Risk Spotlight – Iran

Substantive changes will be limited

A decade-long trend toward an increasingly conservative makeup of all of Iran’s most powerful political institutions was disrupted at the presidential election held in June 2013 as Hassan Rowhani, the lone moderate among the six candidates vying to succeed Mahmoud Ahmadinejad, emerged the victor, winning slightly more than 50% of the first-round vote.  During his campaign, Rowhani pledged a break with the “extremism” that characterised Ahmadinejad’s tenure, a message that appealed not only to moderate voters but also to conservatives fed up with the economic mismanagement, factional infighting and deteriorating relations with the West that were the dominant themes of the Ahmadinejad era.

Rowhani’s victory has revived a sense of optimism among the country’s embattled reformists, who spearheaded a popular uprising in support of political reform following the disputed 2009 presidential election (the so-called “Green Revolution”), but were subsequently marginalised as a result of a concerted campaign of state repression and legal intimidation.  However, while the election result is certainly a setback for ultra-conservatives and adherents of the nationalist populism associated with Ahmadinejad, claims of a victory for reformists are at the very least premature.

The mere fact that Rowhani’s candidacy was approved by the Guardian Council underscores the reality that his views are by-and-large consistent with those of the conservative mainstream.  Rowhani may be more inclined to adopt a cooperative diplomatic posture and to welcome private (including foreign) investment in targeted sectors than Iran’s conservatives, but he has no intention of challenging the legitimacy of the current political structure, within which significant power is wielded by non-elected bodies of clerics, and ultimate authority on all matters rests with the supreme religious leader, Ayatollah Ali Khamenei.

The new president is a technocrat and a pragmatist who has been accurately described in the western media as the “ultimate insider.”  He possesses impeccable revolutionary credentials and has served in most of the top institutions of the Islamic republic, including five consecutive terms in the Majlis and seats on the Supreme National Security Council (SNSC), the Expediency Council, and the Assembly of Experts.

In any case, Rowhani’s freedom of action will be constrained by conservative groups backed by Ayatollah Khamenei.  He assumes the presidency at a time when the influence of the office vis-à-vis other state institutions has been much weakened, the result of Ahmadinejad’s defeat in a power struggle with Khamenei.

The supreme leader formally endorsed the new president ahead of the August 4 inauguration, calling for “maximum cooperation” with the new government from all political factions.  However, three of Rowhani’s more liberal-leaning Cabinet nominees were rejected by the Majlis, ostensibly owing to suspicions about their role in the post-election unrest in 2009.  It is unclear whether the conservative majority in the legislature blocked confirmation of the three nominees at the direction of Khamenei (or perhaps elements within the security apparatus), but there is little doubt that the supreme leader can use his influence to thwart Rowhani if the president gives him reason to do so.

How the power relationship evolves over the course of Rowhani’s four-year term will depend to some extent on whether the president can sustain the broad-based popular support that carried him to victory.  In that regard, economic conditions are likely to be a key factor, and any quick improvement on the economic front will almost certainly require an easing of the international sanctions imposed by the US and the EU in an effort to force Iran to abandon its nuclear program.

No breakthrough seen in nuclear negotiations

Rowhani’s election was greeted with cautious optimism in Western capitals, where he is well-known as Iran’s chief nuclear negotiator in 2003–2005.  In that role, he secured an agreement with France, Germany and the UK under which Iran suspended uranium enrichment in exchange for promises of trade talks, but the accord was scrapped when Ahmadinejad took office in 2005. 

As noted, however, it is debatable whether Rowhani’s election to the presidency will have a substantive impact.  Although his non-combative style may help to ease tensions sufficiently to reduce the risk of near-term military action by the US or Israel, there is little to suggest that he is prepared to make any concessions that might prompt an easing of international sanctions.  Tellingly, Rowhani has repeatedly stated that productive negotiations hinge on Western governments treating Iran with respect, beginning with an acknowledgment of the country’s right to develop nuclear materials for peaceful purposes.

Rowhani has yet to announce who will head the SNCS, a position whose occupant typically serves as the chief nuclear negotiator.  Ali Akbar Salehi, the pragmatic outgoing foreign minister, has been named head of the Atomic Energy Agency, replacing Fereydoun Abbasi-Davani, a hard-liner, and there is speculation that Rowhani will choose a more moderate figure to replace Saeed Jalili as Iran’s chief negotiator.

But administrative reshuffles are no guarantee of a more flexible approach from Iran.  Rowhani is unlikely to offer to reduce the pace or scale of plutonium enrichment without the promise of significant concessions from the US, and a majority of US lawmakers remain wary of Iran’s intentions.  The Nuclear Iran Prevention Act passed by the Congress in July blacklists any business involved in Iran’s mining and construction sectors, and the Senate will discuss a separate sanction bill this fall.

At any rate, Khamenei will have the final say on any deals struck as part of the ongoing negotiations, and if he is planning to grant Rowhani greater flexibility to reach a deal, he is not making much of an effort to convey that intent.  The supreme leader will undoubtedly weigh in on the choice to replace Jalili as head of the SNSC, and Khamenei will not hesitate to force someone more to his liking upon Rowhani if the president’s choice is unwilling or unable to stick to the approved script.

Syria throws a wrench in the works

US President Barack Obama has threatened air strikes against Syria following allegations that the Syrian military used chemical weapons against a civilian population in the suburbs of Damascus in late August.  The prospect of US military engagement in the region has created political headaches for President Rowhani at home, and thrown a dark cloud over the future of efforts to achieve a negotiated resolution of the nuclear dispute.

Following the widespread dissemination of videos showing clear evidence of the use of chemical weapons in Syria, President Rowhani denounced the act, in the process attracting the ire of Iran’s hardline conservatives.  However, Iranian military leaders have publicly declared that Iran will come to Syria’s defence if it is attacked by an outside force.

The IRGC is an influential player in the political arena, and its influence will only increase in a scenario where the country is on a war footing, at the expense of Rowhani and his technocratic allies.  Obviously, a situation in which Iran and the US are positioned on opposite sides of a military conflict would be pregnant with negative possibilities.

The immediate threat of air strikes aimed at destroying Syria’s capacity to make use of its chemical weapons has receded following President Obama’s decision to seek congressional authorisation for military action in Syria.  Obama contends that he can act against Syria without the blessing of Congress, but it is doubtful that he would take that step following what is shaping up to be a decisive rejection of the plan in a rare display of bipartisanship in the highly polarised legislature.  In any case, a vote by lawmakers has been put on hold for the time being, as US officials work with Russia on a proposal involving Syria’s surrender of its existing chemical weapons stockpile.

By Christopher McKee, PRS Group

Christopher McKee, PhD, is CEO and Owner of the PRS Group Inc, a US-based, quant-driven, country and political risk rating and forecasting firm in operation since 1979. A former academic and current private equity investor, Chris is the author of several publications dealing with international business and risk, and has lived and worked in a range of emerging markets, including Latin America, South East Asia and North Africa.

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