Domestic woes

All this should help the economy. Iran’s oil and non-oil revenues are at their highest since President Donald Trump re-imposed

sanctions in 2018, when he pulled out of a deal to lift them in exchange for Iran’s agreement not to build nuclear weapons. Sales to

China alone have increased from 200,000 b/d in 2020 to more than 1.2m in recent months. Oil revenues have risen from $25.5bn in

2021 to $42.6bn 2022. Iran’s budget projects that they will reach $71bn in 2024.

Much more has to happen for Iran’s citizens to feel the benefit. Although Iran’s exports have soared, American sanctions still make it

hard for Iran to repatriate the proceeds. Traders dealing in oil from the “pistachio country” arrive with duffle bags full of cash in

Dubai. Some is sent to Iran overland via Iraqi Kurdistan or Afghanistan or is laundered through informal currency exchanges and

cryptocurrency transactions in Dubai. Near al-Hamriya port there is a strip of massage parlours, which, since they sell their services

for cash, probably help launder it. Even so, “a lot of the earnings stay here,” says a Western diplomat in Dubai, with a nod at the

skyscrapers stretching to the horizon. The city bustles with new Iranian art houses and clubs.

Iran cannot afford that. Even were all the proceeds to head home, Iran would still run a large budget deficit. The country needs to

export 1.5m b/d at a price per barrel of $85 to balance its budget. But oil currently trades for less, and Iran has to offer buyers a hefty

discount to the market price.

At home, the IRGC and their cronies capture much of the oil revenue, creating a two-tier economy. The aghazadehha, children of

the elite, flaunt their Lamborghinis in northern Tehran and head to London or Dubai to shop and party. Finding it difficult to get visas

for America but no less attracted to it than pre-revolutionary elites, thousands fly to Canada. Toronto has so many Iranians they dub it

Tehranto.

Life is harder for most Iranians. Inflation has accelerated, outpacing wage growth. Food prices are up by 40% year on year; the price

of meat has risen at double that rate. The poverty rate has increased from 19% to 30% in a decade, according to official figures. More

than 26m people, 30% of the population, live on less than $7 a day, an official poverty line. University lecturers moonlight as taxi-

drivers. There are reports of Iranians selling body parts to Turkey and the United Arab Emirates. Those who have money stash it

abroad.

These woes would test able politicians. Unfortunately, the government, led by President Ebrahim Raisi, is widely regarded as the

Islamic Republic’s most inept yet, as well as its most hardline. Most of his ministers are either IRGC veterans or graduates of Imam

Sadiq, a seminary-cum-university in the capital with an ideological bent. They are ill-equipped. For the last six months they have

imported petrol at market prices to make up a shortfall in local production. Even so they continue to subsidise it to keep the price to

motorists at two cents a litre, for fear of the unrest that might follow a price hike. Earlier governments raided public pension funds.

To deal with the resulting deficit, parliament last month decided that workers would have to stay in their jobs for an extra five years,

prompting protests by pensioners.

Iran has much to offer foreign investors, but American sanctions, protectionism and mismanagement chase almost everyone away.

China has signed copious memoranda of understanding, but is waiting for sanctions to be lifted to implement them. Saudi investment

is conditional on a halt to Iranian support for its proxies. Russia is the latest hope. In exchange for Iranian weapons, especially

drones, for Russia’s invasion of Ukraine, Iranians say, Russia will invest in its oilfields and a north-south rail link to the Indian

Ocean. To date, though, the two countries’ biggest joint venture has been busting Western sanctions through middlemen in Dubai.

Environmental miseries compound economic ones. Last summer, temperatures in the south neared 60°C (140°F). Drought has nearly

emptied reservoirs. Desertification is destroying the bread-basket, sending hundreds of thousands to the cities. But those, too, are

experiencing blackouts and water cuts, prompting more protests. By 2050 water shortages could force 70% of Iranians out of the

country, a presidential adviser has warned.

These stresses make the coming transition to a new leader even more fraught than it would otherwise be. In an attempt to consolidate

the system, Mr Khamenei has purged it of doubters. Elections for the Assembly of Experts, which chooses the supreme leader, and to

the parliament are both due in March. But what was once a fairly competitive process increasingly resembles the staged showpieces

of other Middle Eastern autocracies. Reformers and pragmatists have been purged from parliament. Power is more concentrated and,

without a popular base, brittle. “We’ve shifted from being a form of a democracy to dictatorship,” says an Iranian analyst who is

often in Tehran.

What’s next?

To date, Mr Khamenei has refused to nominate a deputy, who would be viewed as a likely successor. Mr Raisi is a contender to take

over (Mr Khamenei was president before he became supreme leader). But Mr Raisi is dogged by his record of economic

incompetence. Hassan Rouhani, his predecessor, had a better run, but Iran’s hardliners mistrust him. Mr Khamenei may be grooming

Mojtaba, his second son, but the heirs of a revolution that toppled one dynasty are reluctant to create another. Mr Khamenei’s death

or retirement may be followed by violent jostling for power within the elite.

Initially, it seemed, the Gaza war might stretch Iran’s domestic tensions to breaking point. Hard-up Iranians fumed at the flow of

money to foreign militias. “We’re their proxy,” griped a university lecturer, who fears that Palestinian extremists could drag Iran into

the fray. Some Iranians even embraced the regime’s nemeses. Baristas in cafés pinned stars of David to their aprons. When a regime

loyalist waved a Palestinian flag at a football stadium in Tehran, fans roared to shove it up his backside. Capturing the mood, an

Iranian cartoonist depicted an ayatollah laying down an Israeli flag for crowds to stamp on; they just tiptoe around.

For now, the regime is seeking to placate its citizens without formally surrendering to them. Theocracy’s enforcers are still active.

Women in chadors and revolutionary-green sashes monitor commuters’ adherence to the dress code at metro-station entrances.

University lecturers face expulsion for allowing women without headscarves into their halls. Cafés flouting the code are fined and

shut down. But the authorities cannot close all cafés. In many, hardly a woman wears the headscarf. The Guardian Council, an

assembly of clerics and notables that vets legislation, ruled in October against a chastity law passed by hardliners in parliament on the

grounds that enforcement would be un-Islamic. Without admitting it, the regime is bowing to popular pressure, just as it has before

when it relented on banning Beethoven, suppressing celebration of pre-Islamic festivals and prohibiting satellite dishes.
The emerging elite may be instinctively more liberal than their elders. Many of the ideologues’ children are as attracted to Western

freedoms as other young Iranians. “They see life in Dubai or Turkey and are not going to obey the Islamic rules the regime dictated

in the past,” says an analyst in Tehran. Some observers suggest that Mojtaba Khamenei, if he succeeds his father, might emulate

aspects of the rule of Muhammad bin Salman, the modernising authoritarian who governs Saudi Arabia. Iran might become more

autocratic, but freer of religious strictures. Others see the IRGC as a likelier engine of change. According to the constitution, Mr

Khamanei’s successor must be a qualified cleric. But if the clerics could not agree on one, some IRGC generals might dictate the

choice.

Over time, some analysts hope, the regional restraint the country has shown since October 7th might become the norm. Iran might

begin to prefer maintenance of the status quo to revolutionary chaos. Its regional satellites already have dominant roles in Iraq,

Lebanon, Syria and Yemen; it might seek to consolidate rather than expand further. Some Israeli security analysts wonder whether,

having restrained Hizbullah, Iran could be persuaded to relocate the movement’s militants to the other side of the Litani river, 18

miles (29km) north of the Israeli border. A two-state settlement between Israel and the Palestinians could enable Iran to dial down its

conflict with Israel. Iranians know that America is not likely to revive the moribund nuclear deal and lift sanctions in an election year.

But while elusive, a comprehensive bargain with America in the medium term is conceivable.

Despite popular anger, the regime has little organised internal opposition. The opposition in exile is in disarray. Its most popular

television channel, Manoto, recently announced its closure. Advocates of regime change have postponed their hopes until after

America’s election, which some wistfully hope will bring back Mr Trump and his policy of maximum pressure. But the regime,

which turns 45 next year, has proven its resilience. What the aftermath of Hamas’s attack has revealed is that it may no longer be

willing to live as dangerously as its proxies. ■