Critical Moments ForIran: Leadership, Economy And Defense – Analysis

By Emily Boulter

The Arab Spring may have failed to unleash social and political change in Iran, but 2011 is becoming one of the most crucial for the Islamic Republic. Unlike two years ago, when its regime was shaken by citizens taking to the streets to contest the result of the presidential elections, it now appears there are significant forces within Iran’s ruling elite who are helping to put the country in an untenable position. Since April, supporters of the Supreme Leader Ayatollah Ali Khamenei and President Mahmoud Ahmadinejad have been locked in a public spat over disagreements stemming from the president’s decision to sack the minister of intelligence, Heydar Moslehi, who was accused of bugging the offices of Ahmadinejad’s chief-of-staff, and firm loyalist, Esfandiar Rahim Mashaei. Mashaei has been frequently cited as a potential successor after Ahmadinejad’s term ends in 2013, but close associates of the Supreme Leader mistrust him, due to his flippant remarks and suspicions that he wants to deviate the country away from its Islamic values. Various hardliners believe the president’s associates wish to undermine the position of the Supreme Leader. The commander of Iran’s Islamic Revolutionary Guards, Brigadier General Muhammed Ali Jafari remarked “[A] Diversionary trend is hiding behind a popular, accepted and beloved figure [President Mahmoud Ahmadinejad]…This movement will definitely act against the [Islamic] revolution in the future.”

In a possible move to diffuse opposition, the Supreme Leader has alluded to removing the position of president, in favor of parliamentary deputies electing a prime minister. He has already received the endorsement of close allies such as the speaker of the parliament Ali Larijani, who has suggested the Majlis (parliament), would perform better under this system. If the plan were to proceed, it would mean the end to Iran’s republican model and all-important matters of state would rest with Khamenei. In short, Iran would revert to a form of government, similar to which existed under the former Shah. President Ahmadinejad dismissed the proposal as “academic,” yet former clerics from the Assembly of Experts, tasked with the appointment or dismissal of the Supreme Leader, such as Mohammad Reza Abbasi-Fard, believes that Khamenei’s proposal “cannot have been [made] without great reason.” Former president Akbar Hashemi Rafsanjani–who in March stepped down as chairman of the Assembly of Experts–believes the Supreme Leader’s plan would have to involve a constitutional process.

Over the past months, Ahmadinejad has managed to rouse critical opposition within the Majlis. In October seventy-three deputies signed a petition in order for the president to be questioned for corruption allegations, but at the last minute, three deputies revoked their signatures. The economy minister, Shamseddin Hosseini, also survived a possible impeachment for his failure to tackle fraud allegations related to an Iranian businessman, who allegedly forged credit notes from some of the country’s leading banks, in order to fund companies and purchase a government-run steel factory. Hosseini expressed his apologies, and announced that the scandal, which involved $2.6 billion, was the result of the “penetration of a corrupt group” into the banking system. In response, Financial Times reported the managing directors of at least four banks were dismissed. Nevertheless, this latest incident only adds to Ahmadinejad’s faltering image, as someone who was originally elected in order to fight high-level corruption and bring oil wealth down to “people’s dinner table.” One former minister of commerce, Jahangir Amuzegar has said the president is responsible for creating a “dysfunctional economic environment.”

Iran’s economy is languishing, and is set to worsen, once sanctions imposed to pressure Iran to halt its nuclear program start to take effect. The International Atomic Energy Agency’s November 8 report linked Iran’s nuclear program to the attainment of nuclear weapons; a charge that Tehran strongly denies. Since then, the United States has invoked Section 311 of the Patriot Act in order to designate Iran as a “primary money laundering concern,” which means U.S. banks must avoid all contact with Iranian banking institutions. On December 1, the European Union designated 180 entities and individuals to restrictive measures, but it has stopped short of imposing a full oil embargo. Der Spiegel notes that in 2010, Iranian crude accounted for 5.28 percent of oil imports into the European Union.

Oil and gas generate 80 percent of government revenue and the country is under pressure to increase output to counter sanctions, but its installations are in vital need of foreign investment. According to the Mehr News Agency Iran already has to import 14 million litres of gasoline a day. New sanctions targeting the banking sector will prove to be a serious challenge for Iran’s economy. According to Massoud Daneshmand from Iran’s Chamber of Commerce, it would be “a blow that might not be bearable for our transitional economy.” Even Ahmadinejad has publicly admitted that sanctions are making life impossible for the country’s banks to make transactions. His decision in December 2010 to remove state subsidies has markedly increased the price of fuel, electricity and food, not to mention that Iranians are stifled by a 20 percent inflation rate, which according to Bloomberg is encouraging them to buy US Dollars and other hard currencies.

It is estimated that roughly 70 percent of the Iranian economy is in the hands of the government and a large portion of commercial activity is generated through firms linked to the Revolutionary Guards: An organization which is crucial for the regime’s security. President Ahmadinejad has been responsible for granting them hundreds of no-bid contracts, which account for them generating 25-40 percent of Iran’s GDP, from just five percent in 1989. The IRGC has made use of government banks such as Saderat and Bank Melli as channels for their transactions, which are sanctioned by the United States and European Union, for facilitating the development of Iran’s nuclear program. On November 29, Britain’s decision to impose restrictions on Iran’s Central Bank prompted the Basij militia, posing as students, to stage a brazen attack on the British embassy in Tehran. The incident has caused immeasurable damage to Iran’s standing in the international community, and has further escalated the tension across the Middle East.

Members of the Gulf Cooperation Council have long been concerned by the Islamic Republic’s belligerence in ignoring calls by the international community to be explicit about the extent of its nuclear capabilities. According to an unclassified report by the Office of the U.S. Director of National Intelligence in March 2010, Iran’s inventory of ballistic missiles is one of the largest in the Middle East. The stockpiling of ballistic missiles and improving its ability to conduct asymmetric warfare remains a key goal of the regime, and poses a very real threat to its neighbors. Although, the IRGC suffered a major setback on November 12, when Brigadier General Hassab Moqaddam, known as the architect of Iran’s missile program, as well as a close ally of the Supreme leader, was killed, along with sixteen others, in an explosion at an arms depot west of the capital Tehran, there are suspicions that covert operations are being conducted to undermine both Iran’s progress in the development of both nuclear and conventional weapons. Yahya Rahim Safavi, a former IRGC commander-in-chief, has robustly appealed to Iranian officials not to confine their threats to words, but respond with military action. In addition, Iran’s apparent capture of the U.S. RQ-70 drone is also escalating the rhetoric: Iran is claiming that it is a victim of western aggression but the story is much bigger than this accusation because of the possibility that Tehran’s capture of the UAV through an advanced Electronic Warfare capability raises tensions even more. In light of Iran’s persistent saber rattling, interior ministers from across the GCC have agreed to review current security arrangements, with the aim of creating a regional agency. There is a palpable consensus that Gulf states have to work closely for the immediate future to diffuse the anxiety created by Iran’s refusal to cooperate.

In the meantime the growing rift between supporters of Iran’s Supreme Leader and President Ahmadinejad, coupled with economic isolation and the spectre of further international sanctions, do not bode well for the long-term survival of the Islamic Republic. It is now a question of how long it can withstand the pressure from both inside and outside. On December 24, candidate registration for the country’s parliamentary elections will begin, and this will likely prove to be the first of many events to clearly expose the divisions within the Iranian regime, and set off a possible unravelling of the current political order. Iran’s leaders enter 2012 with much trepidation.

Emily Boulter, Non-Resident Associate, INEGMA