The strange paradox of the Iranian theocracy is that it is both a rising regional power and a declining domestic power. These two facts take on great significance in the context of the Iranian nuclear negotiations. Whatever their outcome, Iran will be in an advantageous position in terms of its foreign affairs, but domestic policy-makers will be faced with almost insoluble problems. The nuclear talks’ June 30th deadline is fast approaching, so now is a good time to examine some of these contradictions.
Most analysts are unanimous today about Iran’s rising geopolitical influence in the Middle East and its overt support for Shiite communities and causes in the region. In the wake of the U.S invasion of Iraq and the subsequent turmoil that has spread throughout the Middle East, Iran has deftly formulated and executed a foreign policy that has filled a void left by American disengagement from the region. In fact, Iranian and American troops are now sharing a military base in Iraq.
Political developments in the wider Muslim world have also contributed to the rise of Iranian power and prestige. Following the pathetic performance of the government of the Muslim Brotherhood in Egypt, Libya’s disintegration into chaos, the slow implosion of Syria, and ISIL’s display of brutal savagery, Iran has emerged as the only organized, credible, and seemingly sane expression of political Islam. And Iran’s military activities in the Middle East have demonstrated that Tehran is willing to match words with deeds. Whatever the outcome of the nuclear negotiations, Iran will emerge from them determined to solidify its post-Iraq invasion geopolitical gains.
Iran’s main rival, Saudi Arabia, is now a moribund relic of the Middle Ages increasingly viewed as a sell-out to the West. Saudi Arabia only reason for existence now seems to be an incompetent obsession with halting Iran’s rise. Relations between Iran and the Saudi-influenced Arab monarchies of the Persian Gulf Cooperation Council (GCC) can be described as tense and rivalrous. The GCC views Iran as the chief beneficiary of the implosion of political order in the post-Arab Spring Middle East. But there is yet to be seen a coherent set of policies against Iran, because the national interests of some GCC states take precedence over Saudi fears.
Domestically, Iran’s chief assets include a large, young, well-educated and secular-minded population. Iran is also a huge territory with massive reserves of hydrocarbon resources stretching from the deserts of Central Asia in the north to the waters of the Persian Gulf in the south facing the Arab peninsula.
The Persian language and the Shiite religion are diffused in large minority groups in the Middle East and Central Asia. And because of its many frontiers, Iran takes an interest in whatever happens in the Middle East, the Levant, Mesopotamia, the Persian Gulf, the Caucasus, Central Asia, and South Asia. Therefore, it is no surprise that Iran sees itself as an underutilized regional power worthy of a global reach.
But beneath Iran’s regional rise lies an entirely different domestic picture. Endemic corruption, an economy largely run on smuggling, intense inter-factional rivalries, minimal economic transparency and a hazy trias politica are eroding Iran from within. Iran ranks #136 - near the bottom - in International Transparency’s corruption index of 175 countries. Iran’s economy is controlled by a cabal of shadowy foundations and IRGC-controlled and IRGC-affiliated business entities with no accountability to any state institution.
When it comes to brain-drain, Iran is among the world’s top three countries that lose their brightest to the outside world. Unsurprisingly, the dominant discourse among Iranian science, engineering, and medical students is how to obtain immigration visas from Western countries upon graduation. Institutionalized corruption has also abetted the brain-drain and the loss of hundreds of billions of dollars from Iranian banks in various forms of business loans. Fraudulent loans were provided to business people with fake IDs who transferred the funds to key financial institutions in Western countries - including some Canadian banks.
Iranian President Hassan Rouhani has sought to usher in a more transparent economy, reduce corruption and increase accountability. He has publicly warned against the dangers of widespread corruption and its impact on the regime’s stability. But the entrenched interests of many organizations in Iran make it difficult for much-needed structural reforms in the Iranian economy.
The Rouhani administration hopes that the flow of foreign investment into the country following a nuclear deal can bring about a transparent investment environment and will result in a more open and competitive economy, eroding the business model of murky and unaccountable institutions which thrive on smuggling.
The dominance of smuggling in the Iranian economy today will inevitably emerge as a key policy challenge for President Rouhani and his economic team. This is because of a vast labyrinth of shady institutions that have been generating tens of billions of dollars from smuggling goods in a whole range of sectors including medical, manufacturing, auto, and telecom and IT. The size of the smuggling economy far surpasses the country’s budget for economic development, an indicator of how corruption and gross mismanagement have degraded Iran’s economy down to basket-case status.
In the event of a successful nuclear deal, inter-factional rivalries within Iran’s rabbit warren of power centres will enter a new phase with a new set of dynamics. If the economy opens up, the prospects of a competitive market will threaten the interests of many entrenched elites. And subsequent reduction in unemployment numbers and poverty rates is bound to strengthen Iran’s weakened and suppressed middle class.
Improvements in the status of the middle-class are considered a red flag for the theocracy’s longevity, which thrives on the principles of absolute power of the Supreme Leader (Velayat-e Faqih) and near-zero transparency in economic, social and cultural decision making. A rising middle class would appear to be a stepping stone toward liberal participatory democracy. But how the theocracy would deal with this threat may be too grim to contemplate.
As for foreign policy, many members of the Iranian power elite are divided not merely along ideological lines but also in terms of allegiance to the interests of key foreign powers that compete for influence in Iran. These are chiefly China, Russia, Britain, and even regional players like Turkey and Saudi Arabia. Iranian elites often act as their point men, using their access to Iran’s power circles to advance the economic and political interests of the foreign power they are beholden to.
As the new domestic order shakes down, the Rouhani administration will need to push forward with his economic reforms, ideally without being overwhelmed by hardliners. After the nuclear deal, observers of Iranian affairs will find themselves focused on new dynamics of Iranian politics that will have serious ramifications throughout the Middle East.
The world will have to come to terms with a much more influential and powerful Iran (with or without nuclear weapons) that will pull the strings attached to various Middle Eastern governments and proxies while its domestic politics could undergo some tumultuous changes.
This article was written in collaboration with Reza Akhlaghi.
Reza Akhlaghi is managing editor of ForeignPolicyConcepts.Com.
Dr. Michael Bonner is a historian of Iran and former Senior Policy Advisor to a member of Cabinet in Ottawa.
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