From August 7, foreign companies active in Iran must comply with new US sanctions concerning Iran. Several European companies, including PSA and Total, have already announced their withdrawal from the country. Faced with US economic pressures, an internal economic crisis, the fall of its currency and internal disputes, the Iranian regime is now debating how to react to the US challenge.
President Donald Trump’s withdrawal from the nuclear deal means that Iran must now face its own contradictions. Its anti-American rhetoric accompanied by neoliberalism is in fact incompatible with an oil economy and a globalisation process dominated by the legal power of Washington. On the eve of the scheduled reimplementation of US unilateral economic sanctions (between August and November 2018), it is worth exploring the factors that will shape reactions in Tehran.
Unpopular economic reforms
Firstly, the Islamic Republic’s primary objective is to guarantee its own survival. This is because, since 2009, the Islamic Republic has been enduring a crisis of legitimacy exacerbated by its economic failures. The desire of the majority of the population to see economic matters taking centre stage in the country’s political project is a defining factor in the authorities’ decision-making on whether to maintain or abandon the nuclear deal. The country’s economic growth slowed from 6.5% in 2016 to 3.3% in 2017, and the renewal of US sanctions would reinforce this decline, or even herald a return to recession. Additionally, the new US strategy aims to bring about regime change in Iran without the need for military intervention. The objective is to incite a popular uprising against the Islamic Republic. In other words, the Trump administration’s logic is to destabilise the regime internally in order to divert it from pursuing a regional policy that is widely perceived by Iran’s regional rivals such as Saudi Arabia and Israel as hegemonic.
The risk is twofold: first of all, this strategy threatens to increase state repression against social movements (students, workers, environmentalists, etc.) and ultimately transform the regime into a military theocracy. Thus, the re-elected president Hassan Rouhani finds himself weakened on two fronts, three years before the end of his mandate. His implementation of a neoliberal economic policy, following IMF recommendations, is unlikely to suppress internal opposition, which has been manifested by a wave of strikes and demonstrations. During his first presidential term (2013–2017), Iran adopted a series of structural reforms, in an effort to stabilise exchange rates, reduce inflation, and reform lending regulations in the banking system to avoid toxic debt. However, these measures have had a negative effect on popular standards of living and savers have seen the value of their funds plummet. The reinstatement of true market prices has led to an increase in the cost of household products and food staples, which are now subject to fewer state subsidies.
Secondly, the Iranian reaction must also be analysed in the light of the ideological principles of the Islamic Republic and their Realpolitik applications. This double imperative can be found in the institutions of the Islamic Republic at the heart of which lies a shared concern for a disparately defined national security . L
The Supreme Leader, for example, speaks in the language of the Islamic Revolution and contests the legitimacy of international institutions, while the government and the foreign ministry refer to international law and invoke the defence of national interests as pillars of the foreign policy of the Islamic Republic.
Moreover, there is a contradiction between the ideas of economic liberalism advocated by the moderates and the reformists, the rentier nature of the state that subsidises the economy, and the ideological anti-Americanism inherited from the teachings of Ayatollah Khomeini. This contradiction lies at the heart of the revolutionary institutions of the Islamic Republic (Guardians of the Revolution, Judiciary, Office of the Supreme Leader, etc.). The early failings of Rouhani’s second presidential term serve to raise questions about the compatibility of chanting anti-American revolutionary slogans at Friday prayers and the successful reintegration of the Iranian economy into a US-dominated globalisation process.
Reinforcement of conservative factions
The withdrawal of the United States from the 2015 Vienna Agreement, meanwhile, strengthens the position of conservative political groups opposed to the economic openness espoused by the re-elected president. For these factions, Trump’s election validates their reading of US politics. In their view, the United States is inherently hostile to the existence of the Islamic Republic—it is only the means of delivery that has changed between Barack Obama and Donald Trump. According to Ayatollah Ali Khamenei, “since the beginning of the Revolution the US regime has been the main enemy of the Iranian nation.”. But this popular view within the conservative establishment of the Islamic Republic no longer seems to be so among Iranians. The slogans chanted during Friday prayers in March 2018 in the province of Isfahan in front of the mullah bear witness to this: “Turning our backs to the enemy, our faces to the motherland” (“posht be doshman, rou be mellat”,, Radio Farda, 17 mars 2018).
Conservative factions also played a role in maintaining Iran—US hostility by limiting the 2015 deal to nuclear issues alone. Indeed, this institutionalised hostility has persisted in areas such as Iran’s regional policy, human rights and the ballistic missile programme. It is, therefore, not surprising that the anti-Americanism of Islamist radicals feeds on American neo-conservatism, because the confrontation between the hardline elements of the two camps inexorably leads to the marginalisation of moderates on both sides.
Meanwhile, the new Iranian—American conflict puts European states in an uncomfortable position. They will have to reduce their trade relations with Iran, which will push the country into China’s economic sphere. At the same time, Russia will be able to increase its influence in Iran, particularly in the oil and gas, nuclear and military sectors. The Iranian deep state, with US hostility fuelling an obsidional complex or siege mentality, could nevertheless choose the path of a moderate reaction to the US escalation. Indeed, its main objective is to contain the principal threat to its authority, namely the intensifying internal socio-political challenge whose causes have not been addressed. Even if there is a minority in Iran convinced by the ideology of the founder of the Revolution, Ayatollah Khomeini, we must not neglect those who yearn for freedom, and who fear chaos and a Syria-like disintegration.
Failure of the Chinese model
The Islamic Republic is now aware that its religious-political system (nezam) has become unpopular, even in rural areas and small towns. Despite this increasingly open and visible challenge in the public space, the main assets of the Islamic Republic remain: a popular fear of chaos; its monopoly over the use of force; and its ability to redistribute state rents, namely oil revenue, to its political clients. What is certain is that the ideological weakening inside Iran stands in contrast with external perceptions—particularly in Saudi Arabia and Israel—that Tehran has hegemonic ambitions on the regional and even international levels.
Internally, the reformist/moderates’ project to ensure the development of the country according to the Chinese model has failed. Similarly, the implementation of a foreign policy whose main innovation has been a strategy of rapprochement with European countries is being challenged by the withdrawal of many European companies. The solution proposed by the conservatives seems paradoxical. In fact, state and semi-state companies have been the main beneficiaries of Rouhani’s economic opening. However, on the political front, the same conservative factions oppose the policy of dialogue with the West for cultural reasons. In terms of foreign policy, their project is reinforcing Iran’s dependence on China and Russia, and leaves little prospect of revolutionary aspirations of independence ever being realised. Moreover, after the US withdrawal from the nuclear deal, it seems that the country’s strategy of self-isolation will continue, unless popular protests eventually provoke a change in the international strategy of the politico-religious elite of the Islamic Republic.
The question of nationalism
Last but not least, it is often cited that Iran has “hegemonic” or even “imperial” ambitions on the regional scene. In this sense, the case of Iran is similar to the Russian example, as pointed out by Maxim Suchkov. This “nationalist” or “imperial” dimension often attributed to Iran is often confused, especially in the Arab world, with the revolutionary ones of the Islamic Republic. However, if in the internal political discourse we have seen the emergence of an Islamo-nationalism, it is clear that in the Muslim world, the Islamic Republic strives to put forward the religious face of the regime rather than the nationalistic dimension. Of course, in the vision of politico-religious elites the two are the intertwined, but this interpretation of Iranian identity is now disputed both inside the country—with demonstrations against the regime (in 2009 and 2017–2018)—and beyond where the communities supported by the Islamic Republic often identify Iranian clerics according to their ethno-national identities, especially in Iraq, the Persian Gulf, Pakistan or Afghanistan. The persistence of the idea of nation in Iran can have two contradictory effects: it can either be instrumental in justifying a new period of economic isolation; or serve as a basis for a redefinition of an Iranian foreign policy that is more in line with national interests, particularly when it comes to economic issues.
Research Fellow for Iran at the International Institute for Strategic Studies (IISS).