The revolution strikes back A special report on l July 21st 2007

Artist CREDIT if required Republication, copying or redistribution by any means is expressly prohibited without the prior written permission of The Economist The Economist July 21st 2007 A special report on Iran 1

The revolution strikes back Also in this section

Men of principle Iran’s neoconservatives and their white coup. Page 3

Bombs away A suitable case for pre-emption? Page 6

The big squeeze But sanctions are not yet painful enough to change Iran’s nuclear policy. Page 8

Only engage The case for a grand bargain. Page 11

The verdict of Qom Theory and practice. Page 12

Khomeini’s children An uncompromising Iran and an uncomprehending America may be stumbling to war, says Peter David Not happy, but probably not eager to become Westernised either. Page 14 T IS Friday prayers in . Several to its present policy Iran will not have ne- Iblocks around the university and Pales- gotiations with it. Now, before the main tine and Revolution Squares have been sermon, comes the warm-up. A speaker closed to trac, as they are every week at denounces Islam’s foes. Shame on you Is- this time. Throughout the morning lines of rael, down with , the seated throng soldiers in khaki and Revolutionary bellows in response, sts pumping in un- Guards in green have been ling into a vast ison. Death to America. hangar. Knots of civilians stroll up in the The prayer leader takes his place be- sun. From within, loudspeakers squawk hind a lectern. In one hand he holds a gun, sermons and bursts of martial music. to represent the sword of Islam. He then re- This week happens also to be the 25th cites in a tremulous voice the lamentation anniversary of the liberation of Khorram- for the Shias’ rst-century martyr, Imam shahr, a bloody Iranian victory during the Ali. At this the assembled worshippers cra- eight-year imposed war against Iraq. All dle their heads and sob, shoulders heaving week footage of the ghting has been with sudden grief. The preacher then takes broadcast on television, even lling the a sip of water, signalling that this morn- half-time gap in the European football cup ing’s main political messagewhich will nal between AC Milan and Liverpool be preached at similar meetings in all of (which soccer-mad Iranians watched Iran’s citiesis about to be delivered. avidly). The Iran- cost Iran hun- Today’s theme is a forthcoming meet- dreds of thousands of lives, helping to con- ing in Baghdad between Iranian and Acknowledgments Besides those mentioned in the text, the author would like solidate the very revolution Saddam Hus- American diplomats, the rst formal direct to thank the following for their time, help and insights: Ak- sein had foolishly attacked. Posters of the contact after decades during which nei- bar Alami, Mohammad Atriafar, Patrick Clawson, Richard martyrs still adorn the streets of Tehran. ther country has been willing to talk to the Dalton, Anoushiravan Ehteshami, Mehran Ghassemi, Bijan Khajehpour, Afshin Molavi, Karim Sadjapour, Barbara Sla- Inside the hangar tens of thousands of other. The preacher is at pains to explain vin and Hamid-Reza Taraqqi. men (the women are screened out of sight) that Iran is not showing weakness. That sit in rows on prayer rugs. At the front un- carnivorous wolf is not of the type to enter A list of sources is at der a podium is much of the country’s tur- negotiations, he says of America. Amer- www.economist.com/specialreports baned political leadership. Also present is ica is only after securing its own hege- General Yahya Rahim Safavi, the com- mony. Isn’t America the ? mander of the Revolutionary Guards, Wasn’t refusing to talk to America a princi- An audio interview with the author is at which wrested control of the war from ple of the blessed Ayatollah Khomeini? www.economist.com/audio what had been left of the ’s army and There will be no departing from principle, has exercised growing inuence in Iran he says. All that has happened is that Iraq’s A country brieng on Iran is at ever since. Under the podium a green ban- government has asked for help. And all www.economist.com/iran ner proclaims: So long as America sticks Iran will do is insist that as Iraq’s occupiers1 2 A special report on Iran The Economist July 21st 2007

2 the Americans are responsible for the CD on which they can look up who is dent Ahmadinejad would be more dan- mayhem there. We can with most cer- thought to be investing what in Iran. Why? gerous still. Would he consider using tacti- tainty announce today that the United Because, says Danielle Pletka, an AEI vice- cal nuclear weapons against Iran? You States has become the obvious manifesta- president, people need to understand that can’t rule out anything. John McCain re- tion of the axis of evil in the region, he de- between (a) doing nothing about Iran and cently broke into song, intoning bomb- claims. The seated throng roars its assent. (c) dropping a bomb on it is a third pos- bomb-bomb bomb-bomb Iran to the sibility, (b), of inicting economic pain un- tune of a Beach Boys song. The audience in America til the mullahs change their ways. This Alongside the work of the think-tanks Tehran’s Friday prayers are broadcast all week too Dick Cheney pipes up from the and the warnings and ditties of the politi- over Iran and around the world. The ery deck of USS John Stennis, one of the addi- cians comes a drumbeat of alarming slogans of the worshippers reinforce the tional aircraft carriers America has sent to newspaper articles. In the Wall Street Jour- scary fanaticism outsiders have come to the Persian Gulf. The vice-president says nal, Norman Podhoretz, a hero of the neo- associate with the Islamic Republic since America will stand with our friends to conservatives, concludes in an op-ed Ayatollah Khomeini’s revolution more stop Iran getting nuclear weapons and piece: The plain and brutal truth is that if than a quarter of a century ago. And no- dominating this region. Iran is to be prevented from developing a where in the world do Tehran’s morning Some say that Mr Cheney is the last nuclear arsenal, there is no alternative to prayers have a more attentive audience hawk standing in the Bush administration. the actual use of military forceany more than in the capital of the United States. But anxiety about Iran’s nuclear inten- than there was an alternative to force if For all its problems in Iraq, America is tions stretches right across American poli- Hitler was to be stopped in 1938. also xated on Iran. In 2005 George Bush tics. Condoleezza Rice, the secretary of promised that he would stop the world’s state, claims that America faces no greater The audience in Iran most dangerous men from getting their challenge from a single country than from Is that really where things stand with hands on the world’s most dangerous Iran. And most of the presidential candi- Irana new Hitler and a new 1938? Look weapons. That same year a brash former dates for 2008 are talking equally tough. again at Tehran’s Friday prayers. One thing mayor of Tehran, Mahmoud Ahmadine- Hillary Clinton favours opening a dip- a visitor notices at once is how little con- jad, won a surprise victory in Iran’s presi- lomatic track with Iran. John Edwards nection this stage-managed event has with dential elections. Since then he has done supports a non-aggression pact. Barack the everyday life of the bustling metropo- his level best to look like one of the world’s Obama says it would be a profound mis- lis around it. Even the audience, squatting most dangerous men. take to start a war. But neither Mrs Clinton in serried ranks beyond the dignitaries, President Ahmadinejad took over from nor Mr Edwards nor Mr Obama rules out looks untypical. a middle-aged cleric, Muhammad Kha- force if Iran persists with its nuclear plans. Iran is a young country (see chart): two tami. As president, the mild, bespectacled For Rudy Giuliani, the Republican out of three people are below the age of 30. Mr Khatami had pushed for liberal re- front-runner, a military strike would be On the streets of auent north Tehran, forms at home and talked reassuringly to very dangerous, but nuclear arms in the young people dress in the latest fashions the outside world about Iran’s desire for a control of an irrational person like Presi- even if the jeans-clad women are obliged dialogue of civilisations. The new presi- by law to wear the Islamic headscarf (the dent, a former Revolutionary Guard and a ). The audience at prayers, however, is Holocaust-denying demagogue, does not A young country 1 older: shabbily dressed men well into their do reassurance. Since his election Iran has Population, m 40s, regime stalwarts who have trekked deed the UN Security Council’s orders to uphill from the poor southern suburbs. 80 stop enriching uranium, threatened Which is the true Iranthe consumer- 70 repeatedly to make Israel disappear and oriented young, bored by the slogans of a 60 declared war on Iran’s internal reformists. long-ago revolution and impatient to 50 Switch to a typical week in Washing- move on? Or the regime faithful chorusing 40 ton, DC, just before those Friday prayers. the familiar slogans at Friday prayers? 30 The Washington Institute for Near East Pol- *† It is tantalisingly hard to know. With icy is holding a symposium on Iran’s un- 1975 80 85 90 95 2000 07 71m people and a multitude of languages acceptable bomb. Robert Kimmit, the and ethnicities, Iran is a dicult place to deputy treasury secretary, tells delegates Age, m, 2000 read. Although it has elements of democ- how America is tightening sanctions on MALE FEMALE racy, including an elected president and Iran. From Jerusalem by video Shimon 543210 012345 parliament, the state is not ultimately con- 90-94 Peres, Israel’s elder statesman (and now 85-89 trolled by elected institutions. And even 80-84 president), says that if Iran develops nu- 75-79 the elected bit of the system is a backstage 70-74 clear weapons, they may fall into the 65-69 game of personalities and factions, not a 60-64 55-59 hands of terrorists. A British diplomat ar- 50-54 transparent process rooted in political par- 45-49 gues that Iran’s nuclear programme threat- 40-44 ties. Press freedom is limited, almost no se- 35-39 ens irreparable damage to the Nuclear 30-34 rious independent opinion polling is al- 25-29 Non-Proliferation Treaty (NPT). 20-24 lowed, and many ocial economic 15-19 Also in this typical week another think- 10-14 statistics appear simply to be made up. All 5-9 tank, the American Enterprise Institute 0-4 this makes the regime’s inner workings (AEI), unveils a database listing foreign in- Sources: World Bank; Economist elusive. Outsiders can only follow the vestments in Iran. Journalists are given a Intelligence Unit; US Census Bureau *Estimated †Forecast trend and make a guess. 7 The Economist July 21st 2007 A special report on Iran 3

Men of principle

Iran’s neoconservatives and their white coup

AST time The Economist visited Iran for a dential elections produced an unexpected crimes punishable by death. Lspecial report, in 2003, the so-called victory for Mr Ahmadinejad, then a little- In recent months the slide back into Tehran springa period of cautious po- known former mayor of Tehran. authoritarianism has accelerated. Tehran’s litical liberalisation under the presidency The Tehran spring of ten years ago has annual campaign against bad hijab, of the soft-spoken Mr Khatamiwas draw- now given way to a bleak political winter. when police harass or arrest women who ing to a close. He had won a landslide elec- The new government continues to close show too much hair under their obligatory tion in 1997 and a renewed though smaller down newspapers, silence dissenting headscarves or make themselves up to mandate in 2001. These victories had sig- voices and ban or censor books and web- look sexy, has been unusually severe. A se- nalled that the people of Iran wanted sites. The peaceful demonstrations and ries of high-prole arrests seems calcu- change: freedom of thought and speech, protests of the Khatami era are no longer lated to intimidate dissenters. Some of political diversity, a more open economy, tolerated: in January security forces at- those arrested have been visiting Ameri- tolerance, the rule of law and a friendlier tacked striking bus drivers in Tehran and can citizens with dual citizenship. (One, stance towards the outside world. But as arrested hundreds of them. In March po- , from the Woodrow Wil- president, Mr Khatami had limited powers lice beat hundreds of men and women son Centre in Washington, is the wife of to deliver what they wanted. who had assembled to commemorate In- Shaul Bakhash, a noted scholar and for- That was because the constitution ternational Women’s Day. mer writer for The Economist. She was de- drawn up under Ayatollah Khomeini tained and imprisoned while visiting her adopted a doctrine known as velayat-e fa- The consequences of dissent mother in Tehran.) More shocking inside qih, in which an Islamic jurist sits as su- According to Human Rights Watch, an in- the country was the arrest in April of Hos- preme leader at the apex of politics. And ternational lobbying group, detainees are sein Mousavian, a former Iranian ambas- over the course of the Khatami presidency routinely tortured in clandestine prisons sador to Germany and former nuclear ne- the unelected part of the structure, di- operated by the judiciary, the information gotiator, on suspicion of espionage. The rected by the present supreme leader, for- ministry and the Revolutionary Guards. arrest of a regime insider on such an out- mer president Ayatollah , The rate of executions appears to have landish charge sent a shudder through systematically throttled most of the speeded up, too. Iran now executes more Iran’s political establishment. Mr Mousa- changes Mr Khatami and his fellow re- people than any other country except vian is close to , formers proposed. Chinaoften without giving defendants a a former president and Mr Ahmadinejad’s Dozens of newspapers opened during fair trial. Homosexuality is one of the defeated rival in the 2005 election. the Khatami period, only for many to be If you are determined to give Iran the shut down on one pretext or another by benet of the doubt, one way to interpret the judiciary. Clerics who took advantage these developments is to see them as the of the new atmosphere to question the swing of a political pendulumthe sort of doctrine of velayat-e faqih were impris- wobble you might expect in any country oned or otherwise cowed. Even as political making a tful transition to democracy. By debate blossomed, Iran’s security services 2005 Mr Khatami’s reforming presidency cracked down on religious and ethnic mi- had after all run out of steam. Mr Ahmadi- norities. A number of the regime’s critics nejad won a popular election. The people fell victim to murders traced later to the in- seemed once again to want change, but terior ministry. In 1999 police reacted to a change of a dierent kind: economic jus- peaceful demonstration for freer speech tice and redistribution rather than a po- by invading Tehran University, beating litical and cultural opening. and arresting hundreds of students and Mr Ahmadinejad, the austere son of a killing at least one. In the majlis (parlia- blacksmith, ran as an economic populist, ment) much of the president’s reforming adroitly harnessing the conviction of the legislation was vetoed by the Council of mostazanIran’s downtroddenthat Guardians, a committee of clerics ap- their basic needs had been neglected by pointed by the supreme leader to ensure the political reformers. A big part of his ap- that laws conform with Islamic precepts. peal was his promise to tackle the corrup- By 2004 Mr Khatami’s failure either to tion many voters associated with the older stand up to these assaults on his pro- brand of conservative, such as Mr Rafsan- gramme or to deliver economic progress jani, whom many Iranians believe to be a had led to widespread disillusion. That billionaire as well as a cleric. year, hardliners won a big victory in par- Nonetheless, says the pendulum the- liamentary elections. And in 2005 presi- Dressing to kill a revolution ory, Iranian politics is still an aair of1 4 A special report on Iran The Economist July 21st 2007

2 checks and balances. The new president is in their approach and oppose Mr Ahmadi- not invincible. His erratic economic poli- nejad’s brand of what many outsiders ciesespecially when combined with the have come to call neoconservatism. impact of sanctionswill prevent him Could the older-style conservatives from satisfying the expectations he has such as Mr Rafsanjani and the reformists aroused. By the time of the next majlis elec- band together and win next time? That is tions in 2008, or the presidential ones in what the pendulum theorists hope. This 2009, the reformists will have regrouped being Iran, however, plenty of evidence and the pendulum may swing back. can also be found to prove that the pendu- In Iran, it is said, you can always dredge lum theory is wrong. up plenty of evidence to support any the- ory you care to believe in. So it is with the A parallel universe theory of the pendulum. Mr Ahmadinejad One of the theory’s defects is its underly- has been in oce for less than two years, ing assumption that power swings back but that has been time enough to produce and forth with election results. In Iran it plenty of evidence that his power is lim- doesn’t quite. In 1997 Mr Khatami won a ited and his tenancy may be short. Despite very handsome democratic mandate for the endorsement of the supreme leader reform, but by winning the presidency he (Ayatollah Khamenei has called him Iran’s did not win a free hand to govern. best president since the revolution), Mr Iran, remember, is at best a quasi-de- Ahmadinejad: rekindling the old re Ahmadinejad has faced vehement opposi- mocracy: in parallel with the elected sys- tion, not least from the majlis itself. tem exists another system that is un- to describe what Iran is experiencing as a From the start, the majlis resisted many elected. Its elements include the armed white (ie, bloodless) military coup. This of his choices for cabinet jobs. It also re- forces (especially the Revolutionary did not start with President Ahmadinejad, jected many of his spending plans. More Guards), the Council of Guardians, the ju- though as a war veteran and former Revo- than 30 majlis members have signed a pe- diciary, the senior conservative clerics and lutionary Guard commander he is typical tition that would summon the president to a vast administrative machine that reports of the class and generation behind it. It has appear in parliament to explain his alleged directly to the supreme leader. By and large been developing quietly ever since the policy failings. A year ago 50 prominent this unelected system is made up of strong men of principle began to fear that their economists sent him an open letter attack- believers in the original ideology of the revolution would not survive the en- ing his economic policies. Last month they revolution, or at least people who have a croachment of Western ideas, consumer sent another, with additional signatories. strong vested interest in it. A common self- habits, satellite television and the rise of a Mr Ahmadinejad’s mounting bellicos- description of these people is that they are generation that had no direct memory of ity on the international stagehis threats osoulgara, or principle-oriented. either revolution or war. against Israel, questioning of the Holo- The principle-oriented custodians of This is not the sort of coup in which the caust and nuclear deancehas also run the revolution did not wait until the elec- armed forces have to make an overt grab into robust internal criticism. This seemed tion of Mr Ahmadinejad before taking ac- for power, because the supreme leader is to reach a crescendo last December when tion against Mr Khatami’s reforms, which part of the conspiracy. The fear, rather, is voters handed him a serious indirect re- they interpreted as a potentially lethal that with all the state institutions now in bu. In municipal elections and elections threat to its core values. With the conniv- conservative hands the unelected centres for the Assembly of Experts (the body that ance of the supreme leader, they simply of power are coalescing behind a single elects and supervises the supreme leader), used their executive power and a compli- hard line and taking over all the top jobs. most of the candidates Mr Ahmadinejad ant judiciary to override the wishes of the And in the name of principle this group supported were defeated. legislature and the voters. (one majlis member calls it the power in Does this mean that the hardliners as a By these means President Khatami was the shadow) has no qualms about bully- whole are in trouble? Not necessarily. In deprived of his power long before he was ing parliament or suborning the judiciary. Iran’s faction-based politics, the divisions deprived of his oce. Nor did the men of Mr Ahmadinejad is part of this group, between political blocks are not clear-cut. principle think it safe to leave the choice of but its survival does not depend on his. In- Factions tend to coalesce before elections his successor to Iran’s voters. The election deed, many of the conservatives who sup- and then break apart once they have got took place only after legions of candidates ported his presidency are beginning to cast their man in. At the same time the defeated had been disqualied by the Council of around for a more moderate, cooler- factions seek to form coalitions in the hope Guardians. By way of insurance there was headed replacement (one possibility is of reversing their defeat next time round. also judicious ddling on election day: re- Mohamed Baqer Qalibaf, the mayor of Right now the hardliners who rallied formists complain that the Revolutionary Tehran). If necessary they will sacrice around Mr Ahmadinejad in 2005 are less Guards and their associated Basij militia of him to protect themselves, says Isa Sa- concerned to maintain unity, whereas the perhaps a million young volunteers were harkhiz, the outspoken managing editor of main opposition groupings are feeling drafted in to intimidate voters and stu Aftab, a reformist monthly. So strong is the their way towards an alliance. ballot boxes. military-clerical nexus under the supreme In the majlis these consist of a rump of Take all this into account, and what is leader that Mr Saharkhiz dismisses the Khatami-style reformists and a larger happening in Iranian politics begins to possibility of the reformists winning re- block of people who travel under the con- look more sinister than the swing of a pen- election. He says the Council of Guardians servative banner but who are pragmatic dulum. Some opposition politicians prefer will simply disqualify their candidates. 1 The Economist July 21st 2007 A special report on Iran 5

2 A principal exhibit in the theory of the many Iranians living in America, believe Tehran and restricting the movements of white coup is the relentless increase in the that the regime is so unpopular that it can those who remain. The country is being inuence of the armed forces, especially indeed be reformed or even removed from put on a war footing, says one. the elite Revolutionary Guards. The withinif only the opposition receives a It is a familiar pattern. Writing from ex- Guards bared their teeth early in the re- bit more help. To that end the American ile, Akbar Ganji, one of Iran’s best-known form period. Within a year of Mr Kha- government has earmarked scores of mil- dissidents, says the hardliners have consis- tami’s election as president their com- lions of dollars to help Iranian civil soci- tently cited American policies towards mander, General Rahim Safavi, was ety and pro-democracy groups. Iran as an excuse to crack down on internal calling the reformers hypocrites. In one But reformers inside the country dare foes. Politicians with close ties to the mili- notorious intervention he suggested that not touch this money. Ebrahim Yazdi, tary establishment have taken control of those reformers who (in his view) threat- leader of the Freedom Movement, which the Iranian government and are trying to ened the revolution should be beheaded. supported the revolution but is now a cou- manage the cultural and political arena in Now that one of their own is president, rageous voice for democracy, says that the style of a police state, he says in the the inuence of the Guards has such programmes merely give the authori- Boston Review. These policies are, in turn, broadened. A large cohort of former ties an excuse to intensify the repression. aggravating hostilities and allowing the Guards sits in the majlis. The Guards main- The government cites these American Bush administration to justify its belliger- tain their own intelligence agency and se- ence. Thus the vicious cycle continues. cret prisons. Men with close links to the A similar mechanism operates in the Guards control principal media outlets nuclear debate. Shahram Chubin, director such as the state broadcaster as well as the of studies at the Geneva Centre for Secu- powerful Ministry for Islamic Guidance rity Policy, argues in a recent book that al- and Culture. Three years ago the Guards though Iran resumed the shah’s nuclear showed their strength by deciding on their programme for security reasons during the own authority to close down the capital’s war with Iraq, its motivation now has at new Imam Khomeini International Air- least as much to do with internal politics. port. They claimed that a decision to allow As the revolution started to falter in the a Turkish consortium to operate the termi- 1990s, he says, the nuclear option oered a nal had posed a threat to national security; way to rally nationalist opinion and le- but many Iranians think the real reason gitimate the regime. was that a company close to the Guards So it has proved. Mr Ahmadinejad and had lost its bid for the tender. his coterie have succeeded brilliantly in It may therefore be no coincidence that portraying the regime’s quest for nuclear in the past two years the Guards’ commer- technology (it is careful never to speak of cial interests have prospered. Their engi- nuclear weapons) as a matter of national neering arm, known as Ghorb, has been pride. Most Iranians do not see why a great granted juicy slices of big state projects, in- nation such as theirs should be denied a cluding the building of gas pipelines and a technology others are allowed to have. new section of the Tehran metro. This has wrong-footed the pragmatists, Sayeed Laylaz, a former government of- such as Ayatollah Rafsanjani, who sup- cial and now a private economist in Teh- ports the nuclear programme but would ran, says simply that the Guards are Iran’s Khamenei: supremely paranoid work harder to prevent it from antagonis- nomenklaturaa new social class formed ing the world and isolating Iran. by domination of the economy. Within funds as proof that the United States is For Iran’s men of principle it may be ten months of Mr Ahmadinejad’s election, plotting its overthrow. Fearing (or claim- that antagonising the world and isolating he reckons, the value of civil contracts ing to fear) that America is fomenting a Iran are very much part of the point. Her- awarded to the Guards, many of them velvet revolution, it has used them to jus- midas Bavand, a Tehran-based academic, without going to competitive tender, had tify its arrest of foreign visitors. says that just as revolutionaries in Russia trebled from $4 billion to $12 billion. On In recent months almost all contacts be- and China took fright when their ideas top of this, the Guards are also thought to tween civil society and the West have stopped resonating with the people, those be in charge of Iran’s nuclear-weapons fallen under real or manufactured suspi- in Iran think that their survival depends on programme, a political and technological cion. In May American would-be partici- making Iranians feel surrounded, isolated responsibility conferring huge inuence pants in an economic conference organ- and beset by foes. A particular group, he and prestige within the ruling system. ised by the Ravand Institute, Tehran’s rst says, wants to make the revolution perma- independent economic think-tank, set up nent in order to retain their control of the A plot a day keeps opposition away by Iran’s former ambassador to London, power structureand for this it is helpful What makes Iran’s future especially hard were denied visas. In June Iranians who if they can point to enemies everywhere. to predict right now is its testy relationship had the temerity to attend a reception at The more that outsiders meddle, the with the outside world, and particularly the British embassy to mark the queen’s deeper the regime digs in. Better to let the with the United States. That is because the birthday were harassed on their way in country nd its own way towards democ- direction Iran takes will depend not only and out by police and rent-a-mob demon- racy, the reformers say. But can the world on its own choices but also on what the strators. The regime is cutting down the aord to leave Iran to its own devices? If world does to it. Many Americans, and number of foreign journalists based in they are nuclear devices, perhaps not. 7 6 A special report on Iran The Economist July 21st 2007

Bombs away

A suitable case for pre-emption?

MERICA and many other countries are making rapid progress. In Iran, the also argues that under the letter of the law Aconvinced that Iran is trying to build agency’s attempts to monitor nuclear ac- it was not required to disclose the exis- nuclear weapons. But Iran denies this, and tivities have been hampered by years of tence of these facilities until uranium en- after the intelligence bungles in Iraq such deception. And Iran’s credibility suered a richment actually beganwhich, it says, it claims need to be examined with care. The massive blow in 2002 when a dissident intended to do. Iranians remind the world that their sol- group, perhaps tipped o by Western In 2003, embarrassed by the discovery diers were victims of Saddam’s poison-gas spies, revealed that the country had built of its secret facilities, Iran agreed to imple- attacks during the Iran-Iraq war, and that two nuclear facilities in secret without in- ment the additional protocol of the they never retaliated in kind. Ayatollah forming the IAEA. One of these, in Arak, IAEA, making its facilities available for Khamenei, the supreme leader, has gone was a heavy-water reactor, just the thing fuller inspection. After negotiations with so far as to issue a fatwa (religious decree) for making plutonium, which is one way Britain, France and Germany it agreed to declaring the possession or use of WMD in to fuel an atomic bomb. The other, at Na- suspend uranium enrichment. But it con- general, and nuclear weapons in particu- tanz, was a facility for enriching uranium, tinued to insist on its right to resume it, and lar, to be illegal under Islamic law. which is the other way of doing it. in August 2005, the month of Mr Ahmadi- Furthermore, Iran’s leaders point out It is true, as Iran says, that the centri- nejad’s inauguration, it did soeven that unlike existing nuclear-weapons fuges at Natanz can also make the less en- though the three European governments states in their neighbourhood, such as Pak- riched fuel that a nuclear reactor would had oered it economic and civilian-nu- istan, India and Israel, Iran has signed the need for producing electricity. But since clear help in exchange for stopping perma- Nuclear Non-Proliferation Treaty (NPT). It Iran does not yet have any such reactors nently. In June 2006 the incentives on oer has therefore submitted itself to inspec- (other than the one the Russians have built for nuclear compliance were both tions by the International Atomic Energy for it at Bushehr, which comes with Rus- broadened (all ve permanent members Agency (IAEA), the treaty’s watchdog. sian-supplied fuel), why the rush to en- of the Security Council, and Germany, en- When asked why a country overowing rich? Why try to keep both Arak and Na- dorsed them) and sweetened. Con- with oil and gas should want nuclear en- tanz secret? And why has Iran apparently doleezza Rice said that if Iran accepted, ergy, Iran answers that its oil revenues will co-operated with both North Korea and America would drop its long-standing re- one day diminish and that in the mean- A.Q. Khan, Pakistan’s notorious nuclear- fusal to negotiate directly with Iran and time nuclear energy at home would free weapons smuggler? open talks on a wide range of subjects. more petrol for export. Besides, say the Ira- Iran’s answer to these questions is that From America’s perspective this was a nians, America and other Western coun- it was forced to keep these nuclear activi- big concession. And yet, for one reason or tries were happy to help the shah establish ties secret because America was intent on another, Iran did not bite. And in the past a nuclear industry before the revolution. blocking its civil nuclear programme, even year its readiness to pay a growing price for Why should what America deemed to though having such a programme was its its determination to press on with enrich- make economic sense at that time be inalienable right under the NPT. Iran ment and so master the entire nuclear-fuel thought absurd now? cycle has inevitably added to suspicion of It should also be noted in Iran’s defence its intentions. Part of that price has been that the nuclear agency has as yet found no losing the diplomatic protection that Rus- conclusive evidence that Iran is running a sia and China had previously given it in nuclear-weapons programme. In a report the Security Council. In July 2006 the to the IAEA’s governors last March, Mo- council ordered Iran to suspend enrich- hammed ElBaradei, its director-general, ment. Its refusal resulted in two further said only that until Iran gave the agency resolutionsin December 2006 and March more information about its nuclear activi- 2007imposing modest sanctions, with a tiessome of which it kept secret for many third now in preparation. And yet the cen- yearshis agency would not be able to trifuges spin deantly on. Little wonder provide assurance regarding the exclu- that the working assumption in many cap- sively peaceful nature of all of Iran’s nu- itals is that Iran wants the bomb. clear activities. In short, the IAEA has no If that assumption is correct, how soon rm evidence that Iran is trying to make a might it get one? Mr Ahmadinejad keeps bomb, but it has plenty of suspicions and claiming that Iran has already passed the cannot give it a clean bill of health. stage of no return in its attempts to master The IAEA, however, is a cautious orga- enrichment, but continues to deny that nisation with a mixed record. In the 1980s Iran wants the bomb. We have broken it failed to detect Iraq’s nuclear-weapons through to a new stage and it is too late to programme at a time when it was in fact push us back, he said in June. Most out-1 The Economist July 21st 2007 A special report on Iran 7

2 side experts, however, are sceptical about how much progress Iran has made. A common estimate is that in order to produce enough ssile material for a basic device, Iran would have to run an array of some 3,000 centrifuges at high speed for more than a year. Mr ElBaradei told a meeting of the IAEA last month that Iran already had between 1,700 and 2,000 cen- trifuges running, and predicted that this number could rise to 3,000 by the end of July. But the amount of uranium hexauo- ridethe gas put into the machines for en- richmenthas been relatively small, suggesting to some analysts, including the IAEA, that Iran is not yet condent of its ability to spin them at full speed. One respected expert, David Albright, president of America’s Institute for Sci- Enrichment please ence and International Security, reckons Iran would be lucky to be able to enrich exibility than the Palestinians them- the Zionist regime. A week later the enough uranium for a bomb by 2009 and selves. It denounced Yasser Arafat’s es- Speaker of the majlis, Gholam-Ali Had- that to complete all the other steps neces- pousal of a two-state solution as a betrayal dad-Adel, said during a visit to Kuwait that sary to make a usable weapon could take and it continues to arm and train groups Mr Ahmadinejad’s comments did not another year or more. Israel says that if such as Hamas, Islamic and Hiz- mean that Iran intended to attack Israel, Iran’s programme went very smoothly, it bullah that say they want to destroy Israel. only that the Zionist entity was on a could have a bomb by 2009. Mr ElBaradei, During the reformist period, President natural course of disintegration. who makes no secret of his belief that it Khatami softened Iran’s stand, implying For all the ambiguity, such talk helps to would be crazy to launch a pre-emptive that it might respect whatever solution the sow fear in Israel and corresponding de- attack on Iran, says an Iranian bomb, if Palestinians accepted, but Mr Ahmadine- light in Arab countries, where Mr Ahmadi- that is what Iran wants, is between three jad, in numerous Holocaust-denying nejad may now be more popular than he and eight years away. speeches calling for or predicting Israel’s is at home. To that extent it has been a ra- eradication, has returned Iran noisily to tional instrument of foreign policy. Such Reasons for wanting the bomb the true faith. talk may also stem from a rational domes- So what if Iran got the bomb? Wouldn’t its These pronouncements have led com- tic calculation: hurling dire threats against only purpose be to deter? Iran does after mentators in the West to ask whether Israel in the Khomeini manner helps rekin- all have a history of being bullied and in- Iran’s president is a new Hitler with geno- dle the revolutionary re that was allowed vaded. In the 19th century Britain and Rus- cidal designs. But a close look shows them to cool under the reformists. sia played their great game on its terri- to be ambiguous. It is not clear, for exam- As to whether Mr Ahmadinejad is a tory. Britain and America engineered the ple, whether he really doubts that the Ho- new Hitler, one point to note is that he is coup that unseated an elected prime min- locaust occurred or merely why such an neither Iran’s dictator nor the master of its ister, Muhammad Mossadegh, in 1953. event should have been allowed to justify nuclear programme, which comes under After Iraq’s invasion in 1980 the United Na- Israel’s creation. In the blogosphere trans- the supervision of the supreme leader. tions did precious little to help Iran. And in lators hold lively debates about whether That may not be so very reassuring. It im- 2002 Iran found itself listed as part of he really did call for Israel to be wiped o plies that even if Mr Ahmadinejad were to George Bush’s axis of evil, at a time the map or just removed from the pages shut up, or lose his job, the nuclear danger when America had just sent one army into of time, a phrase which some people will remain. neighbouring Afghanistan and prepared seem to think sounds less erce. In the Since Israel does not admit to having to send another into neighbouring Iraq. mind of Mr Ahmadinejad, are Israel and nuclear weapons, its detailed thinking on All thisplus loose talk in Washington, its people to disappear in some violent nuclear matters is rarely ventilated in pub- DC, about regime change in Iranmay event? Or is it merely the Zionist regime lic. But most of those Israeli experts willing have convinced the country’s leaders that that is to come to an endperhaps peace- to talk rate the chances of an Iranian nu- Iran needs a bomb simply to make poten- fully, after the Palestinian refugees have re- clear attack as low. Despite Mr Ahmadine- tial attackers think twice. But if Iran has turned and decided by referendum? jad, most consider Iran to be a rational reason to want a bomb, others have bigger If Israel is to disappear, will Iran be the state actor susceptible to deterrence. reasons to fear it. Israel is foremost of agent of its destruction? It is hard to say: Knowing that Israel already possesses a these. Whereas Israel had good relations from time to time, Mr Ahmadinejad and very large nuclear arsenal, Iran would with the shah, Ayatollah Khomeini re- other ocials have said explicitly that Iran have to be ready to sacrice millions of its garded the creation of the Jewish state as poses no threat to Israel. Last month the own people to destroy the Jewish state, un- an unforgivable sin and said that all Mus- president said that it was the Lebanese and less it was sure that in a rst strike it could lims had a duty to reverse it. the Palestinians who had pressed the destroy Israel’s ability to strike back. That On Israel, Iran has indeed shown less countdown button for the destruction of would be hard, given that Israel is reported1 8 A special report on Iran The Economist July 21st 2007

2 to have put nuclear weapons at sea on sub- an even darker nightmare. scratch, it could probably rebuild it much marines, and has built sophisticated anti- Added together, these considerations faster with the experience it has gleaned. missile defences expressly to protect its might still tempt an Israeli government to More worrying still is the possibility second-strike power. Furthermore, if Iran try to knock out Iran’s nuclear facilities be- that Iran has secret nuclear sites outsiders did obtain nuclear weapons, America fore it can nish building a bomb. The Is- do not know about: the existence of Arak might be willing to oer Israel (and other raelis have worked for years to obtain the and Natanz, remember, was not discov- allies in the region) additional reassurance weapons for such a strike, spending bil- ered until fairly recently. That could render by sayingfor whatever such a promise lions to procure long-range variants of the an attack on the known ones pointless. can be worththat it would regard a nu- F15 and F16 ghter-bomber, for example. And Mr Kam is surely right that an Israeli clear attack on its ally as an attack on itself. On the other hand, senior Israelis know strike might unite Iran’s people behind the that this would be fraught with danger. regime and its nuclear aspirations. The calculus of destruction Iran’s nuclear targets are much further Another alternative for Israel might be Nonetheless, Ehud Olmert, its prime min- from Israel than was Iraq’s Osiraq reactor, to attack Iran in order to start a sequence of ister, has said that Israel cannot live with a which Israeli aircraft destroyed in 1981. events in which America eventually joins nuclear-armed Iran.Whatever its policy- Most are more than 1,200km (750 miles) the fray. The Americans, naturally, would makers think, its people have been away, and Israel’s aircraft would have to nd the military job much easier than Is- spooked by Mr Ahmadinejad. And the y even farther to avoid Jordanian or Iraqi rael. The Americans have a motive, too: sheer disparity in size between the coun- airspace. That, according to a study by not fear of annihilation, but fear that a nu- tries (Iran’s population is more than ten Ephraim Kam of Israel’s Institute for Na- clear-armed Iran would knock a hole in times Israel’s, and its land area 75 times as tional Security Studies, would require re- what is left of the non-proliferation regime big) leads some Israelis to question fuelling on both the outward and return and challenge American interests in the whether stable deterrence is possible be- ights, adding to the danger of intercep- energy-rich Middle East. After Iraq, how- tween them. Israelis are haunted by a re- tion. Osiraq, moreover, was a single target. ever, no American president could doubt mark of Ayatollah Rafsanjani’s in 2001, Since there would be many this time, the that such an attack would deepen Muslim musing that a single nuclear weapon attacking force would have to be large. hatred of America. And Iran is not without could obliterate Israel, whereas Israel And to cause serious damage, the aircraft means of retaliation, even against the su- could only damage the world of Islam. might have to attack more than once. perpower. It could strike America’s al- Could ordinary life in Israel continue Even a successful strike would not be ready hard-pressed forces in Iraq, direct under such a threat? Even if Iran did not the end of the story. For as the IAEA’s Mr terrorism at America’s friends or disrupt use its bomb, might not possession of it ElBaradei keeps saying, you can’t bomb tanker trac through the Persian Gulf, so embolden it to attack Israel by conven- knowledge. Iran would be likely not only causing mayhem in the energy markets. tional means, either directly or by using its to retaliate with its long-range rockets but That is why American and Israeli politi- allies in Syria, and the Palestinian also to begin at once to rebuild its nuclear cians alike, while refusing to take the threat territories? A further danger is that once capability, just as Iraq did with extra ur- of military action o the table, are prob- Iran went nuclear, others in the region, gency after Israel’s destruction of Osiraq. ably being completely honest when they such as Egypt, Syria, Saudi Arabia and Tur- That might not take long, says Mr Kam: insist that force is a last resort and that they key, might feel compelled to follow. Hard Iran has its own nuclear raw material and would prefer to stop Iran by means of di- as it would be for Israel to establish a deter- already possesses much of the relevant plomacy sharpened by economic sanc- rent balance with Iran, a cat’s cradle of knowledge and technology. Having spent tions. But can sanctions do the job, and can Middle Eastern nuclear face-os would be only three years building Natanz from they do it in time? 7 The big squeeze

But sanctions are not yet painful enough to change Iran’s nuclear policy

PRAY to God that I will never know the world can use to dissuade Iran from its private economists think it is twice as Iabout economics, President Ahma- nuclear ambitions? highand that many of those with jobs dinejad once said when questioned about Since almost all ocial economic statis- have to take second ones to make ends apparent contradictions in his economic tics are suspect, measuring the perfor- meet. Mr Ahmadinejad’s government policy. The Lord appears to have answered mance of the economy is hard. But Afshin claims to have reduced the rate of ina- his prayer. On his watch, the world oil Molavi, an Iran-watcher at the New Amer- tion. In fact it has almost certainly gone up: price has soared from $62 a barrel when he ica Foundation in Washington, DC, calls guesstimates by foreign embassies in Teh- was elected in June 2005 to $72 a barrel in slow economic decline the untold story ran put it as high as 25%. Meanwhile, for- recent weeks. Iran, which has a young, of the . The economy is eign investment is punyand falling (see well-educated workforce, along with the showing respectable growth of about 5%. chart 2 on the next page). world’s second-largest reserves of both oil But it is recording high and rising unem- One reason for these economic failures and gas, should be on a roll. Instead the ployment and ination. The government is the economic punishment America has economy is struggling. Is this a weakness puts unemployment at around 10% but meted out since 1979, and which it has1 The Economist July 21st 2007 A special report on Iran 9

2 been tightening ever since. These sanc- places huge demands on public spending tions prevent American companies from and would collapse if it were not for the oil Unrewarding 2 helping Iran to develop its oil resources, revenues (see chart 3 on the next page). Foreign direct investment as % of GDP block most Iranian exports to the United Among the maddest of the subsidies is States and restrict certain Iranian imports that on petrol. Even after a recent 25% price 10 from there. American nancial sanctions hike it is still the cheapest in the world, at 11 Egypt 8 also hamper Iranian banking (foreign visi- American cents a litre. That has encour- tors cannot use credit cards and must stu aged an annual 10% increase in consump- 6 their suitcases with dollars). tion, plus impossible trac and choking pollution in all of Iran’s cities. 4 The price of economic ignorance Selling petrol so cheaply is hardly an in- Turkey But there are two bigger reasons for Iran’s centive for domestic reners to raise pro- 2 underperformance. One is the lopsided duction, so Iran has to import more than Iran structure of an oil-based economy in 40% of its petrol and other rened pro- 0 1997 99 2001 03 05 06* 07† which a corruption-riddled public sector ducts. Much of this is smuggled back out † dwarfs private business. The other is in- (allegedly by the Revolutionary Guards) to Source: Economist Intelligence Unit *Estimate Forecast competent economic management, espe- be sold at a higher price. In short, Iran cially by Mr Ahmadinejad. spends a fortune subsidising cheap petrol the economy the government controls Oil revenues bring in some 80% of ex- not only at home but also for consumers in range between 65% and 80%. port earnings, but even with a high world neighbouring countries, wasting money it Now there is talk of large-scale privati- oil price the government nds it hard to could otherwise have spent on increasing sation to attract investment and improve pay its bills. Tough buy-back terms have its agging oil production. The govern- productivity. Some privatisation has even deterred foreign investment in the oilelds ment’s decision last month to introduce ra- taken place, though it often entails little and hampered production: a quarter of a tioning provoked violent disturbances. more than shuing assets from one state century after the revolution, Iran is pump- Since many Iranians use private cars to top sector to another. In theory, the pace of pri- ing only two-thirds as much oil as before. up meagre incomes by becoming uno- vatisation should pick up, thanks to a new Meanwhile the government operates a cial taxi-drivers, the consequences of this constitutional amendment that envisages vast, price-distorting system of subsidies measure will be widely felt. moving all but 25 state-owned companies for food, energy, housing, bank credit and The IMF calls Iran’s economy state- into private ownership within eight to ten much else. According to the IMF, energy dominated. And how. Revolution and years (though the government will keep a subsidies alone reached 17.5% of GDP in eight years of war have made for vast gov- 20% stake). Ayatollah Khamenei, the su- 2005-06, and total subsidies amounted to ernment. In most sectors state-owned preme leader, was a critic of nationalisa- 25% of GDP. A Consumer and Producer companies or the opaque quasi-state foun- tion in the 1980s and is said to be enthusi- Protection Organisation keeps price con- dations known as bonyads crowd out priv- astic about the change. The impediment trols on cereals, sugar, baby milk, fertilisers ate businesses. Agriculture, internal trade will not be an absence of political will at and pharmaceuticals, paper and agricul- and distribution are mostly in private the top but the hesitation of investors. tural machinery. This edice of subsidies hands. Even so, estimates of how much of Iran’s rigid labour laws will make it hard for new owners to squeeze any pro- ts out of the bloated companies coming to market. Investors may also fear that those who owned these rms before na- tionalisation will want their assets back; and wonder who, in the absence of an es- tablished pro-business political party, can protect them from future arbitrary inter- ventions by the state. The likely upshot is that a fair amount of privatisation will take place, but not at prices that will rescue the public nances, and not in a manner that will do much to boost productivity. The prospects for serious reform of the economy have been dented further by Mr Ahmadinejad’s erratic management of it. In some ways President Khatami left him a decent economic legacy. The reformist period saw a dose of market-oriented lib- eralisation, a currency reform that moved the rial to a managed oat and the passage of liberal laws governing foreign invest- ment. By 2004 many analysts felt that the economy was heading in the right direc- Tucking in, but with no thanks to Ahmadinejad tion, provided that something could be1 10 A special report on Iran The Economist July 21st 2007

2 done to reduce energy subsidies, shrink says it is working with more than 40 banks the size of the state and tackle corruption. A dangerous dependence 3 around the world to discuss the risks of But although Mr Ahmadinejad cam- Government revenue and spending doing business with Iran and to identify paigned on a platform of economic re- As % of non-oil GDP customers who could harm their reputa- form, he has instead caused immense 50 tions and business. Since in a country harm by an unpredictable, populist and of- such as Iran it is hard to know exactly who ten dotty (heterodox, say his kinder crit- 40 your ultimate customer is, this has banks’ ics) approach to policymaking. Government spending compliance ocers running scared. His idea of privatisation, for example, 30 NON-OIL FORECAST has so far appeared to consist of giving 20 It hurts, but not enough justice shares to millions of citizens, BUDGET DEFICIT The Treasury Department boasts that UBS without specifying how the value of these 10 has cut o all dealings with Iran, that securities is to be determined. Local inves- Non-oil revenues Credit Suisse and HSBC have reduced their 0 tors get discouraged when the president 2000/01 2002/03 2004/05 2006/07 exposure, and that other banks are refus- seems actively hostile to the very notion of ing to issue letters of credit. Government Sources: Iranian authorities; IMF staff estimates & projections a stockmarket: during his election cam- export-credit programmes from Germany, paign Mr Ahmadinejad’s denunciation of France and Japan are said to have fallen speculators sent share prices tumbling. It tine and he will express his sympathy for sharply. Iran has responded by moving is no surprise that many businessmen the put-upon Palestiniansbefore volun- out of dollars, and many foreign banks prefer to move their money oshore. Du- teering that Palestine is a problem for the that have cut o business in dollars con- bai is a favourite destination: Indian estate Arabs to sort out and that Iran has more tinue to conduct transactions in other cur- agents there are said to be learning Farsi, pressing troubles of its own. And so it rencies. But the Treasury Department is the better to sell apartments to rich Irani- does. Every year some 800,000 young now gunning for them too. ans seeking a haven for their wealth. people join the labour market, and by So are sanctions working? The pun- The president’s behaviour has mad- some accounts only half of them can nd ishment so far, and the fear of more to dened critics and alienated former friends. jobs. Not surprisingly the country faces a come, has scared o foreign investors and He tours far-ung provinces to announce brain drain: an estimated 150,000 univer- pushed up the risk, cost and inconve- unaordable spending plans, apparently sity graduates emigrate every year. nience of doing business in Iran. One nota- on the spur of the moment. Some Iranians Iran, in short, has some serious econ- ble example was last year’s decision by a have beneted from his handouts and omic troubles. Might a few well-aimed Japanese energy group, Inpex, to abandon from the cheap loans he has ordered the kicks persuade the regime to give up its nu- plans to invest $2 billion in developing the banks to oer. But he has sprung expen- clear plans? In themselves, the two sanc- Azadegan oileld. Raising foreign money sive surprises on his country, ranging from tions resolutions passed so far by the Secu- for big infrastructure projects is becoming cancelling daylight-saving time to an rity Council do not amount to much: they harder, and those European banks still op- abrupt increase in the minimum wage mainly ban trade in some nuclear and mil- erating in Iran admit privately that their (which had to be scaled back when it itary equipment. Their psychological im- business is drying up. Although some big caused a leap in unemployment). pact on would-be traders and investors is foreign rms continue to come in, attracted The president has also wrought havoc another matter. And combined with the - not least by the prospect of a big, unde- inside the economically important Man- nancial squeeze America is applying sepa- veloped market devoid of American com- agement and Planning Organisation by re- rately, the result is genuinely painful. petitors, many others have either gone placing experienced technocrats with America is using its heft in the world’s home or left behind skeleton oces in the friends from his Revolutionary Guards nancial system to do some eective bul- care of local employees. days. Two months ago he astonished the lying. In 2005 President Bush issued an or- Nonetheless, it is not clear that sanc- central bank by ordering banks to slash in- der authorising the Treasury and State De- tions are even close to imposing the sort of terest rates below the rate of ination. partment to target key nodes of Iran’s pain needed to alter the government’s nu- Some Iranian economists think this was a WMD and missile-proliferation networks, clear behaviour. They have pushed down favour to the Revolutionary Guards, who including their suppliers and nanciers. living standards, but war and revolution1 have borrowed heavily to expand their Since a rm or entity that is designated un- commercial activities since his election. der this order can be denied access to Having promised to root out corruption American nancial and commercial sys- Trade ties 4 and put the oil money on everyone’s din- tems, this makes for a potent weapon. For Biggest exporters to Iran in 2005, $bn ner table, Mr Ahmadinejad seems des- example, America has accused one Ira- tined to fail. Indeed, his mounting econ- nian bank, Bank Sepah, of providing nan- 02468 United Arab omic woes at home may help to explain cial services to Iran’s missile programme Emirates the attention he has devoted to the nuclear and another, Bank Saderat, of providing Germany confrontation with the West and threats funds for Lebanon’s Hizbullah, which is against Israel. But hard-pressed Iranian treated as a terrorist organisation in Amer- France workers and consumers have listened to ica. The banks deny the allegations, but China nearly three decades of revolutionary slo- have found themselves isolated. Italy gans and are not easily distracted from The fate of these two banks has not South Korea worries about jobs, rents and ination. gone unnoticed by nancial institutions Ask a passer-by in Tehran about Pales- generally. America’s Treasury Department Source: Economist Intelligence Unit The Economist July 21st 2007 A special report on Iran 11

2 have taught Iranians how to muddle an incentive to give up the bomb strikes ing enough extra to ll the gap). through. An economy like Iran’s, domin- at some of this group’s vested interests. In the longer run, Iran faces a dierent ated by the government budget, is better A big fall in the world oil price, or sanc- sort of vulnerability. It is nding it hard to able than most to take the travails of the tions aimed directly at Iran’s imports of acquire the foreign technology and capital private sector in its stride. And since en- petrol or exports of oil, would have a dev- it needs in order to boost production of its ergy exports make up almost half the gov- astating impact on its economy. Some fast-depleting oilelds and realise its vast ernment’s revenues, high world prices American congressmen are talking about a potential as an exporter of natural gas. (kept high in part by the tension over Iran) ban on importing petrol to Iran, but that Without this investment, all of Iran’s big have compensated nicely for much of the would be very hard to enforce. A fall in the plans for a prosperous energy-red future damage sanctions have inicted. Besides, world oil price looks unlikely, and if Iran’s would be put in jeopardy. But Iran still has many powerful Iranians prosper through oil was stopped from reaching the market a few years to sort this out, whereas its their control of a relatively closed econ- prices would rise higher still (except in the mastery of uranium enrichment may be omy. The openness the world proers as improbable event of Saudi Arabia pump- only a matter of months away. 7 Only engage

The case for a grand bargain

F A military attack looks too dangerous ready blames Iran for many of its woes in by withdrawing their protection in the Se- Iand sanctions will not bring Iran to its Iraq, it knows the Iranians would and curity Council and agreeing to sanctions. knees, must the world accept that the Is- could inict even more damage on Ameri- In short, say Western diplomats, the lamic Republic will soon have a bomb? can forces there if America were to bomb pressure is working. Yet it may be working Maybe. Plenty of governments in the Mid- Iran. Other American reverses elsewhere in both directions: the Bush administra- dle East are already working out how best in the region have no doubt added to Iran’s tion, after all, has simultaneously per- to prepare for life alongside a nuclear- self-condence. The regime portrays Is- formed a U-turn of its own by talking to armed Iran. But what if sanctions and the rael’s war against Hizbullah in Lebanon Iran after a long period of refusing contact. threat of force were combined with more last summerand Hamas’s success last At present both sides are saving face by positive incentives for Iran, such as secu- month in wresting the Gaza Strip from Fa- stressing that Iraq is the only subject on the rity guarantees and normal relations with tahas a victory for its own proxies and a table. America’s ocial line is that there the United States? Might not a beleaguered defeat for America’s. will be no widening of the discussion un- regime that was oered some such grand Here, though, is a puzzle. If an Iran less Iran suspends uranium enrichment bargain see it as an honourable way to brimming with self-condence is no lon- and complies with the Security Council’s give up its nuclear plans? ger afraid of America, why did it decide to other demands. However, many loud That is the thinking of those who say take part at the end of May in the rst for- voices in Washington, DC, and a few softer the mistake of the Bush administration has mal high-level talks it has held with the ones in Tehran, see this as an opportunity been to confront Iran instead of engaging United States since the American embassy to move to a broader negotiation that it. Four years ago Iran gave tantalising signs hostages left Tehran in January 1981? To could culminate in an historic reconcilia- of wanting to end the long confrontation. judge from the defensiveness on display at tion between the old enemies. The superpower’s rapid disposal of the Ta- Tehran’s Friday prayers before the meet- Could it happen? America and Iran liban regime in Afghanistan after Septem- ing, this about-turn was a highly sensitive have some common interests. Both claim ber 11th 2001 and its preparations to in- one, controversial with the regime’s hard- to want a stable and united Iraq and both vade Iraq had made it look like a form- liners and dicult to explain to its suppor- support its present government. Neither idable enemy. In 2003 Iran is reported ters after all the years spitting deance at wants the Taliban back in charge of Af- quietly to have oered to open broad nego- the . ghanistan (though Iran is reported to be tiations with America on all outstanding The explanation favoured by Western arming some Taliban ghters). As Shias, issues, including nuclear weapons and Is- diplomats is that the Iranians feel more the Iranians are as hostile as America is to rael. But for various reasonsmainly, say vulnerable than they admit. Though bu- al-Qaeda, whose jihadists in Iraq have some, the hubris of America’s own neo- oyed up after last summer’s Lebanon war, murdered thousands of Shias and conservativesthis opportunity was the regime’s fortunes have since declined. bombed their holiest shrines. But on the missed. And by the time America had run There was that blow to President Ahmadi- other side of the ledger are areas where the into serious trouble inside Iraq two years nejad’s supporters in last December’s interests of the two countries collide. later, Iran’s mood had changed. municipal elections. President Bush, con- Since President Ahmadinejad’s elec- trary to expectations, reinforced American A quarter-century of bad blood tion, Iran has come to be less scared of forces in Iraq and the Persian Gulf instead America and Iran support opposite sides America. The superpower’s overstretched of reducing them. American forces in Iraq in the stand-o in Lebanon. Iran says it armies in Afghanistan and Iraq now look have arrested ve Revolutionary Guards wants to destroy Israel, or at least see it dis- more like hostages than menacing invad- there (the Iranians say they were dip- appear. America accuses Iran of seeking ers. Although the Bush administration al- lomats). Russia and China surprised Iran an atomic bomb which Mr Bush says he1 12 A special report on Iran The Economist July 21st 2007

2 cannot accept. And on top of all this there has been a quarter of a century of bad blood. To Americans, Iranians are the fanatical revolutionaries who kept Amer- ica’s embassy in Tehran hostage for 444 days. To Iranians, Americans are the scheming imperialists who deposed their elected prime minister in 1953 and re-in- stalled a repressive shah. Reaching a grand bargain in these cir- cumstances is dicult but not impossible. Oddly, America’s misadventure in Iraq could turn out to be the catalyst. In the 1970s America reached out to China partly to cover its withdrawal from an unsuccess- ful war in Vietnam. What, though, if a grand bargain remains elusive? Then the two countries may opt for a partial agree- Maybe we should talk ment, or let their confrontation continue at the same level, or see it deteriorate and be- That is especially true if Mr Chubin at the turned this oer down. But it remains on come even more dangerous. Geneva Centre for Security Policy is right the table and could be improved. There are two other outcomes, both of that the regime’s main motivation for its If a straight capitulation is unlikely, so them devoutly wished for by some Ameri- nuclear programme is to shore up its inter- is an uprising against the regime. Iran, it is cans, that seem unlikely to transpire. One nal legitimacy. true, has a proven capacity to surprise. The is that the right mixture of external politi- The Bush administration seems at last shah was toppled only months after the cal and economic pressures will force to have understood this. That is why it then President Jimmy Carter described Iran’s regime simply to capitulate and signed up to the incentives oered to Iran Iran as an island of stability in a volatile agree to the world’s demands, at least on in June last year by the other members of region. But although Iranians grumble the nuclear front. The other is that the re- the Security Council, plus Germany, in re- endlessly about their government and its gime’s internal economic failures and de- turn for its nuclear compliance. These in- failures, there is precious little evidence of clining popularity will cause it to be over- cluded the prospect of trade agreements a popular counter-revolution in the mak- thrown in a popular uprising. with the European Union; Iran’s accep- ing. Most of the regime’s internal critics What makes a simple capitulation un- tance into the World Trade Organisation; seem to pin their hopes on gradual change likely is not Iran’s external strength but its the easing of American sanctions; the sale emerging as it did in the Soviet Union, domestic weakness. The last risk a prickly to Iran of a light-water reactor and guaran- from inside the system. The Soviet system, and unpopular revolutionary regime is tees of nuclear fuel; EU help to modernise however, was based on a secular ideology. willing to run is a public humiliation. To Iran’s oil and gas industries; support for a When such doctrines fail, they can be make Iran abandon its nuclear aspirations WMD-free zone in the Middle East; and the junked relatively easily. But how does a will therefore require not only pressure but possibility of Iran being allowed to enrich system that claims to be rooted in the eter- also a means of helping the leadership uranium after all if it could show that this nal verities of revealed religion modernise save face and point to some sort of success. was for exclusively peaceful purposes. Iran itself from within? 7 The verdict of Qom

Theory and practice

HEY call Qom the Shia Vatican. Presi- Tehran to Qom through a moonscape of cess of Khomeini’s revolution as Qom’s Tdent Ahmadinejad is reported to have scrubby desert and salt lakes is a clue to the victory too. Didn’t the revolution stop said that when Islam ruled the world Qom city’s importance. It was from Qom that modernisation in its tracks and jerk Iran would be its capital. Rome need not worry: Ayatollah Khomeini began to denounce back to the Middle Ages, delivering politi- Qom will never compete for its tourists. At the shah, and it was in Qom that he set up cal power to turbaned clerics in thrall to an rst glance, despite the imposing golden his revolutionary government after return- unfathomable theology? And does it not cupola of the Sayyeda Fatima shrine, this ing from exile in France. This seems the follow that the turbaned clerics of Qom desert city some 100km (60 miles) from right place to see whether the system he have a strong belief, buttressed by a strong Tehran is a backwater, devoid of grace and created can be changed from within. vested interest, in preserving the theo- greenery. Its seminaries, however, are Why suppose that Qom of all places cratic principles of that revolution? home to perhaps 60,000 clerical students. might become an agent of change? Con- As a matter of fact, no. Khomeini’s cen- And the broad highway that slices from ventional wisdom from afar saw the suc- tral idea, the doctrine of velayat-e faqih, 1 The Economist July 21st 2007 A special report on Iran 13

2 gives the Islamic Republic its theological the war with Iraq, supported Hojatoleslam makingthat is the job of the govern- underpinning. This holds that until the ap- Kadivar. What the conservative leaders menttheoretical debate about Islam’s pearance of the Shias’ hidden imam (of are practising today is not Islam, and I op- relationship with politics takes place which more below) society should be gov- pose it, he said. freely. On velayat-e faqih he says that the erned by a supreme leader, the clerical Such criticisms are especially damag- views of the most senior ayatollahs are not judge best qualied to interpret God’s will ing to the present supreme leader. Ayatol- uniform. For example, Ayatollah Sistani, a and the meaning of Islamic law. It is this lah Khomeini was not just the father of the revered cleric based in Iraq but also widely doctrine that makes Ayatollah Khamenei revolution but also a charismatic scholar admired in Iran, has approved Iraq’s post- supreme leader and all others subordinate of immense learning. In the eyes of Qom, Saddam constitution. This gives ultimate to him. But Qom itself has never felt com- Ayatollah Khamenei is by contrast a cleri- authority to elected politicians rather than pletely at ease either with Ayatollah Kho- cal lightweight (but eective politician) clerics. I don’t believe that all political meini’s idea or Ayatollah Khamenei’s suc- whom Khomeini prematurely fast-tracked ideas should come from within Islam, cession. Indeed, many of the most revered to ayatollahdom when he was looking for says Hojatoleslam Maybodi. Politics is an clerical minds in Qom see this doctrine, a successor. What was acceptable in the experimental, man-made activity and Is- and especially the way it has been imple- charismatic is not necessarily acceptable lam should respect it. mented since Khomeini’s death, as negat- in the apparatchik. In Qom, unlike many parts of Iran, all ing their tradition. Although the government has tried to the women wear full black chadors; stie dissent, Qom remains an argumenta- around the town billboards with anti-Se- Politics and the hidden imam tive place, continuing to exert a potentially mitic motifs still advertise the recent exhi- To understand why requires a digression disruptive inuence on politics. Even dur- bition of cartoons poking fun at the Holo- into theology. The quarrel between Sunnis ing the present crackdown, the visitor to its caust. But liberal clerics like Hojatoleslam and Shias is about succession. Shias be- seminaries quickly encounters a spectrum Maybodi are happy to dissent from the lieve that the last rightful imam to follow of clerical opinions on everything from ve- party line. He says it was not correct at all Muhammad was his son-in-law Ali, but layat-e faqih to the wearing of the hijab to for Iran to have raised this issue: the geno- that he and his ten successors were mur- relations with Israel and America. Qom’s cide of the Jews was an ugly phenomenon dered by Sunni caliphs. The twelfth imam seminary is like an ocean in which you can and the number murdered was for histori- therefore went into hiding, promising not nd anything you desire, Hojatoleslam ans to determine. As to whether Iran could to return until the end of time. Most Shia Kadivar told a recent interviewer from ever accept the right of Israel to exist, Hoja- clerics have long held that during this per- Asharq Al-Awsat, a pan-Arab daily. toleslam Maybodi says the two countries iod of occultation there can be no lawful To sample the range of opinion, meet could well make peace provided the Israe- political authority. Until the emergence of two clerics from opposite ends of this spec- lis and Palestinians reached an agreement. the hidden imam, politics must be inher- trum. Hojatoleslam Fazel Maybodi teaches Both sides have their extremists, he ad- ently invalid and men of religion should at Qom’s Mod University, a traditionally mits, but what’s the problem with Mus- be careful not to implicate themselves in it. liberal seminary. A jolly, grey-bearded lims living next to Jews? Velayat-e faqih seems to turn this long- cleric proud of his smattering of English The spirit of ijtihadthe idea that Is- standing assumption upside down, espe- phrases, he explains at once that although lamic law can and should be reinterpreted cially when it is interpreted as implying Qom is not a place for political decision- to match the circumstances of the dayis1 that the faqih derives his authority from God and is not answerable to the people. Many of Qom’s clerics atly repudiate this idea. They say that there exists no blue- print for government during the time of oc- cultation, and that nobody has special au- thority to guide society during this period. It is not clear exactly how the theologi- cal arguments of Qom travel from the sem- inary into Iran’s politics, but they do. Presi- dent Khatami’s reform movement drew heavily on the views of clerics, some of whom were astonishingly outspoken. One, Hojatoleslam Mohsen Kadivar, be- gan to argue in the 1990s that Iran could not have clerical rule and claim to be a de- mocracy at the same time. He was jailed for saying that the freedom Iranians had sought through their revolution was being replaced by a new clerical despotism. From house arrest, Grand Ayatollah Ali Hossein Montazeri, a revered cleric who was Khomeini’s designated successor be- fore complaining too much about the mass execution of political prisoners after Sceptical, after their fashion 14 A special report on Iran The Economist July 21st 2007

2 strong in . Hojatoleslam May- Iran by conservatives and liberals alike, he All this helps to explain how it is possi- bodi says bluntly that sharia law discrimi- concedes that there are dierences of opin- ble from Israel or America to see Qom as nates against women and should therefore ion about the extent of the supreme the nerve centre of global fundamental- change. He argues that the unequal treat- leader’s rightful authority. He agrees that it ism. But Qom is not homogenous. Besides, ment of women (such as their smaller may be time to grant women equality in it imports ideas as well as exporting them. claims on blood money or inheritance) respect of blood money but wants cau- Mod University, for example, holds regu- stems from a time before women were tiously to wait and see when it comes to lar human-rights seminars in which Jews economically active. As for the crackdown the law on inheritance. He is uninching and Christians from outside Iran take part. on bad hijab, Hojatoleslam Maybodi ex- on the compulsory wearing of the hijab: Its students read books on Western philos- presses a view often voiced by Iran’s cler- like gold, silver and jewels, he says, it is nat- ophy, and many travel to America and ics. When the state uses coercion in the ural for society to want to keep women Britain to study. Moreover, Qom is wired: name of religion, it is in danger of turning safe from the avarice of men. every student, says Hojatoleslam May- the people away from Islam. He is implacable on Israel, too: it be- bodi, has access to the internet. That may The views of individual clerics should longs to the Palestinians and its govern- be one reason why, as with young people not be given too much weight. If, as Hoja- ment should be in the hands of the Mus- the world over, the study of English has toleslam Kadivar boasts, Qom is an ocean, lims, he says. But that does not mean that lately become a preoccupation. it is dicult at any particular moment to Jews cannot live there; and he concedes, Above all, it is a mistake to associate judge which way its tide is running. Many when pushed, that if the Palestinians Qom with the messianic views of Mr Ah- of the ayatollahs are arch-conservatives in chose to make a gift (hebeh) of part of it for madinejad and his coterie. A lot of senior social matters. Some were scandalised by a Jewish state, that would be their aair. clerics are appalled by the new president’s Mr Ahmadinejad’s suggestion that frequent claims that the appearance of the women should be allowed to watch foot- Open to the world hidden imam is imminent and its timing ball matchesan idea he had to withdraw. Qomor at least the idea of Qomsums somehow connected with the political So, at the other end of Qom’s spectrum, up many of the things the secular mind zeal of the present government. Their dis- meet the suspicious, unsmiling Hojatoles- nds frightening about Iran’s revolution. taste for Mr Ahmadinejad helps explain lam Mohsen Gharavian. He is a student of From here the clerics’ view of the righ- why, when he endorsed a slate of candi- Ayatollah Mesbah Yazdi, the extreme hard- teous way is projected not only through- dates aliated to Ayatollah Yazdi for elec- liner said to be Mr Ahmadinejad’s spiri- out Iran by the machinery of the state but tion to the Assembly of Experts last De- tual adviser. Ayatollah Yazdi and those also into the world beyond by the power cember, they were roundly defeated by who think like him have little regard for de- of the internet. Behind one unprepossess- candidates associated with his centrist ri- mocracy and no compunction about em- ing façade you will, for example, nd the val, Ayatollah Rafsanjani. ploying coercion if the people refuse to Aalulbayt Global Information Centre. Well before the election of Mr Ahmadi- embrace piety voluntarily. The prophets Aliated to Ayatollah Sistani, this outt nejad, Qom was home to clerics who said of God did not believe in pluralism, he operates four global websites in some 30 the revolution had taken a wrong turn, cre- once said. They believed that only one languages, pumping out personal, spiri- ating a new despotism and turning people idea was right. tual and political teaching to the faithful in o religion by using state power to ram it And yet the views of Hojatoleslam scores of countries. Its director, Hojatoles- down their throats. Even in the Shia Vati- Gharavian turn out to be more nuanced lam Lajarvadi, boasts that Qom hosts can, out in the desert, Iran’s beleaguered than his teacher’s. Although he claims that more websites per head of population revolutionaries are nding it hard to keep velayat-e faqih is accepted unanimously in than anywhere else in Iran. dangerous ideas at bay. 7 Khomeini’s children

Not happy, but probably not eager to become Westernised either

N EXOTIC country that is viewed Nor is it surprising that Iranians return young people of Tehran seem quite un- Amainly through the lter of its foreign the favour. America organised the coup moved (some are amused) by the ocial policy and its televised public rituals is lia- against Mossadegh, supported the shah, hate-mongering. They do not admire ble to be misunderstood. So it is with helped Saddam in the Iran-Iraq war, in- George Bush. But to judge by dress, behav- America in the eyes of Iranians and with vaded two of Iran’s neighbours and im- iour, viewing and consumption habits Iran in the eyes of Americans. poses sanctions on Iran. The Iranian re- and even more by the regime’s terror of a Iran took an American embassy hos- gime considers America an implacable foe creeping Westoxicationthey do ad- tage. It may have had a hand in the bomb- and routinely denounces it, in political mire at least some of America’s ways. ing of the American marine barracks in speeches and organised rituals such as Not surprisingly, the attitudes of the Lebanon in 1983 and it stands accused now those ery Friday prayers, as the Great Sa- young are a source of anxiety to the revo- of helping to kill American soldiers in Iraq. tan or the Global Arrogance. lution’s managers. Young people and espe- It is not surprising that many Americans And yet, as this special report has al- cially university students played a signi- consider Iran a bitter foe. ready noted, many of the smartly dressed cant part in bringing down the shah, and1 The Economist July 21st 2007 A special report on Iran 15

with 29% who listed nuclear weapons. And 79% said they would prefer a demo- cratic system in which all leaders, includ- ing the supreme leader, were elected by a direct popular vote. Given that Iranians are naturally wary about what they tell strangers on the phone, these are striking results. They un- derline the regime’s economic vulnerabil- ity. What they do not prove is that Iran is ripe for counter-revolution. President Ahmadinejad may not be much of an economist, but he is a shrewd politician. He may not appeal to the gilded youth of north Tehran, but he was able in 2005 to scoop up the votes of the tradi- Not talking about a revolution tional lower and middle classes. Many of his policies, such as cheap home loans for 2 now there are many more of them. The that millions continue to have faith in the new couples, are aimed at consolidating population has doubled since 1979, which country’s institutions is that more than the support of this group. For millions of means that two out of three Iranians are 60% of eligible voters turned out in the young Iranians in the Revolutionary under the age of 30 and fewer than one in presidential elections of 2005, at a time of Guards, the Basij militia or government three can remember the revolution. Young deep cynicism following the blocking of service, the revolution remains an econ- Iranians are also much better educated President Khatami’s political reforms. omic provider as well as a moral compass. these days: literacy is near-universal and For how long? Iranians gave the reform- the student population has soared. The de- The dierence a year makes ists two terms before deciding that they mographic surge has been accompanied A year ago an American rm, Zogby Inter- could not deliver. If President Ahmadine- by rapid urbanisation: seven out of ten Ira- national, polled Iranians on a range of is- jad fails them, he too will eventually have nians now live in cities. sues by phoning in from abroad. At that to goand his failure may inict collateral The young suer disproportionately time 41% of those polled said the country’s damage on the supreme leader and the from the regime’s failures. In 2006, by the top priority should be the economy, 27% conservative establishment that backed government’s own reckoning, nearly ev- thought developing nuclear weapons was him. In the longer run, Iranians may con- ery other Iranian between the ages of 25 more important and only 23% put more clude that the whole theocratic system and 29 was unemployed. A lack of jobs is freedom at the top of their list. Those who might prove unworkable. But one thing no doubt one reason for the prevalence of wanted Iran to become more religious and that could help to save it would be a mili- heroin addiction and other social ills. In conservative (36%) outnumbered those tary attack by the West. Young Iranians this nominally austere society, alcohol is who wanted it to become more secular may grumble, wear jeans, drink Pepsi and consumed widely, even though it is illegal and liberal (31%). However, in a similar watch football. But they are nationalists for Muslims. Prostitution is widespread. poll last month by Terror Free Tomor- whose instinct in the face of external at- Will the disaection of the young bring row, an American think-tank, 88% saw tack will surely be to rally around their down the regime? That is what those out- the economy as the top priority, compared leaders, no matter how awed. 7 siders who see the Islamic Republic as a crude despotism lacking popular support sincerely hope. But how many Iranians see Oer to readers Future special reports Reprints of this special report are available at a Countries and regions their regime that way? It seems highly price of £3.50 plus postage and packing. Austria November 24th likely that if the government continues to A minimum order of ve copies is required. thwart the aspirations of young voters, Business, nance, economics and ideas they will punish it at the next election. Yet Corporate oer Financial centres September 15th it would be a terrible mistake to assume Customisation options on corporate orders of 100 Innovation October 13th that every youthful, fast-urbanising coun- or more are available. Please contact us to discuss The world economy October 20th try facing economic hardship must be ea- your requirements. The Editor’s survey November 3rd Technology in India and China November 10th ger to throw o its regime and embrace Send all orders to: Western values. The Rights and Syndication Department Iran remains a strongly religious soci- 26 Red Lion Square ety. Though the proportion of city-dwell- London WC1r 4HQ ers has soared, they are dierent from the Tel +44 (0)20 7576 8000 atomised individualists of Europe or Fax +44 (0)20 7576 8492 North America: the extended family and e-mail: [email protected] Previous special reports and a list of traditional social networks have survived forthcoming ones can be found online even in teeming Tehran. And though the government is not popular, most Iranians www.economist.com/specialreports seem to accept its right to govern. One sign