Executive Summary

This report is based on the views expressed during, and short papers contributed by speakers at, a workshop organised by the Canadian Security Intelligence Service as part of its academic outreach program. Offered as a means to support ongoing discussion, the report does not constitute an analytical document, nor does it represent any formal position of the organisations involved. The workshop was conducted under the Chatham House rule; therefore no attributions are made and the identity of speakers and participants is not disclosed.

The leaders of the Islamic Republic must manage a formidable array of threats to Iran’s stability and prosperity. US hostility and renewed sanctions have badly damaged the economy, and popular protests have become widespread. International relationships are shifting as sanctions are implemented, yet the Regime has revealed a capacity to both adapt and endure.

Regime (in)stability and domestic unrest

Bitter divisions exist between the supporters of Supreme Leader Ali Khamenei and the administration of President Hassan Rouhani, leaving both discredited with a restive population. Iran’s political leadership is fundamentally divided on how the Islamic Republic can be rejuvenated.

  • Although the regime is tired, and many Iranians are frustrated with political divisions, mismanagement and economic stagnation, there is no coherent threat to the continuance of the Islamic Republic.
  • Neither the clerical leadership around the Supreme Leader nor the presidential political establishment is viewed positively by a majority of the population. Many are weary of religious rule and the conservatism of the clerics. The failure of the Joint Comprehensive Plan of Action (JCPOA) to bring economic relief has undermined President Rouhani’s credibility.
  • Clerics have directly attacked the presidential administration by impeaching cabinet ministers and firing key officials. A new generation of radical religious conservatives has limited influence, but as economic difficulties and protests persist conservatives may exert more influence, limiting President Rouhani’s room for reform.
  • Authoritarian rule, oil dependence and the impact of sanctions have created a culture of corruption which has increased popular discontent with the regime.

Protests have grown and spread across Iran. Polls suggest that up to 75 per cent of the population is dissatisfied, and 30 per cent believe the regime cannot be reformed. The leadership has modified its response to recognise legitimate grievances without abandoning harsh treatment of those who are arrested if protests are deemed to be riots.

  • The popular protests of December 2017 were the largest since 2009. Significantly, they originated in cities outside Tehran, demonstrating widespread popular discontent.

Although initially condemning the demonstrations, the regime later shifted to a strategy of recognising legitimate grievances and remedying them. The Islamic Republic had its origin in street protests and is sensitive to the need to manage rather than suppress complaints.

  • Economic decline is at the centre of many protests. Inflation is high and the rial has fallen precipitously in value. Young Iranians have seen their economic prospects destroyed. Protests have also focused on water shortages, pollution, corruption and unpopular religious rules, such as compulsory wearing of the hijab.
  • Protests by ethnic and religious minorities, and in border regions, were viewed by authorities as more threatening to the regime than the broader popular protests, and met with a more ruthless response.
  • The regime now relies on elite anti-riot forces rather than militias to control protests. Even though protests are treated more sympathetically than in the past, those arrested and jailed may receive long sentences, risking harsh treatment and potentially death.
  • One of the responses to anti-government demonstrations has been the organisation of counter-demonstrations, drawing on the deep support for the regime amongst its core supporters, who constitute about 20 per cent of the population.

Economic survival in the face of renewed sanctions

Iran attempted to rebuild its economy after sanctions were suspended with the signing of the JCPOA. US withdrawal from the agreement and the re-imposition of sanctions has again made Iran dependent on oil exports, which contribute a third of government revenues. Previous sanctions had a permanent negative impact on the economy, having never been completely lifted. Financial sanctions isolating a target country are destructive, and if they cannot be effectively ended, diminish the incentive for negotiations.

  • The EU continues to support the JCPOA and promote economic ties despite the US withdrawal. EU countries are setting up a Special Purpose Vehicle to facilitate trade and investment relationships with Iran.
  • Iran defends the preservation of the JCPOA as a question of the integrity of agreements, and the common interest of many countries in rejecting US unilateralism, which imposes economic sanctions on both friend and foe. The US rallies support against Iran because of its activities in Syria and Yemen and ties to Hizballah. Iran is suspected of supporting terrorist plots in Europe.
  • Russia, China and India are also interested in economic ties with Iran. China and India need oil, and Russia is a nuclear power technology partner. China and Russia both hope to sell arms to Iran. None want to completely alienate the United States. Iran distrusts Russia and China, and is placing its primary emphasis on the EU as an economic and diplomatic ally.
  • Sanctions imposed before the JCPOA was signed left Iran dependent on oil exports and generated corrupt practices as facilitators engaged in profiteering and work-arounds. The influence of the Islamic Revolutionary Guard Corps (IRGC), which was hostile to engagement with the US, increased during the original sanctions period. With the re-imposition of sanctions, Iran again faces short and long-term harm to the economy. It has no incentive to re-negotiate the agreement.

Shifts in foreign relations and international partnerships

Iran’s foreign policy is dominated by the need to retain markets for its oil, and by its ambitions as an influential actor across the Middle East. As Iran occupies a vital part of the land bridge between Europe and Asia and is at the centre of numerous Middle East confrontations, its trading partners all have an interest in promoting Iranian stability.

  • Iran’s need to focus on the economic and trade links necessary for its economy has not stopped its aggressive intervention in regional geopolitics. Iran is competing for influence in Iraq, Syria, Lebanon and Yemen.
  • Iran has successfully supported the Assad regime in Syria, but its reconstruction plans are not supported by Russia, and its role in the conflict has undermined its international reputation.
  • Iran’s geopolitical position between Asia and Europe makes its stability sensitive for all partners. It is a vital link in China’s Belt and Road initiative and is geographically connected to Russia’s restive caucus region. For India, Iran provides a port of entry to the Middle East and Europe. The EU wants to preserve the JCPOA to prevent a Middle East arms race.
  • US withdrawal from the JCPOA is having the unintended consequences of increasing Russian and Chinese influence in Iran, and in the wider Middle East, and could push the country in an even more conservative and authoritarian direction.

Outlook

As Iran struggles to maintain the JCPOA, it will remain at the centre of international attention. There is no current indication that Iran will attempt to re-start its nuclear weapons program, but a desperate need to improve its negotiating position might lead it to consider this step. If Iran did withdraw, it would again find almost all countries aligned against it. Divisions within the regime, and the diminished reputation of both the clerical leadership and the president, could lead to greater influence for the military. Several future events could have an impact on Iran’s future.

  • Supreme Leader Khamenei is now 79. His death and replacement would have an impact on the internal political dynamics of the Islamic Republic, and on its external relations. There is no heir apparent.
  • Celebration of the 40th anniversary of the Islamic Republic may stimulate antagonism between rival groups within Iran.
  • Parliamentary elections are scheduled for early 2020 and will again be a forum for the competition between conservative and reformist forces. The intensity of the elections may generate provocative and destabilising actions by Iranian factions. Iran’s election will overlap with the primary elections cycle in the United States.
  • The 2020 US elections will be very important for Iran, as they will either re-elect a Republican administration, which took the US out of the JCPOA, or bring in a Democratic administration, which might return the US to participation in the agreement.
  • Iran faces two very different but conceivable scenarios. Renewed US adherence to the JCPOA could reduce Iran’s diplomatic isolation and allow the economy to recover. A further move towards clerical conservatism, perhaps with renewed military influence, could ultimately lead to Iran becoming a securitised, radicalised and impoverished garrison state.
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