Iran: The worst is yet to come

By Eurasia Group analyst David Bender

Iranian President Mahmoud Ahmadinejad made it through his August 5 inauguration with the regime secure, but he faces a bumpy road ahead. The Iranian government won round one against the opposition through its willingness to use force in the streets, torture in the jails, and heavy propaganda in the media. Based on its apparent calculation that excessive repression will not provoke a revolution, but compromise might, the regime won't let up anytime soon on its crackdown. While this hard-line policy may keep the regime firmly in control for the short term, it leaves it few long-term options. The regime now has neither the legitimacy nor the political capital to effectively rule or institute needed economic reforms.

Iran is less politically stable than it has been at any time since the Islamic Revolution. The regime shows deep internal fractures, even between Ahmadinejad and Supreme Leader Ali Khamenei. The two are hanging together for now, but if Ahmadinejad becomes too great a liability, Khamenei may have to dump him. Ahmadinejad faces serious challenges, including an increasingly reactionary support base dominated by the hard-line Islamic Revolutionary Guards Corps, a wide field of opponents, and wary clerics in Qom. Meanwhile, the parliament is gearing up to challenge the president on a number of technocratic matters. In other words, the impetuous president is under pressure from multiple angles, something that history suggests will push him to become more brash, outspoken, and antagonistic.

Beyond his inflammatory rhetoric, Ahmadinejad needs to bring the concrete economic reforms he promised to the country. He must tame inflation, which has been higher than 20 percent for most of the last four years; reduce budget-draining energy subsidies that have made cheap gasoline a virtual entitlement for the urban middle class; and raise tax revenue to reduce Iran's dependence on oil revenue, which currently accounts for more than 80 percent of the country's total revenue. At the same time, with oil prices half of what they were 13 months ago, but official unemployment still at more than 12 percent, Ahmadinejad's government will need to continue creating jobs to maintain social stability. It remains unclear how the government can actually solve any of these major problems, however, given that the regime has little political capital and Ahmadinejad seems to have a personal aversion to technocratic expertise.

An opening to the West now looks even less likely than before the June presidential election. The Iranian regime's decision to blame the post-election social unrest on sinister foreign elements means that few in power in Tehran will be amenable to compromise with the United States on the nuclear issue -- or anything else. In Washington, there will be more support for expanding sanctions than pushing talks. A nuclear or diplomatic breakthrough between the United States and Iran is extremely unlikely at this point, raising the threat of U.S. or Israeli military action in 2010.

For now, having consolidated control of the government and the security services, the Iranian regime looks secure. The political equation, however, has fundamentally changed as the Islamic republic has essentially become a military junta that imposes its will though force. This arrangement leaves very little margin of error for the regime and makes the country even less able to withstand future political or economic shocks. During the next 18 months, the Iranian regime will struggle to maintain regime unity, effectively counter the opposition, and deal with disillusioned cleric elites while trying to make difficult economic decisions and manage an increasingly complex geostrategic position. Ahmadinejad may find that fixing his election was the easiest part of his next four years in office, if he makes it that long.