We tend to be pretty hard on the Islamic Republic in this column. There is a lot to criticize. But, to give the devil his due, the Nezam has been very resilient—if not successful—given the numerous challenges it has faced. His Nibs, Supreme Leader Ali Khamenei, might well at the end of a long day enjoy one of his pipes and contemplate with satisfaction Iran’s position. The regime has withstood the most serious domestic challenge to its authority since the revolution. Thanks in large part to the US repudiation of the JCPOA—and despite the subsequent imposition of one of the most comprehensive sanctions regimes in the world—Iran now is arguably a nuclear threshold state. Tehran’s Quds Force-led military interventions in Syria and Yemen have forced Saudi Arabia and its Gulf allies to throw in the towel and seek diplomatic alternatives to managing their relations with Iran. Iran controls the largest ballistic missile force in the Middle East, and its proficiency in the design and employment of military drones has increased Iran’s importance to Russia, which relies on Iranian drones for its war in Ukraine. The Islamic Republic’s “Look East” policy, aligning it with Russia and China, has ensured it an economic lifeline despite sanctions—its oil exports have reached a five-year high, according to oil industry analysts—and have limited its degree of diplomatic isolation. Pulling at his pipe at the end of the day, His Nibs would not be unjustified in indulging in some satisfaction.
The risk for the Islamic Republic is that its success is a narrow one. As we have noted before, the Nezam is something of a “hedgehog” in that it focuses on one big thing—regime survival. At that it has succeeded, especially as it can claim that its revolutionary character remains intact despite more than forty years of internal and external pressure to make it change. That is no mean achievement—but is it an achievement upon which further triumphs may be built? That is far from certain. A number of long-term trends cloud the future of the Islamic Republic and suggest that this point in its history is its high point. It may be mostly downhill from here.
The first of these trends is a persistently dysfunctional and corrupt economy. The Islamic Republic, endowed with considerable natural resources and a large, well-educated population, has punched well below its weight for its entire existence when it comes to economic performance. Twenty years ago, Ali Khamenei signed off on a grandiose planning document, the “Twenty-Year Outlook Plan” that envisioned Iran having “achieved first place in the areas of economy, science, and technology” in Western Asia. After twenty years, this “first place” Iran would enjoy “fast-paced and continuous economic growth, relative growth of per capita income level, and achievement of full employment.” Readers of the PersuMedia Daily Summary will know that today, the last year of the twenty-year outlook plan, such economic goals are, if anything, even farther out of reach than they were in 2003. The Majles Research Center has reported that during the last decade, the poverty rate has increased from 19 percent to 30 percent of the population, and Iran’s GDP growth was negative for nine of the past 20 years and grew less than 2 percent for four of the eleven positive years. Unemployment in Iran has increased this year to just under ten percent; youth unemployment grew in the first quarter of 2023 to nearly 27 percent. This is why we don’t hear too much these days about the Twenty-Year Outlook Plan.
What is worse for Iran, however, is that the prospect for change is exceedingly dim. Iranian economists point to several endemic problems inhibiting growth, including “outdated management practices, non-reliance on expertise, missed opportunities resulting from poor decision-making, the unresponsiveness of the political system, and a lack of effective policy-making procedures.” Gross instances of corruption go unpunished if the miscreant is sufficiently powerful and well-connected; Majles Speaker Mohammad-Baqer Qalibaf’s sweetheart deals with the IRGC when he was Tehran mayor are exhibit A. Iran’s efforts to exploit its membership in such bodies as the Shanghai Cooperation Organization to increase trade are hobbled by its refusal to adhere to the FATF regulations on countering money-laundering, while Western sanctions constrict its ability to conduct trade elsewhere; President Ebrahim Ra’isi’s recent trip to Africa yielded mostly a clutch of barter agreements.
Most damaging of all, Iran’s ability to exploit its vast oil and gas reserves to pull itself out of its economic slough is constrained for lack of capital. Iran’s gas industry alone requires some $80 billion in investments to maintain current production and expand that of its joint gas fields; the figure jumps to an immense $250 billion for the entire oil and gas industry of Iran. None of Iran’s “strategic partners” are going to pony up that amount of capital. Russia is under Western sanctions for its aggression in Ukraine and has little incentive to increase Iran’s ability to compete with Russia for a bigger share of the global oil market. China has been long on talk, but so far has preferred to direct most of its investments in the region toward the surer bets, Saudi Arabia and UAE. As Middle Eastern countries, for now, move to cool geopolitical tensions and emphasize economic development, Iran is almost certain to be a laggard in the race.
And the economy is only one of several trends that suggest Iranian power will trace a descending arc over the long term. The second one is demography. Ironically, this is the result of one of the Islamic Republic’s successes. Recognizing the risks of too rapid a population growth—Iran experienced rapid population growth and its highest fertility rate in the 1980s—the government instituted in the 1990s a family planning program which was deemed a model for developing nations in reducing the population’s growth rate. The growth rate slowed so rapidly that Iran is now at risk of rapidly aging; UN forecasts indicate that by 2050 Iran may have the largest elderly population in the Middle East, with more than 30 percent of Iranians over the age of 60. Khamenei and the Nezam have reversed the family planning programs of the1990s and are now actively encouraging—with little success—Iranians to raise large families. Among the various factors Iranian experts and officials cite for the falling birth rate in Iran are the abysmal economic conditions and a lack of hope in a better future; many young couples question the wisdom of bringing children into such a situation.
Aggravating the demographic problem is Iran’s persistent “brain drain,” the emigration of large numbers of Iranians seeking a better life abroad. This has been a phenomenon throughout the existence of the Islamic Republic—at times reaching as many as 180,000 people leaving per year—and it has increased during the past decade. The Iran Migration Observatory reported that between 2017 and 2020 the number of Iranian emigrants tripled. The damage is compounded in that these emigrants typically are among the best educated and skilled of Iranians. The World Bank estimates that the exit of educated citizens represents an annual loss to Iran of as much as $50 billion. Moreover, it deprives Iran of the sort of skilled, entrepreneurial people it requires to build and sustain a modern economy. The Iran Migration Observatory reported in 2021 that 50 percent of Iranians in Iran’s startup community and 44 percent of university graduates planned to emigrate. Government attempts to control the internet and to shut down digital businesses that fail to enforce the hijab among its female employees no doubt further impede Iran’s efforts to develop a “knowledge-based” economy. Between the aging of the population—and resultant strain on the welfare and health systems—and the stampede of educated Iranians leaving the country, Iran will experience a long term drag on its efforts to create a strong economy.
The protests this week in Sistan va Baluchestan over water shortages point to the third long-term trend that will likely weaken the Islamic Republic: the environment. We have highlighted these problems before in this column. Suffice it to say that as Iran continues to mismanage its water resources and to react to climate change, it risks aggravating the poverty and migration that hobbles its efforts to become a leading economic and political power in the region. Iran’s ability to achieve and sustain self-sufficiency in wheat—a dubious goal given the water-intensive nature of wheat cultivation—almost certainly will diminish as aquifers and surface water are depleted. Grandiose plans for water desalination are expensive, likely to further enrich the IRGC, and carry additional environmental impacts such as increasing the salinity of the Persian Gulf. The internal migration of rural Iranians who no longer can make a living in agriculture will add to Iran’s unemployment and housing burden and may increase the risk of instability.
One wonders whether His Nibs gives much thought to these long-term trends as he enjoys his pipe at the end of the day. As long as he looks back, as old men are wont to do, the scene is satisfying, and studded with real, if narrow, achievements and rivals bested. But one suspects that, should he look where Iran is headed, his satisfaction may be marred by worries and his reverie disturbed. The Islamic Republic has survived—but it is by no means out of the woods.
