentors of ernment adviser, puts it: “As a reformist I now know the limits of Israel. Adecade ago the QudsForce supplied weaponsto Iraqi in- power. We know the other side much better and we know how surgents bent on killing American soldiers. More recently it has to deal with them.” allegedly nurtured rebels in Bahrain and Yemen. Attitudes in the conservative camp have changed, too, al- Last but not least the guards oversee the nuclear-weapons though less conspicuously. The crackdown in 2009 was risky. programme. Iran hasofficiallydenied tryingto build a bomb, but Faced with a possible loss of power, the generals and clerics did almost all Western analysts believe that to be its aim. what they thought was necessary to retain it. But many realised afterwardsthattheycould notgo backto the statusquo. In a high- Money talks ly educated and well-informed society, only so much can be im- The guards preside over a vast business empire that gener- posed from above. Quite a few conservatives supported Mr Ro- atesa substantial income. Theyown mobile-phone networks, oil hani, seen as the candidate best placed to win popular support. firms, carmakers and construction companies, mostly acquired After the election the supreme leader made it clear that he in a $120-billion privatisation bonanza over the past decade. stood behind the new president. His backing is not indefinite or Many ofthe firms they own refuse to pay taxoropen their books unconditional, but it created enough breathing space for Mr Ro- to government inspectors. The guards also control smuggling hani to launch controversial initiatives such as engaging the networks set up to bypass sanctions. West in nuclear talks. The hardliners are showing some restraint. Mr Rohani, the president, is not close to the guards and has Both sides unenthusiastically support a “central solution” reduced their influence in government. His relationship with (which generally means a political compromise) to relieve eco- them has always been difficult. Hashemi Rafsanjani, a former nomicpressure and improve Iran’sinternational position. Kevan president, writes in his memoirs that during the Iran-Iraq war, Harris, an academic at Princeton, reckons that “radicals on both when Mr Rohani was a presidential aide, guard commanders sides are exhausted. They have run out of ideas. Neither ambi- constantly complained about him. Under Mr Ahmadinejad tious reforms under Khatami nor hardline isolation under Ah- about half the cabinet posts went to senior guards officers. That madinejad proved successful.” number has now dropped to four out of18, ofwhom only the de- This does not quite amount to a new equilibrium in Iranian fence minister is an important figure. The share of provincial go- politics. In the past year conservatives have impeached one of vernors supplied by the guards has dropped from halfto a tenth. Mr Rohani’s ministers, dragged an adviser into court, tried to ¥etMrRohani isstill surrounded bysecurityfolk. Five ofhis keep the president himself off state television and frustrated his cabinetministerscome from the ministryofinternal security, the attempts to free up the internet. And the conservatives retain successorto the shah’ssecretpolice. The police can still be heavy- plenty ofpower through the revolutionary guards. 7 handed and wilful, and many dissidents remain in prison. Crit- 1

6 The Economist November 1st 2014 SPECIAL REPORT IRAN

2 ics can question the competence or honesty of officials but are iteration ofthe colonial powers with which Iran has grappled for never allowed to challenge the legitimacy of the Islamic Repub- centuries, thusjustifying“internal vigilance”. Butsuspicion of all lic itself. When the justification for many policies amounts to things Western is real enough. Repeated clashes with America, “because we are an Islamic Republic”, political freedom is not least in Iraq, have shaped the views of many. The push to ac- bound to remain circumscribed. quire nuclear weapons is mostly defensive: they would be an in- Since Mr Rohani’s election the power structure has re- surance policy. Some mention North Korea and Pakistan, whose mained unchanged and he hasgiven fewjobsto reformists. Con- security seems to have benefited from building a bomb. servative judges still hand out harsh sentences for trivial of- Some Western observers fear that Iran is following a strat- fences. Liberals who voted for Mr Rohani seem disappointed. egy which Mao Zedong called “fight-fight, talk-talk” during the Theydescribe him asa pragmaticinsiderwho lacksideals. Ajoke Chinese civil warin the late 1940s: negotiate with youradversary making the rounds in Tehran this summer draws a parallel be- to weaken his resolve and put off outside intervention by hold- tween the reign of his underwhelming predecessor but one, the ingoutthe prospectofa compromise solution, butfight to win. In moderate Mr Khatami, and the succession by the hardline Mr essence, theysay, Iran isnegotiatingin bad faith, hiding materials Ahmadinejad, who in turn hasnowbeen succeeded bythe more and technicians at secret facilities to produce a nuclear arsenal centrist Mr Rohani: even as the talks are in progress. Besides, they continue, dragging out negotiations and hence keepingsanctions in place serves the An old man seeksouta mullah to complain abouthislife. “I have only guards’ economic interests, since they control smuggling net- one room and no food,” he says. “My women and children are crying. works earning billions ofdollars. What can I do?” The mullah tells him to buy a goat. The next day he This argument suffers from several problems. First, cheat- comes back and says things are even worse now. “The women and children are crying and the goat is defecating everywhere. What can I ing will be difficult. If the West signs a deal, it will insist on intru- do?” The mullah tells him to sell the goat. The man returns the follow- sive inspections. IfIran tries to dragout the talks, Congress is like- ing day, embraces the mullah and thanks him profusely. “Everything ly to impose more sanctions. And though some guard is so wonderful now that the goat is gone,” he says. commanders may benefit from smuggling, the colonels and ma- jors involved have no political influence. Senior generals, on the Moderates like Mr Rohani are allowed to tinker at the mar- other hand, are linked to large companies whose business has gins, but the hardliners will not let them stray farfrom traditional been hit by sanctions like everyone else’s. An opening of trade policies. Many still view the West with contempt and blame would allow them to woo foreign investors and expand abroad. America forthe wrongs ofthe world. Sermons authorised by the The guards’ business interests are important, but they do supreme leader are regularly filled with bitter accusations, such not dominate the economy. A Western-educated banker in Teh- as that America created the extremist groups terrorising Iraq and ran estimates that they cover just 5-10% of GDP, mostly in tele- Syria. Israel is openly despised, and Mr Ahmadinejad is not coms, energy and transport. He points out that “building a pipe- alone in questioning the Holocaust. line to Pakistan has national-security implications, so one of Arguably the regime needs external enemies to justify its their firms gets the contract.” But the guards do not preside over a repressive stance. Modern-day America is depicted as the latest military-industrial monolith. Many enterprises are remarkably 1

Many still view the West with contempt and blame America for the wrongs of the world

The Economist November 1st 2014 7 SPECIAL REPORT IRAN

2 inefficient, often relying on personal favours from former offi- cers, of whom there are many. During the Iran-Iraq war an esti- mated 2m Iranians served in the revolutionary guards. Foreign and Iranian academics have described a “subcon- tractor state” made up of hundreds of privatised firms with vague links to the guards but little co-ordination among them- selves. This can lead to large-scale embezzlement, which can be risky. Last year Reza Zarrab, a businessman with close links to guard commanders, was arrested in Turkey on corruption char- ges. Mr Rohani has cancelled several government contracts in re- sponse to public outrage over corruption, and has refused to pay up for failed projects. State within a state The hardliners are a diverse and internally divided bunch. A former guard commander who fought in the Iran-Iraq war ex- plains: “There are many differences ofopinion. It is a vast organi- sation. There is not one single voice. That’s not how it works.” ¦oting records in districts with guard barracks show that many support moderate candidates, including Mr Rohani. Forthe mostpart, seniorguard commandershave refrained from criticising the nuclear talks. Qassem Suleimani, the com- manderofthe Quds Force and bête noire ofthe American armed forces, last year defended the doveish foreign minister and chief interlocutor of the Americans, Mohammad Javad Zarif, against radicals in parliament. Muhammad Qalibaf, the mayor of Teh- ran and former head of the guard air force, has championed a diplomatic solution. He takes holidays in London and occasion- ally flies an Iran Air jet to Paris to keep his civilian pilot’s licence up to date. In official media he is quoted as lauding “the culture of martyrdom and culture of jihad”. But privately the trained en- gineer talks admiringly of the co-operation between military and civilian manufacturers in Israel. Accordingto an academicclose to the guards, “There isvery little opposition in principle to a nucleardeal. General Suleimani The economy is prepared to accept a decent deal. Iran does not want to con- front America and lose. That’s not useful in terms of grand strat- egy. The revolutionary guards’ role after all is to stop America Melons for everyone from feeling comfortable here.” This sentiment is echoed by oth- er insiders. A former commander who survived a gas attack in the Iran-Iraq war says: “I don’t believe there are many hardliners who are against a deal with America in principle. Adeal that pre- serves our dignity will encounter little opposition.” It is not clear A mixture of Western sanctions and bad economic what sort ofdeal would be acceptable to these kinds of Iranians, but it would certainly involve keeping thousands ofcentrifuges. management has hit prosperity Hardliners have supped with the devil on past occasions, ECONOMIC CONSIDERATIONS USED to play a vanish- most notably in 1988, when Iran made peace with Saddam after ingly small role in Iranian politics. As Ayatollah Khomeini, eight years of terrible war, and in 2001, when it co-operated with who led the 1979 revolution, famouslysaid: “We did notrise up to America following the overthrow of the Taliban in Afghanistan. get cheaper melons.” For decades conservative ideologues Last year the supreme leader advocated “heroic flexibility” in af- chased Utopian visions, whatever the cost, while liberals hun- fairs of state, an allusion to the controversial peace made by the gered for political reforms. second Shia imam, Hassan, with the Sunni Omayad caliphate in That has changed in recent years. Debate in last year’s elec- the 7th century. His conduct is often compared unfavourably tion focused on boosting the economy. Mr Rohani won because with that of his brother Hussein, the third imam, who died fight- he was seen as the candidate most likely to achieve that. Conser- ing against overwhelming odds. vatives used to be anti-trade, in keepingwith the autarkic and so-

How farmight Iran’s flexibility stretch? Its anti-Israel rheto- cialistsentimentofthe revolution. Noweven the supreme leader ¨

ric has always sounded somewhat hollow§asser Arafat sided endorses globalised capitalism. Asked why, a senior official with Saddam in the Iran-Iraq war in the 1980s, for which many laughs and says, “My son is in grade two and was recently stand- Iraniansneverforgave the Palestinians. MrAhmadinejad’sHolo- ing for election as class president. I had high hopes. He is a pop- caust-denying was mostly for foreign consumption. An Iranian ular guy and articulate, too, and yet he lost. I couldn’t believe it. I attack on Israel would be devastating, but is highly unlikely to asked him, ‘what did you campaign for?’ ‘Justice and dignity’, he happen. The revolutionary guards are good at fighting guerrilla said. ‘And your opponent?’ ‘He promised the class better lunch wars, but Iran’s conventional forces are in poor shape and most and longer breaks between lessons.’ ” of their equipment is ancient. In its latest assessment, the Penta- Iranians today live much more comfortably than they did a gon notes that “Iran’s military strategy is defensive.” 7 generation ago, but the past three years have been tough. Busi- 1

8 The Economist November 1st 2014 SPECIAL REPORT IRAN

the past, thanks to free-flowing oil rev- “The bazaar enues, governmentshad alwaysbeen able is ruined,” to create jobs, feed the poor, rescue banks, subsidise industry and buy off critics. But says one now, for the first time in a decade, the cof- shopper. fers are empty and the budget is in deficit. According to American government esti- “And I feel mates, the Iranian economy is 25% smaller ashamed today than its pre-2012 growth trajectory indicated. that I can The proximate cause ofthis dramatic no longer plunge wasthe launch byWestern govern- ments of one of the most stringent sanc- afford the tions regimes ever, designed to force an same food. end to Iran’s nuclear-weapons pro- gramme (see box, next page). Iran’s main I cannot oil customers in Europe stopped buying invite almost overnight. America’s government banned the clearing of dollar payments, anyone to most ofwhich go through the American fi- my home” nancial system, by Iran’s central bank and anyone dealing with it. Iran’s government assets abroad were frozen and hundreds of state-linked firms targeted directly. Oil exports, which in 2011had been runningat about 2.5m barrels a day, declined by at least half. Imported industrial compo- nentsbecame impossible to gethold of, fu- elling unemployment and inflation. Some non-Western states ignore the sanctions and continue to trade with Iran. The Iranian government tries to pay them in gold and turns a blind eye to smuggling, profits from which have set off a construc- 2 nesses and consumers are suffering from the effects of much tion boom. It is hard to know how much trade still gets through, tighter sanctions imposed in 2011. “Youliterally see fewer people but sanctions have certainly made a serious impact. with shopping bags on the streets,” says a banker in Tehran. “My The debate on their effectiveness has created some strange normally busy plumber tells me he often doesn’t get his first cli- bedfellows. Western and Iranian hardliners both argue that the ent until mid-week.” The merchants in the bazaar in Qazvin re- country’s falling living standards are solely due to sanctions—the port a drop in revenues ofbetween 50% and 75%. Atomato-seller Westerners to claim a political victory, the Iranians to blame reckons these are the worst times he has seen in 25 years. Mer- their enemies for an ill that is partly self-inflicted. chants open later or stack and restack shelves. “The bazaar is ruined,” says one shopper. “And I feel ashamed that I can no lon- A black hole filled with oil ger afford the same food. I cannot invite anyone to my home.” Iran’s economy is so inefficient, corrupt and bloated that it Iran’s economy is the third-biggest and most mature in the was heading for a fall even before sanctions. Almost all Iranians Middle East. It has a large industrial base, an educated workforce receive cash transfersmeantforthe poor. Lastyearthe state spent and a service sector which in 2012 accounted for 52% ofthe econ- $100 billion on subsidies, a quarter of GDP. Until recently diesel omy. That year, though, GDP fell by 5.8%, according to the central costthe equivalentoftwo American centsperlitre. Turkey, which bank, and last year it dropped by another 2%. Unofficial figures has a population much the same size as Iran’s and is more indus- are even worse. trialised, consumes about 60% less fuel. Iranian government of- Over the previous decade the economy had been growing fices are vastly overstaffed. The oil ministry has expanded from at an average rate of 5.1% a year. When it keeled over, inflation at 100,000 employees in 2005 to 260,000 today. Many abuse their one point shot up to over 50%, and salaries failed to keep pace. In position. Transparency International, a Berlin-based lobby, class- real terms, private pay dropped by 35-40%, and government em- es Iran as “highly corrupt”. Officials routinely use public funds to ployees lost up to 50%. At least halfthe population suffered a dra- invest in foreign property deals. According to one well-placed matic loss of income. In one week in October 2012 the currency observer, “politics is a distraction from making money.” Parlia- plunged by 40% against the dollar in the black market, creating mentary investigators have given warning that if the full extent panic. At its lowest point the rial was down 75%. Unemployment of political corruption were revealed, it could cause “social has rocketed. Car production, which used to account for 10% of shock”. Imports of luxury cars increased fivefold between 2011 GDP and employ 1m people, fell by about 70%, according to in- and 2013, whereas sales ofmodest Iranian-made cars halved. dustry sources. A Mercedes factory in Tabriz that a few years ago The misallocation of funds on a gargantuan scale has hurt was making 80 engines a day now produces just two. the private sector. It accounts for only about a quarter of cor- All this has caused a surge ofpopular discontent. As former porate revenues, and many firms are teetering on the verge of revolutionaries, the country’s leaders are aware of the dangers, bankruptcy. The official figure for non-performing loans, at 18%, yet they struggle to respond because the state has no money. In may be far too low. “The lack of investment capital is the coun- 1

The Economist November 1st 2014 9 SPECIAL REPORT IRAN

2 try’s biggest problem. We’re $300-400 billion short every year,” ingcentury, $800 billion in total. He spent all ofit, shovelling vast says Mr Laylaz, the economist. Since 2006 investment in indus- sums into construction projects. Provincial towns are littered try has fallen by10-15% a year. with unnecessary bridges and bypasses. His prestigious Mehr The banking sector is dysfunctional. Banks lend almost ex- housing project created 200,000 apartments throughout the clusively to state-affiliated firms. Small and medium-sized enter- country without access to water, gas or sewerage, most of which prises cannot get loans. The dearth offinance has spawned some now stand empty. ingenious solutions. For example, private landlords use apart- In theory some of Mr Ahmadinejad’s policies were sound. ments as collateral to borrow from tenants in lieu ofrent. He tried to boost the private sector by selling state assets. Nine of Management of the Iranian economy had been poor since the ten biggest companies on the Tehran stock exchange were the revolution, but under Mr Rohani’s predecessor, Mr Ahmadi- listed in the past decade. Boards and shareholders are no longer nejad, it got even worse. During his eight-year tenure oil rev- toothless. Directors increasingly demand proper accounts, and enues more than tripled, thanks to steep price increases, and annual general meetings can be contentious. The boss of the more moneyflooded into governmentcoffersthan in the preced- Asia Insurance Company was recently told by a shareholder: “A 1

Shackled

The story of the world’s most elaborate sanctions regime FOR GOVERNMENTS THE world over, slapping on the bandwagon, as did the UN. After 2010 Council resolutions. They affect Iranian sanctions on the Islamic Republic has proved the screw was tightened once more until in assets held abroad, foreign aid, visas, insur- popular and uncontroversial at home. Ameri- November last year negotiators agreed to ance, shipping, trade and investment, cur- ca started it in 1979 in response to its dip- ease sanctions for the duration of talks on rency transfers and other transactions, lomats being taken hostage in Tehran. It Iran’s nuclear programme. especially those involving the central bank in added more restrictions after Iranian-spon- America had previously sanctioned Iran Tehran, oil sales and the energy sector gen- sored militants bombed its barracks and for sponsorship of international terrorism, erally. Even gifts over $100 are forbidden. embassy in Lebanon in 1983, then tightened domestic human-rights abuses and arms Some goods and services, notably them further in the 1990s and again after proliferation, but over the past decade most medicine, are exempt, but the overall effect 9/11, for which Iran was not responsible but sanctions were a response to the nuclear of the sanctions regime has been to make it which heightened sensitivities in the West. programme. At first they were aimed at some very difficult for Iranian individuals, compa- After 2005 America got company, of the companies and individuals involved, nies, banks and state institutions to interact thanks to growing worries about Iran’s nuc- then at the entire economy. with the outside world, despite a certain lear programme. Rich European and Asian The sanctions regime is made up of a amount of cheating. As the charts show, the countries and other governments sympathet- bewildering multitude of laws, executive impact on Iran’s economy in recent years has ic to America, from Australia to India, jumped orders, agency directives and UN Security been pervasive and profound.

Where it hurts

GDP Consumer prices Youth unemployment rate Oil production % change on a year earlier % increase on a year earlier 15- to 24-year-olds, % Million barrels per day 8 50 30 5 6 40 28 4 4 26 2 30 3 + 0 24 – 20 2 2 22 10 1 4 20 6 0 0 2004 06 08 10 12 13 2004 06 08 10 12 14 2006 08 10 12 14 2004 06 08 10 12 13

Vehicle production Official exchange rate Imports Exports Units, m Rials against the dollar Rials/$ $bn $bn Inverted Scale 2.0 5,000 80 160 10,000 1.5 60 120 15,000 1.0 40 80 20,000 0.5 25,000 20 40 0 30,000 0 0 2004 06 08 10 12 13 2004 06 08 10 12 14 2004 06 08 10 12 13 2004 06 08 10 12 13 Sources: Economist Intelligence Unit; EIA; Statistical Centre of Iran; Central Bank of Iran

10 The Economist November 1st 2014 SPECIAL REPORT IRAN

2 donkey could run this company better.” But the privatisation programme still leaves much to be de- sired. Majority stakes were regularly sold to entities close to the state, including public pension funds, which in some cases re- ceived their stakes in lieu ofmoney owed to them by the govern- ment. Although asset sales were open to anyone, private inves- tors at home lacked the capital to buy large stakes and foreigners were put off by sanctions. Analysts speak of the rise of a semi- private sector. Devaluations have made some parts of the economy more competitive. For years, Iranian goods were expensive in Iraq be- cause of Iran’s overvalued currency. When sanctions caused the currency to slide, Iranian products almost overnight became cheaper than those from neighbouring industrial countries such as Turkey. At home, sanctions have also kept foreign competitors out; Iranian boutiques and supermarkets are full of domestic products for the first time in a decade. The charms of self-sufficiency Bad economic management apart, Iran’s government also inadvertently boosted the effectiveness of sanctions in two oth- er ways. First, it had been keeping taxes too low for decades, al- lowing the country to become too dependent on oil revenues. Now it has to cut spending and raise taxes at the same time. Sec- ond, when Mr Ahmadinejad came to power a decade ago he abandoned the country’s long-standing policy of economic au- tarky. At the time Iran was almost self-sufficient. Seeing an op- portunity to boost growth, the new president brought down ta- riffs and struck up new trade relations. The policy was a great success, but it made Iran much more vulnerable when sanctions hit home. The government might have foreseen this. As Mr Zarif, the The neighbours country’s foreign minister, wrote in an article in a Western policy journal a few months ago, “The ongoingprocess ofglobalisation, however conceived and defined, whether lauded or despised, Moving targets has brought inescapable weight to bear on the foreign policies of all states, whether large or small, developed or developing…To- day most nation states, regardless of their size, power, influence or other attributes, have come to realise that isolationism, whether voluntary or imposed, is neither a virtue nor an advan- Iran’s position in its region, increasingly influential tage.” It is the source of the article rather than the sentiment ex- pressed in itthatisremarkable. Iran hasrealised ithas been hitby until recently, is becoming more precarious a triple whammy ofoil dependency, sanctions and inefficiencies IRAN’S LEADERS HAVE long had immodest ambitions in covered up by years ofreckless state spending. the Middle East, pining for the respect of the neighbours In his first year in office Mr Rohani has managed to stabilise who once conquered and converted them and even dreaming of the economy. The currencyhaslevelled outand the trade surplus leading a pan-Islamic alliance, however unlikely. In recent de- has gone up. Inflation is down from 45% to 15%. The president’s cades they have been exporting their revolution, propelled by team of capable technocrats expects the economy to start grow- national pride and an urge to pass on lessons from the long road ing again this year, perhaps by 1.5%. Cuts in subsidies have im- to independence, but also driven by a deep fear that they—Shia proved government finances, though they pushed up fuel prices Persians facing mostly Sunni Arabs—are not so much indepen- by 75% overnight. dent as alone in a hostile region. ©et there is a long way to go. Most energy prices continue to In the 1980s the Islamic Republic set out to cultivate friends be subsidised by the state; petrol still costs only 28 cents a litre. in Arab countries after bloodily thwarting an invasion by Iraq. In Unemployment remains stubbornly high. Further reforms are Syria (pictured above) it became the main sponsor of the Assad needed to accelerate growth. Expertssaythese should include re- regime after the collapse of the country’s traditional patron, the ducing cash transfers to the poor, reining in the generous welfare Soviet Union. In Lebanon the Islamic Republic nurtured the Hiz- state, cutting industrial subsidies and firing hundreds of thou- bullah militia which became the dominant political force there sands ofgovernment employees. and, with support from Tehran, repeatedly gave Israel a bloody Iranians have endured greaterhardships in the past. Ameri- nose. Iran also sponsored Hamas, the most successful of the Pal- can sanctions in the 1980s caused fuel and food shortages. For estinian groups warring with Israel. Support for the fight against now, Iranians are not going hungry and the economy is nowhere the Jewish state won Iran plaudits in the wider Arab world. near collapse. But in the longer run something will have to give. In the aftermath of 9/11, America, Iran’s arch enemy, pre- Reforms will become inevitable, but if Mr Rohani can cut a deal sented it with two gifts by removingregimes in Iraq and Afghani- with the West to ease sanctions, they could be introduced more stan that were hostile to both of them. Revolutionary guards gradually and less painfully. 7 made sure that Saddam and the Taliban were succeeded by Ira- 1

The Economist November 1st 2014 11 SPECIAL REPORT IRAN

2 nian allies. They also acquired friends in places like Sudan and Iraq a decade ago, it would not have to worry about those same elsewhere in Africa. Iran’s influence grew steadily. militants occupying the country’s north-west now. It had origi- Sunni neighbours worried about a “Shia crescent” stretch- nally handed weapons to some ofthem to kill Americans. ing from Tehran via Baghdad and Damascus to Beirut. Long- Gone is the talk of a Shia crescent. Now Iranians worry standing rivals, especially Saudi Arabia and Israel, drew atten- about being surrounded by a “Salafi circle”, bearing in mind the tion to Iran’s nuclear programme and suggested military action Taliban’s resurgence in Afghanistan. The growing Shia-Sunni di- to destroy it. But after getting mired in Iraq, America lost interest vide in the region, fuelled in part by Iran’s paramilitary efforts, is and eventually pulled out in 2011. The Islamic Republic never a greater threat to it in the long run than to the Sunni majority. looked mightier. Once again Iran is almost friendless. Even China, Iran’s big- gest oil customer but no fan of separatist insurgencies, voted for Spring’s false promise sanctionsagainstIran atthe UN. In AugustSudan expelled an Ira- When the Arab spring began in December 2010, it seemed nian diplomat and closed a cultural centre. An Iranian agent in like a boon at first. Arab youths appeared to be following Iran’s Nigeria, where a Sunni insurgency rages in the north-east, has script, rising up against secular rulers. The Muslim Brothers that been jailed for arms-smuggling. were gaining ground across the region were quasi-allies of Iran. Ayatollah Khomeini’s vision of Iran as leading Muslims The country’s Sunni rivals became alarmed. But before long the againstthe Westisoutofdate. Since Saudi Arabia and Egypthave Arab spring went as wrong for Iran as it did for almost everyone become noticeably less friendly with America, they can no lon- else. The protesting youths had no interest in backward-looking gerbe depicted as stooges. An ideological construct is crumbling. Islamism and anti-Western sloganeering. As the Iranian scholar Mohammad Ta- The Iranian protests of 2009 were among baar put it, “There was a time when Iran their models and Facebook was their would rely on its revolutionary ideology friend. The Muslim Brothers were soon to project power. Today, Iran uses its pow- outgunned by hardersorts who target Shi- er to project ideology.” as as unbelievers. Even more worryingly for Iran, it is The greatestcalamityawaited Iran in not immune to the extremist bug that has Syria. Thanks in part to Iranian aid the re- befallen its Sunni neighbours. Indepen- gime there did not fall, but Bashar Assad, dent Shia extremism, once unknown, is

the president, did not regain his footing ei- on the rise. Based outside Iran, radical

ther icious fighting destroyed the coun- Shia satellite TV channels such as Fadak try, and the Islamic Republic’s stature ar- preach war against the Islamic Republic, guably suffered more damage than if he which they regard as insufficiently fer- had fallen swiftly. vent. Hizbullah in Lebanon, increasingly Support for the slaughter of Syrian enmeshed in the compromise-laden busi- rebels destroyed much of the goodwill ness of government, faces similar attacks. Iran had painstakingly garnered among Intra-sect fighting could undermine Iran’s ordinary Arabs over decades. By drafting historic claim to be the Shias’ leader. in Hizbullah to fight for the Assad regime, Iran must now co-operate with pow- Iran also damaged the Shia militia’s popu- ers in the region that are interested in pre- serving the status quo, as it itself has be- come, despite the revolutionary rhetoric. Iran must now co-operate with powers in the region that Overstretched and broke, it can no longer are interested in preserving the status quo, as it itself handle its commitments. Engagement with rivals would suit its interests, now has become more closely aligned with theirs. The Rohani government has taken larity. And Iran lost its close relationship with Hamas, which had firsttentative stepsto reach outto neighbours, notleast following been headquartered in Syria but refused to support its hosts. In the rise of IS, which has altered the geopolitical calculus for evident disgust, and perhaps sensing Iranian weakness, Hamas everyone. Officialshave held talkswith the Gulfstates, including moved to Qatar, into the arms ofa new sponsor. Saudi Arabia. Joint military operations may be some way off, but All the while Iran spent billions of dollars propping up the informal co-ordination between once hostile forces is already in Assad regime, turning public opinion at home against the war. progress in Iraq. In the country’s north, American jets have University students openly grumble about the waste of money cleared the way forIranian-controlled militias. America and Iran as tuition fees rise. “How do you say ‘quagmire’ in Farsi?” asked are also accommodating each other in Baghdad’s corridors of an American website last year, suggesting that Syria could be power. At American insistence, Nouri al-Maliki, Iraq’s highly di- “Iran’s ietnam”. visive prime minister, was forced to step down this summer by Afterthree years oftryingand failingto defeat the insurgen- his patron, Iran, and replaced by someone less sectarian. cy in Syria, another Iranian ally has now fallen victim to it. Hard- International relations in the Middle East still involve fierce line Salafi rebels who have made a habit of beheading Western competition forinfluence. Deep chasmsremain. Butthe big pow- hostages this year swept across the border into parts of Iraq and ers know that the most likely solution to their multiple conflicts declared a Sunni “Islamic State” (IS). This damaged the Iran- is a brokered peace, along the lines ofthe one that ended the Leb- friendly government in Baghdad and once again brought hostile anese civil war in 1990. Iran has already published a plan for a forces close to Iran’s borders—both Salafists and Americans. “political solution” in Syria. It is not especially attractive, yet it After decades of exporting revolution, Iranian generals are points the way forward. learning a new term: “blowback”. If Iran had aided rather than In the end, the likelihood of detente hinges on what hap- hindered America’s campaign against al-Qaeda insurgents in pens in the nuclearnegotiations. Adeal with the West on its own 1

12 The Economist November 1st 2014 SPECIAL REPORT IRAN

2 would notcalm the region down. Saudi Arabia and Iran will con- rance, historical grievances and partisan self-interest. American tinue to view each other with mutual suspicion. But a deal suggestionsin the pastthatthe IslamicRepublicmight be close to would remove the threat ofa military attackby Israel and Ameri- collapse still rankle in Tehran. One academic close to the revolu- ca on Iran’s nuclear infrastructure, and of the inevitable retalia- tionaryguardssaystestily, “America keepsthinkingwe are about tion, which has hung over the region for years. to sink, that we’ll implode. I say, just come to terms with reality. If such a deal can be reached, Iran stands to regain stature We have figured out a stable path.” over time. America would draw down troops in the Gulf in due Iranians complain that America is being hypocritical, sup- course—one of the prizes that is rarely acknowledged. Until 1986 porting autocratic Saudi Arabia while denouncing more demo- America had almost no presence along the Iranian shore. Today cratic Iran. Americans retort that the Saudis have not tried to kill 35,000 troops sit on Gulf bases. It is conceivable—even likely— or kidnap them, and point out that Iran has its own double stan- that the majority ofthem will leave ifthe situation stabilises, giv- dards, supportingthe crushingofa revolution in Syria thatissim- en defence cuts in Washington, America’s “pivot to Asia” and the ilar to its own in 1979. Iranian students at Tehran University are shale-gas boom which makes the country less dependent on en- particular aggrieved by what they see as American hypocrisy in ergy from the Middle East. foreign military missions, asking why Americans supplied The American government has already begun to move weapons to rebels in Soviet-occupied Afghanistan in the 1980s. away from unquestioningly backing traditional Arab allies and The studentsquote from a Hollywood film on the subject, “Char- is shifting towards a balance-of-power policy. If Iran can lure lie Wilson’s War”, in which American officials intone, “Let’s go America farther down this path, it stands to reap big benefits. 7 kill some Russians.” So why, they ask, were Americans so of- fended when Iran used similar tactics against them in Iraq? Historical grievances lurk everywhere. Three decades ago Prospects America shot down a civilian Iranian airliner, and Iran helped to bomb America’s embassy in Beirut. Hardliners on both sides are still looking for revenge. In April Mr Rohani tried to appoint his We shall overcome, deputy chief of staff, Hamid Aboutalebi, as head of Iran’s UN mission in NewYork. Butthe ambassadorwasdenied a visa after maybe an outcry in Congress because he had played a minor part in the hostage crisis in 1979. America thus deprived itself of the chance to have a trusted interlocutor on its doorstep. The chances of a deal with the West Many Iranian leaders have built political careers on bash- ing America. To a lesser degree the same in reverse is true for MILLIONS OF EDUCATED and prosperous Iranians resent some congressmen with close links to Israel. Accommodation being isolated from the rest of the world. Until sanctions now would cause a loss offace, maybe even offactional support. started to emasculate trade, life had been gradually improving. Yet overall, the greatest obstacle to reaching a deal is igno- Now many people have lost their jobs or seen their pay and sav- rance rather than self-interest. Iran’s supreme leader believes ings eroded by inflation. The government, too, is having a diffi- that the American government, not just its hardliners, wants to cult time. Oil revenues have dwindled and allies around the re- see him toppled. He misread the Ukrainian revolt earlier this gion are wobbling. Is reliefin sight? year as an American plot. After nine months of nuclear talks in Geneva, the broad outlines ofa possible deal with the West are becoming clear. The Enigma variations aim is to ensure that Iran would need about a year to build a No diplomat from either Iran or America has been posted bomb, giving the West plenty of advance warning. To achieve in the other’s capital for 35 years, though some Iranians have that, the two sides are talkingabout limitingIran’s enrichment of served at the UN in New York. In a documentary called “The Fog uranium to 5% for the next decade or so, and putting the pluto- of War”, Robert McNamara, who served as America’s defence nium programme at Arak to irreversibly civilian use. All this secretary in the 1960s, said that America escaped disaster in the would be monitored closely by international inspectors, but Cuban missile crisis because its officials knew their adversaries without forcing Iran to acknowledge past weapons tests in any in Moscow and could work out what sort of deal they might ac- detail. In return, Iran could expect a rolling (though reversible) cept. On the other hand, America came to grief in Vietnam be- lifting ofsanctions over several years. cause it knew nothing and nobody in Hanoi. A central premise According to one Western official involved in the negotia- of the war—America’s fear that North Vietnam might form a tions, “technical issues are not the main problem.” The tough communist alliance with China—ignored the fact that the two re- part is convincing the respective elites back home to accept the gimes hated each other. deal that is on the table. The real negotiations arguably take place In the absence of knowledge, people will err on the side of in Tehran and Washington, not Geneva. A majority ofAmerican caution. A politically active member of the Khomeini family congressmen seem reluctant to approve anything negotiated by forcefully makes this point: the White House, even iftheir own generals say it is in America’s national interest. Mr Rohani, for his part, faces pushback from When I visit a new city I figure out two or three main roads and use conservatives, even though a deal promises to relieve economic them to go anywhere—even if it takes longer—because I fear getting and regional pressures. lost. Eventually I will try new, shorter routes. But as soon as I’m no Opposition is driven by each side’s suspicion of the other. longer sure where I am I revert to the thoroughfares. Regime hard- Some ofthat may be justified. Iran has repeatedly lied about and liners act much the same. Occasionally they try new, conciliatory routes, but as soon as they feel insecure they revert to familiar antago- cheated over its nuclear programme. Equally, many of the Wash- nism. They know they won’t get lost that way, even if it means travel-

ington-based architects ofthe sanctions would like to see regime 

ling the long way roun ou have to remember that most of them change in Tehran. Both sides have covertly and overtly harmed have spent very little time in the West and feel intimidated by it. Just each other in recent years, compounding distrust. listen to all the talkofpast humiliations. They regard it as a hostile en- However, mutual suspicion is also driven by pride, igno- vironment they don’t understand. It fits into the wider historical ex- 1

The Economist November 1st 2014 13 SPECIAL REPORT IRAN

2 perience ofthe Shia asa minoritysect. We have longbeen the victims, still be needed. But there would or at least defined ourselves as such, dressing in black. The most suc- be some quick results. Car pro- Offer to readers cessful strategy in our past has been to hunker down, wait and dis- duction could soon double, and Reprints of this special report are available. trust rather than act. A minimum order of five copies is required. so might oil exports. Please contact: Jill Kaletha at Foster Printing The impact on Iranian do- Tel +00(1) 219 879 9144 Seen in this light, the nuclear negotiators have taken coura- mestic politics is harder to e-mail: [email protected] geoussteps. To getthe talksgoing, America conceded that in prin- gauge. Mr Rohani could expect a Corporate offer ciple Iran could enrich nuclearfuel forcivilian use. In return, Iran boost from the lifting of sanc- Corporate orders of 100 copies or more are froze its programme for the duration of the talks. Both sides ap- tions and improve his longer- available. We also offer a customisation pear committed to reaching a deal. They recognise that this is a term chances of succeeding Mr service. Please contact us to discuss your rare moment. Forthe firsttime since 1979 the governmentsin Teh- Khamenei as supreme leader. requirements. ran and Washington both want to improve relations at the same However, if he is seen as garner- Tel +44 (0)20 7576 8148 e-mail: [email protected] time. Previously, one or the other was always on the warpath. ing too much acclaim too quick- For more information on how to order special Many observers believe that a deal will either be done in ly, hardliners may decide to take reports, reprints or any copyright queries the next few months or not at all. Both presidents have a narrow him down a peg, say, by block- you may have, please contact: window to sell it at home. Mr Obama is likely to face an even ing economic reforms or boost- The Rights and Syndication Department more hostile Congress from next January and will soon become ing sponsorship of foreign ex- 20 Cabot Square a lame duck. Mr Rohani is struggling to hold off hardliners and tremists. People close to Mr London E14 4QW cannot afford to use all his political capital on this venture. If the Rohani suggest that he has a lon- Tel +44 (0)20 7576 8148 Fax +44 (0)20 7576 8492 November 24th deadline is missed by much, the naysayers on ger-term plan to use the mo- e-mail: [email protected] both sides will claim that no deal can be had, making a future mentum he would gain from www.economist.com/rights agreement even harder. lifting sanctions into reshaping Others think it is possible or even likely that the two sides the political system. The next Future special reports will formallyextend the talks. Theysee little sign of Iranian hard- step would be to win more seats The Pacific Rim November 15th 2014 liners accepting the sort of deal that is available. Yet neither they in parliament. But how much Luxury goods December 13th 2014 Energy January 17th 2015 nor the Americans want to see the talks fail conclusively. Negoti- more sway he could gain is un- Universities February 14th 2015 ations may yet drag on into next year. certain. Hardliners retain con- trol of many levers of power. Previous special reports and a list of The prizes to be had forthcoming ones can be found online: The totems of their ideology, economist.com/specialreports If the negotiators do succeed, it will be because the poten- from denouncing Israel to insist- tial benefits would be substantial, especially for Iran. In its for- ing on the veil for women, are eign relations, it could breathe easier and come a step closer to unlikely to disappear. Progress fulfilling its ambition of leading other nations in the region. The will be slow. partial withdrawal ofAmerican troops from the Gulfwould be a Ifno nucleardeal issigned, the domesticpendulum islikely strategic victory. The economy would be likely to pick up. For- to swing in the opposite direction. Conservatives will reassert eign investors are ready to return to Iran. Many have visited in re- themselves. They have already talked of running a “resistance cent months in anticipation of an opening. Rolling back sanc- economy”, meaning one less reliant on trade. Hostility towards tions would take a long time, and difficult economic reforms will the West would increase. State media would resume their man- tra that America is only interested in de- stroying Iran. The likely American response The would be to impose more sanctions. In potential the absence of a deal, Congress will con- clude that Iran is not serious about finding benefits of a solution and tighten its grip still further. a deal The question is whether other countries will go along with it. China may no longer would be be willingto curtail trade with Iran. Russia substantial, is already in talks about a $20 billion bar- ter deal. Some of Iran’s old trading part- especially ners in Europe could peel away too, espe- for Iran cially if they feel that America is to blame for the failure of the talks. Even so, as long as American banking sanctions remain in place, trade will continue to suffer. And if Iran still refuses to budge? Pressure to bomb its nuclear installations would increase, but until hope of a deal has completely evaporated America seems unlikely to attack Iran when it is also fighting Islamic militants in Iraq and Syria, protecting Europe from Russia and guarding Asian allies against an increas- ingly aggressive China. By comparison, doing a deal with Iran may seem easy. 7

14 The Economist November 1st 2014