It is a truism that every sovereign state’s freedom of action has been substantially reduced by global interdependence and that, now more than ever, a country’s future depends on the interplay between its economy, domestic politics, and external relations. It is equally true that, in a number of Middle Eastern nations, ruling regimes and sustainable stability have both been challenged to unprecedented degrees in recent years.

For the Islamic Republic of Iran, all these realities apply in full force. While it is unlikely the nezam or “system,” under an aging clerical leadership, will lose its grip on power in the medium term, it has also failed to fully adapt in a way that enables consistent national progress. Of course, reviving any declining country is hard, especially when, as in Iran, domestic politics are riven with dissent, some out in the open but many still suppressed. The domestic hallmarks of decline are evident, resulting from government mismanagement under former President Mahmoud Ahmadinejad, an unending malaise in relations between ruling elites and a large proportion of Iranians, and, above all, repercussions from a decade-long nuclear dispute with the West.

In two ways, however, Iran’s historical trajectory is unique and distinctive from most other countries. First, while it asserted its sovereignty and independence during the 1979 revolution, in recent years, Iran has lost control over its destiny to an extraordinary degree. Its economy is currently vitiated by the most stringent set of economic sanctions adopted in the modern era with its main fiscal drivers– oil and gas –declining in value. Second, the Iranian government has promised change to the electorate, which it cannot deliver unless a singular international negotiation on the nuclear issue can be steered to success.

These factors mean that, more so than many other countries, Iran’s internal stability and prosperity are tied to developments in the international arena, over which it has very little control.


New opportunities for solving some of Iran’s problems and arresting decline emerged with the formation of a new government under President Hassan Rouhani in August 2013. In the nearly nine months since then, there has been little to show at home and, as of yet, only limited success with nuclear negotiations at the international level.

In addition, Rouhani is currently facing severe challenges from domestic political opponents, which are undermining his ability to fulfill campaign commitments, correct the economy, roll back the security state, and improve external relations. While he has conditional backing for his policies from Supreme Leader Ayatollah Ali Khamenei, the honeymoon period with Rouhani’s hardline opponents has long been over, assuming it ever existed in the first place.

The Economy

Recently, Ayatollah Khamenei emphasized forging an Iranian “resistance economy” of self-reliance and domestic capacity building. While a short-term expedient, this strategy cannot reverse Iran’s myriad crises. Rather, it is the nuclear issue that is central to Iran’s future, the Rouhani government’s success, and the backdrop against which Khamenei’s successor will eventually be chosen. It also holds the key to reducing external political tensions and international – namely U.S.-led – economic sanctions on the country.

Even if negotiations succeed, however, Iran’s economic path will be strewn with obstacles, including the limited size of non-oil sectors, rampant unemployment, high costs and lack of competitiveness, and the country’s relative unattractiveness to overseas investors as an oil and gas producer (pending major reforms) . While economic growth will surely return if negotiations succeed, the process will go slowly, and likely be used to satisfy key interest groups that help maintain the clerical system in power.

The Rouhani administration will also likely prioritize economic recovery and management, rather than reform. Unifying the country’s major political factions behind a common strategy and implementing those policies judiciously will take precedence over liberalizing the economy.

Nuclear Talks

The latest round of negotiations – effectively inaugurated in New York City at the United Nations in September 2013, after a series of secret preparatory meetings between the United States and Iran – began constructively and continued in Geneva in the fall. A first stage agreement on preliminary, interim measures, including limiting Iran’s nuclear progress, extending moderate sanctions relief, and laying out the main lines of a comprehensive solution, was concluded on November 24, 2013. Implementation began on January 21, 2014, leading to a six-month, but extendable, negotiations period, which is currently on-going.

A solution that limits Iran’s civil nuclear program, while defining and meeting the country’s practical needs, and that also minimizes the risks of a nuclear weapons breakout to acceptable levels, is achievable. But maximalist demands made by those in Congress and Israel who oppose President Barack Obama’s diplomatic efforts pose a severe risk to achieving a lasting agreement. Among some domestic political groups in Iran, attachment to an undiminished nuclear program as a symbol of the country’s national identity and pride could also make it hard for Iranian negotiators to remain flexible.

Nevertheless, there is a better than 50% chance that the nuclear question will be solved, perhaps in the first six month period, with sanctions substantially lifted by 2015.

Looking West

The outlook for Iran’s relations with its neighbors to the West is less promising, largely because of Syria. The instincts of the Rouhani government – that tensions and disagreements over the nuclear issue serve no one’s interest – are correct, but there will be no support for an easing of relations between Iran and the West from Riyadh, its main opponent in the region, so long as the two countries remain at loggerheads over events in Syria, Bahrain, and Yemen.

However much outsiders may yearn for stability in the Gulf through security cooperation across lines of enmity, as happened in Europe following the Helsinki Accords of 1975 and after the fall of the Iron Curtain, fears and hostilities, ideologies and interests, policies and actions – that one side regards as inimical to the other – will continue to thwart all but minor progress.

The Middle East is rife with dangers as epoch-making events continue to unfold. But time and effort should be found to begin chipping away at the dangerous levels of disagreement and tension that all too often define the Middle East, at least in the eyes of the West.

As a new spring arrives, and with it the blossoming of unprecedented diplomatic overtures and potentially historic compromises between Iran and its Western counterparts, a little hope is finally due.

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