United States Institute of Peace

The Iran Primer

Obama: Time for a Diplomatic Solution

            On February 12, President Obama said Iran’s leaders “must recognize that now is the time for a diplomatic solution” to the nuclear issue, during his State of the Union address. He warned that the United States will do “what is necessary” to prevent Iran from obtaining a nuclear weapon. Obama also discussed broader U.S. policy in the Middle East, pledging to “stand with citizens as they demand their universal rights, and support stable transitions to democracy.” He added that the United States will keep the pressure on the Syrian regime —a key Iranian ally—while supporting opposition leaders. The following are excerpts from his address, followed by a link to the full transcript.
            …The leaders of Iran must recognize that now is the time for a diplomatic solution, because a coalition stands united in demanding that they meet their obligations. And we will do what is necessary to prevent them from getting a nuclear weapon.
Broader Middle East
            In defense of freedom, we’ll remain the anchor of strong alliances from the Americas to Africa; from Europe to Asia. In the Middle East, we will stand with citizens as they demand their universal rights, and support stable transitions to democracy.
            We know the process will be messy, and we cannot presume to dictate the course of change in countries like Egypt, but we can -- and will -- insist on respect for the fundamental rights of all people. We’ll keep the pressure on a Syrian regime that has murdered its own people, and support opposition leaders that respect the rights of every Syrian. And we will stand steadfast with Israel in pursuit of security and a lasting peace.
Click here for the full transcript.

Khamenei: U.S. Policies Have Failed in Mideast

            On February 7, Supreme Leader Ayatollah Ali Khamenei said that U.S. Middle East policies have failed. He condemned the U.S. response to the Arab uprisings in a speech to Iranian Air Force commanders and personnel. “You suppress the nations who have risen in revolt as much as you can, and you weaken them and pit them against one another. You are evil,” he said.
            Khamenei also referenced recent public disputes between President Mahmoud Ahmadinejad and Speaker of Parliament Ali Larijani. Government officials should stop this “improper conduct” and “join hands against the enemy,” he warned.
            The Supreme Leader rejected recent U.S. overtures for direct talks on the nuclear issue. He said that “dragging the Islamic Republic” to the negotiating table is a U.S. trump card. Khamenei warned that Iranians who favor direct talks are either “simple-minded” or have “ulterior motives.” He also criticized the United States for enforcing new sanctions, saying Iran cannot negotiate “under pressures and threats.” The Supreme Leader said that the ball is not in Iran’s court and that United States should make the next move. The following are excerpts from the Supreme Leader’s speech, with a link to the full text at the end.
            …Dominant powers tried to take control of all nations and countries throughout the world by using force, money and weapons and by launching military attacks. They tried to make nations believe that they cannot find the path towards greatness, identity and independence without relying on superpowers and on those who have money and power - Zionist and non-Zionist companies have lined up behind them. You shattered their hopes.
            Compare the Iranian nation, today, with nations who have been under the domination of American power. See where you are and where they are. With their movement, independence, self-confidence and reliance on God, the Iranian people proved that one can and should stand up against the domination of foreigners and those who seek domination. The Iranian nation has proved this. Thirty years ago, what was the position of the Iranian nation in science, civilization, progress, technology and political influence? What position does it enjoy today? It achieved such a position by putting up a resistance, relying on God and bringing all its capacities into the arena. This is an experience for both the Iranian nation and future generations. It is also an experience for other nations. The Air Force of the Islamic Republic of Iran Army is one of the examples of this resistance and this movement which has been based on self-confidence. We should continue this. We Iranian people should continue this path. This path is full of blessings.
            For more than thirty years, the enemies of the Iranian nation have done everything in their power to harm the Iranian nation. There is not a thing which they have not used against the Iranian nation. They provoked conflicts, waged wars, supported the enemy of the Islamic Republic with all their power and they waged hard and soft wars. They fought the people of Iran as hard as they could, but our people stood up against them and they resisted. Not only could they not bring our people to their knees and destroy them, but they also failed to prevent them from making progress. Our nation has made progress. They made use of everything they could. They hatched plots, launched coup d'états, provoked military conflicts, shot down passenger airliners, imposed heavy sanctions and increased them on a daily basis. They did these things in the hope that our people would lose their hope, disappear from the scene and lose their trust in Islam and the Islamic Republic. But they failed. This is the record of the Islamic Republic.
            These days, referred to as ten-day Fajr celebrations, are good opportunities for our intellectuals, our youth and all the people of Iran to spend some time evaluating their actions during the past thirty-something years and see their achievements, see their successful efforts, see the divine assistance and see the weakness of the enemies' plots. "And they (the unbelievers) planned, and Allah planned, and Allah is the best of planners" [The Holy Quran, 3: 54]. This is the general guideline for us, to see how we should choose our future path. You the people in the Air Force should move forward according to this outlook and orientation. Different sectors of the country, all the people and the officials of the country should move forward according to this outlook.
            Of course, the enemy inflicts harm, but it cannot do anything except for causing slight annoyance. I mentioned a few days ago that Allah the Exalted said, "They shall by no means harm you but with a slight evil" [The Holy Quran, 3: 111]. Their job is to harm you. But, they cannot create obstacles for you and block your path. Over the past 30 years, the Americans have been ranting and raving against the Iranian nation. They said and did whatever they could. They broadcast negative propaganda and they established an evil media empire against the Iranian nation. But the result is this: today, by Allah's favor, the Iranian nation has become happier, more determined and more active than ever and it is witnessing more blossoming in different areas.
            They have been trying to separate the people from the Islamic Republic and the Revolution. Each year on the 22nd of Bahman, the Iranian people frustrate the enemy with their presence in the national and revolutionary rallies. They are trying to separate the people from one another. The previous inexperienced American secretary of state said openly that they are imposing sanctions in order to pit the people of Iran against the Islamic Republic. The people of Iran have always responded to such statements through their rallies and their actions. You will see that on the 22nd of Bahman, the Iranian people will, once more, frustrate their efforts with a crushing move [Audience shout "Allahu Akbar"].
            The good thing is that the people are wise and vigilant. They know the purpose of the enemy's plot, they predict the enemy's moves, they understand why the enemy has adopted a certain policy and they move in the opposite direction. They rely on their own achievements and they will show their presence in this great arena of national dignity. They will show themselves and they will prove their presence. This is the good thing. In the face of the negative propaganda by the enemy - particularly, the Americans and the Zionists - the people do not take the wrong path because of their communal wisdom and they do not make the mistake which the enemy is waiting for. This is the good thing about large-scale issues of our country.
            Now the Americans have raised the issue of negotiations again. They repeat that America is prepared to directly negotiate with Iran. This is not new. The Americans have repeatedly raised the issue of negotiations at every juncture. Now their newly appointed politicians repeat that we should negotiate. And they say that the ball is in Iran's court. The ball is in your court. It is you who should explain the meaning of negotiations that are accompanied by pressure and threats. Negotiations are for the sake of proving one's goodwill. You commit tens of acts which show lack of goodwill and then you speak about negotiations. Do you expect the Iranian nation to believe that you have goodwill? Of course, we understand why the Americans repeatedly raise the issue of negotiations and why they speak about it in different ways. We know what the reason is. As the Americans themselves say, their Middle East policies have failed. They need to play their trump card. Their trump card is dragging the Islamic Republic of Iran, which is based on the people, to the negotiating table. They need this. They want to say to the world that they have goodwill. No, we do not see any goodwill.
            Four years ago - during the early days of the current American administration - when they were saying the same words, I announced that we will not prejudge and we will wait to see what action they will take and then we will judge. Now after four years, how should the Iranian nation judge their actions? They supported the fitna in Iran, they helped those who started the fitna, they sent their troops to Afghanistan under the claim that they were fighting terrorism, they trampled on so many people and they destroyed them. They are also supporting and cooperating with the same terrorists in Syria and they used the same terrorists wherever they could in Iran. Their agents, their allies and Zionist spies openly killed the scientists of the Islamic Republic. They did not even condemn these terrorist activities. [On the contrary] They supported them. This is their record. They imposed sanctions - which they wanted to be crippling - on the Iranian nation. They openly said, crippling. Who do you want to cripple? Did you want to cripple the Iranian nation? Do you have goodwill?
            Negotiations are meaningful when the two sides negotiate with good intentions and without planning to deceive one another. Negotiations should be on equal terms. Negotiations for the sake of negotiations, tactical negotiations and offer of negotiations as a superpower gesture, are deceptive moves. They are not honest moves.
            I am not a diplomat. I am a revolutionary. I speak openly and honestly. A diplomat says something, but he actually means something else. We speak openly and honestly. We speak clearly and decisively. Negotiations are meaningful when the two sides show their good intentions. [Negotiations are not meaningful] when one side does not show his good intentions. You yourselves refer to this as pressures and negotiations. These two things are not compatible. You want to point the gun at the people of Iran and say, negotiate or we will shoot. You say these things to intimidate the Iranian nation. You should know that the Iranian nation is not intimidated by these things [Audience shout "Allahu Akbar"].
            A number of people become happy about the American offer of negotiations and they say, come and negotiate with us. This is expressed by a number of people who are either simple-minded or who have some ulterior motives. One cannot make definitive judgments about people. But what a simple-minded person does is no different, in essence, from what a person who has ulterior motives does. Negotiations with America will not solve any problems. When did they keep their promises? Over the past 60 years, since the coup d'état of the 28th of Mordad of 1332 until today, the officials of our country have been harmed whenever they trusted the Americans. One day Mosaddeq trusted the Americans, relied on them and considered them as his friends. Then the coup d'état of the 28th of Mordad occurred and the Americans found the opportunity to launch a coup d'état. The agent responsible for launching the coup d'état came to Tehran with a briefcase full of money and he divided it among thugs and vandals so that they launch the coup d'état. The agent was American. They admitted what the purpose of their plot was. After that, they helped the oppressive Pahlavi regime achieve domination over our country. They established SAVAK and chained and tortured political activists. These are the things they did at that time.
            During a certain period after the Revolution, the officials of the country trusted them. But the politicians of the American government labeled Iran as "axis of evil". It is you who are the embodiment of evil. It is you who are doing evil deeds in the world. You wage wars, loot nations and support the Zionist regime. On the issue of Islamic Awakening, you suppress the nations who have risen in revolt as much as you can and you weaken them and pit them against one another. You are evil. Evil is part of your character. They accused the Iranian nation of doing evil acts. This is a big insult. Whenever people trusted them, they made such moves. They should show their good intentions. Negotiations and offer of negotiations are not compatible with pressures. Negotiations and pressures are two different paths. It is not possible for the Iranian nation to accept negotiations under pressures and threats, with those who make threats. What should we negotiate for?
            Today, the Iranian nation is vigilant. The true face of America has been revealed not only in Iran, but also in the region. Nations distrust America and there are many reasons for this distrust. The Iranian nation has also accurately read the Americans' moves. It understands what their purpose is. Our nation is vigilant. Today, if certain people want to help America re-establish its domination and act against our national interests, against the progress of the country and against the path of independence, they will be held responsible by the people and even if I act against this public demand, the people will complain. It is obvious. All the officials are responsible for safeguarding national interests and preserving national independence. They should preserve the dignity of the Iranian nation.
            We have negotiated, signed contracts and established relations with countries which have not plotted against Iran. The Iranian nation is peace-loving. The Iranian nation is patient. The unity of the Iranian nation is in line with promoting the interests of humanity. Today, what the Iranian nation does is for the sake of its interests and the interests of the Islamic Ummah and humanity. And undoubtedly, divine assistance is behind the Iranian nation. By Allah's favor, the people of Iran will be able to help not only themselves but also the Islamic Ummah to reach the peak of glory with their wisdom, with their firm determination and with the resistance that they have shown on this bright path, the path that they will continue following in the future as well. The way to reach this glory is to preserve this wisdom. The way to do this is to preserve our unity. The way to do this is for the officials to safeguard the interests of the country. This improper conduct which is witnessed in certain areas from certain government officials - they should end this. By Allah's favor, I will address this issue in the future and I will speak to the people. Our nation is unified, determined and active. Even if there are differences of opinion between the people over different issues, all the officials and all the people join hands against the enemy, global arrogance and those who have prepared themselves to destroy the roots of the people and the Islamic Republic. There is no disagreement among the people over this issue.
            By Allah's favor and grace, on the 22nd of Bahman the people will show, once more, that they are present on the scene, that they are prepared, that they are united, that they are moving in the same direction. And undoubtedly, divine blessings will be bestowed on them.
Click here for the full text.

U.S. Sanctions Chinese Firms for Proliferation

            On February 11, the U.S. State Department imposed new nonproliferation sanctions on entities and individuals from Belarus, China, Iran, Sudan, Syria and Venezuela. Credible information indicated that they had transferred to, or acquired from, Iran, North Korea, or Syria, equipment and technology related to weapons of mass destruction, or cruise or ballistic missile programs. Four Chinese firms and one individual were included on the list. Li Fangwei, also known as Karl Lee, has been penalized at least two other times for supplying material to Iran’s missile program, according to a Federal Register notice. The following are excerpts from the State Department announcement.
            Pursuant to the Iran, North Korea, and Syria Nonproliferation Act (INKSNA), a determination was made to impose sanctions on: two Belarusian entities [TM Services Limited (TMS) and Scientific and Industrial Republic Unitary Enterprise (aka DB Radar)]; four Chinese entities [BST Technology and Trade Company, China Precision Machinery Import and Export Corporation (CPMIEC), Dalian Sunny Industries, and Poly Technologies Incorporated] and one Chinese individual [Li Fangwei (aka Karl Lee)]; two Iranian entities [Iran Electronics Industries (IEI) and Marine Industries Organization (MIO)] and one Iranian individual [Milad Jafari]; two Sudanese entities [Al-Zargaa Engineering Complex (ZEC) and SMT Engineering]; one Syrian entity [Army Supply Bureau (ASB)]; and one Venezuelan entity [Venezuelan Military Industry Company (CAVIM)]. INKSNA sanctions were imposed on these entities and individuals because there was credible information indicating they had transferred to, or acquired from, Iran, North Korea, or Syria, equipment and technology listed on multilateral export control lists (Australia Group, Chemical Weapons Convention, Missile Technology Control Regime, Nuclear Suppliers Group, Wassenaar Arrangement), or items that are not listed, but nevertheless, could materially contribute to a weapons of mass destruction (WMD) or cruise or ballistic missile program.

            A separate determination was made to impose missile proliferation sanctions under the Arms Export Control Act (AECA) and Export Administration Act (EAA) on the Chinese individual Li Fangwei (aka Karl Lee) and his company, Dalian Sunny Industries, for transferring equipment and technology controlled under the Missile Technology Control Regime (MTCR) Annex to MTCR-class (Category I) missiles in a non-MTCR country.
            The United States also imposed sanctions pursuant to Executive Order (E.O.) 12938, as amended, on Li Fangwei (aka Karl Lee), Dalian Sunny Industry, and the Iranian entities Shahid Bakeri Industrial Group (SBIG), Shahid Sattari Ground Equipment Industries, and the Ministry of Defense and Armed Forces Logistics (MODAFL), because these entities contributed materially (or posed a risk of contributing materially) to the proliferation of WMD or their means of delivery (including missiles capable of delivering such weapons).

            These sanctions (INKSNA, AECA/EAA, E.O.), and the specific penalties levied on the sanctioned entities, were announced in the Federal Register (Vol. 78 No. 28) on February 11, 2013. The sanctions were imposed for a period of two years and will expire in February 2015.
Click here for the announcement. 


Iran Reacts to Obama’s New Team

            Tehran has sent mixed messages on President Obama’s secretary of state nominee John Kerry and defense secretary nominee Chuck Hagel. Two Foreign Ministry officials said they hoped Kerry and Hagel would revise U.S. foreign policy towards Iran. But Supreme Leader Ayatollah Ali Khamenei and two high-ranking military commanders did not share their cautious optimism.
            Khamenei said the nominees should account for "pressure and threats" to show goodwill, basically ruling out direct talks with the United States while sanctions are in place. “Our historical experience tells us that switching officials will not change [U.S] policies,” Brig. Gen. Hossein Salami, Chief of the Joint Staff of the Revolutionary Guards, told Iran’s official broadcasting agency. “We cannot trust those who have been lying to us for 34 years,” said Maj. Gen. Mohammad Jafar Assadi. The following are excerpts from Iranian officials’ comments on John Kerry and Chuck Hagel.

Supreme Leader Ayatollah Ali Khamenei
            "The Americans have repeatedly raised the issue of negotiations at every juncture. Now their newly appointed politicians repeat that we should negotiate. And they say that the ball is in Iran's court. The ball is in your court. It is you who should explain the meaning of negotiations that are accompanied by pressure and threats. Negotiations are for the sake of proving one's goodwill. You commit tens of acts which show lack of goodwill and then you speak about negotiations. Do you expect the Iranian nation to believe that you have goodwill?" Feb. 7, 2013 in a speech to Air Force personnel

Foreign Minister Ali Akbar Salehi
            “We hope that he [John Kerry], given his personal characteristics, will be able to at least help revise part of the U.S. government’s approaches, and anti-Iran policies, and will help reduce the loss of lives and financial losses inflicted on regional nations and the people of the United States caused by the U.S. foreign policy.” Feb. 1, 2013 to Fars News Agency

Brig. Gen. Hossein Salami, Chief of the Joint Staff of the Revolutionary Guards
            “We view the United States as a political and ideological system driven by its strategic interests. Our historical experience tells us that switching officials will not change policies... We have learned that there are major contradictions between the words and practice of the Western powers, and we will react to their actions and not their words.” Jan. 14, 2013 in comments on Chuck Hagel to the Islamic Republic of Iran Broadcasting

Foreign Ministry spokesman Ramin Mehmanparast
            “We hope there will be practical changes in American foreign policy and that Washington becomes respectful of the rights of nations.” Jan. 8, 2013 in comments on Chuck Hagel to the Islamic Republic of Iran Broadcasting

Maj. Gen. Mohammad Jafar Assadi, Deputy Inspector of Khatam al Anbia Air Base

            “…We cannot trust those who have been lying to us for 34 years. Our greatest enemy is the United States and global imperialism, and the bigger threat to us is Israel.” Jan. 20, 2013 in comments on Chuck Hagel to Fars News Agency 

Iran’s Successes and Failures - 34 Years Later

Daniel Brumberg

On February 11, Iran will mark the 34th anniversary of the Islamic Revolution. What are Iran’s successes?
            The Islamic Republic is now a regional power, thanks to three decades of social, economic, diplomatic, and military advancements. But not all of these successes are clear-cut. Many of Iran’s achievements actually created new challenges or even led to political and diplomatic failures.
      One of Iran’s greatest successes is the dramatic expansion of its middle class. Many professionals, white collar workers, and skilled laborers from modest backgrounds entered the middle class during the 1980-1988 war with Iraq, when the country faced growing international isolation. The distribution of oil wealth helped spur along this process.
      The state’s health, education and welfare initiatives also played a major role in expanding the middle class. Iran dramatically lowered its fertility rate with a progressive family planning program. The rate dropped from 6.6 births per woman in 1977 to 2 births per woman in 2000. The government expanded higher education and significantly increased literacy rates, especially among women. In 1998, two decades after the Islamic Revolution, Iran was cited as one of the top ten countries worldwide that had closed the gender gap in education.
            Iran has also achieved some economic success over the last three decades. The Islamic Republic managed to pay off its various loans to American banks within two years of the 1979 revolution. The government used oil revenues to build highways, railways, factories, power plants, airports and other infrastructure.
            In 2010, President Mahmoud Ahmadinejad launched a phased reform plan designed to cut back government subsidies of basic commodities dating back to the 1980s. It was the most extensive economic reform since the 2007 gas rationing plan. Subsidies have been a constant drain on the economy—accounting for about 25 percent of Iran’s gross domestic product (GDP). The government reportedly reformed 30 percent of subsidies before parliament suspended the second phase of reforms in November 2012.
            Despite declines in oil exports and tightened international sanctions, Iran ranked 18th worldwide by GDP (purchasing power parity adjusted) in 2012.
Foreign Relations
            The United States and its Western allies have isolated Iran economically and diplomatically. But this isolation has encouraged Tehran to pursue a pragmatic diplomatic strategy that has somewhat mitigated the impact of international sanctions.
            Iran has built economic, trade and business relationships with non-Western powers such as China and Russia. Tehran has also sought ties with regional powers such as Brazil and Nigeria, and authoritarian states including North Korea, Syria and Venezuela. Iran has forged trade and financial links with Iraq, India, Malaysia, and even Thailand, to advance what it calls an “Eastern Policy.” The Islamic Republic now considers itself a leading non-Western power. In 2012, Tehran hosted the Non-Aligned Movement Summit, viewing it as an indicator of successful foreign policy.
Military and Security
            Iran has emerged as a formidable military power in the Gulf. Even some key Arab Gulf states prefer to accommodate Tehran rather than support policies that could risk a military confrontation. The Islamic Republic’s regular military and non-conventional forces cannot match U.S. capabilities. But Iran has some deterrents, including a large stock of missiles and the ability to launch asymmetric attacks.  
            Iran’s military strength is partly rooted in the development of its nuclear program, which could be used for military purposes. Tehran’s success in the nuclear field is not only due to enriching uranium to 20 percent, but also to burying its nuclear facility at Fordo.
            “Digging down” offers effective deterrence against an Israeli or U.S. airstrike, from the vantage point of Iran’s leaders. Israel probably lacks the necessary munitions to inflict lasting damage on sites such as Fordo. The United States would probably need to bomb Iran’s nuclear sites for weeks, which would likely drag it into an all out war. Tehran could then use its conventional and unconventional military assets, and proxy organizations like Hezbollah, to inflict damage on U.S. interests and allies. The regime almost certainly perceives the U.S. preference for a diplomatic solution as evidence of Iran’s military strength and deterrence capabilities.
            The Islamic Republic has also succeeded in creating efficient security forces to clamp down on domestic unrest. In 2005, the Islamic Revolutionary Guards Corps (IRGC) was restructured into 31 separate commands – one for each province and one for Tehran. The Basij militia was integrated into the IRGC in July 2008. The intelligence services, police, and Basij now seem to be acting more coordinated under the direction of the IRGC.
What are Iran’s failures?
            Many of Iran’s failures stem from its initial successes. For example, members of the expanded middle class are now disillusioned with the regime that helped them progress. Tehran succeeded in pursuing an independent foreign policy. But stubborn behavior costs it opportunities to improve its relationships with other nations, including the United States.
            Iran’s modernization efforts produced groups which now reject or seek to reform the regime that made their ascent possible. Iran’s expanded middle class—particularly in the urban metropolis of Tehran—is literate, educated and worldly. Middle class Iranians seek legitimate political representation in a system that now limits or denies their participation. They envision a far more democratic system than would likely be tolerated by the regime and its most hardline supporters or “principlists.”
            The regime has also lost legitimacy in the eyes of some women. For several years, more than 60 percent of the university student body was female. But women’s efforts to participate in politics and attain top positions in other fields have been stymied. In 2012, three dozen universities banned women from 77 academic fields, including accounting, chemistry, counseling, education, and engineering. Exclusionary practices and policies have alienated many women from the political sphere.
            The regime’s increasing reliance on force, repression and intimidation has cost it the support of many bazaaris and members of the urban middle class. The 2009 repression of the Green Movement and marginalization of reformists have shrunk the regime’s power base. The movement’s leaders—former Speaker of Parliament Mehdi Karroubi and former Prime Minister Mir Hossein Mousavi—remain under house arrest despite their longstanding support of the regime. They failed to change the political system according to existing rules. Now the chasm between the regime and the urban middle class may be wider than ever. Without legitimacy, the regime is likely to continue relying on repression to survive.
            Supreme Leader Ayatollah Ali Khamenei and his conservative allies have even marginalized the more mainstream and pro-business “pragmatic right”—represented by former President Akbar Hashemi Rafsanjani. The infighting between current populist President Mahmoud Ahmadinejad and the conservative principlist camp has further divided the political scene.
            The narrowing of the political field undermines the regime’s ability to manage the factional conflict, competition and negotiation that defines Iranian politics. The nation’s leaders now have fewer tools to deal with growing social, economic and political challenges.
            Iran’s economy may be facing its most serious challenge since the 1994 debt crisis or the austerity of the 1980-1988 war with Iraq. Past governments have failed to “reach the third climax of the Islamic Revolution—economic progress and justice,” said Secretary of the Expediency Council and former Revolutionary Guards commander Mohsen Rezai in February 2013.
            The nationalization of key industries and conversion of thousands of businesses into semi-governmental foundations (bonyads) devastated production immediately after the revolution. The centrally planned economy was and remains inefficient. Iran weathered sanctions and austerity during the 1980-1988 war with Iraq, and suffered from slow growth or stagnation for much of the 1990s. Price controls and subsidies still burden the economy, despite President Ahmadinejad’s efforts to cut them.
            Iran has also failed to cope with double digit unemployment and high inflation. One U.S. dollar was worth about 70 rials before the 1979 revolution. Starting in the 1990s, the rial gradually devalued against the dollar. By 2000, the exchange rate had hit over 5,000 rials to the dollar.
            But the severest devaluation occurred after the United States and European Union tightened sanctions in 2012. The exchange rate dropped from 11,000 rials to the dollar in January 2012 to an all time low of 38,000 rials to the dollar in February 2013.
            International sanctions have added an unprecedented burden on the Islamic Republic’s economy. Oil exports were basically cut in half in 2012, further destabilizing the economy—oil revenues previously accounted for about 80 percent of Iran’s foreign currency revenue. The national budget deficit is now expected to increase to around 30 percent in March 2013, when the new Persian year will begin.
Foreign Affairs
            Pride has often dictated the Islamic Republic’s foreign policy. Iran often appears willing to endure serious hardships in the name of preserving its revolutionary doctrine.
            Iran’s first misstep in foreign affairs was its handling of the American hostage crisis. Iranian students stormed the U.S. Embassy in Tehran on November 4, 1979 and took 52 Americans hostage. Supreme Leader Ayatollah Ruhollah Khomeini then threw his support behind the students. The new republic faced international condemnation and isolation. Iran finally released the hostages 444 days later. But the 1981 Algiers Accord that ended the crisis only returned a fraction of Iran’s frozen assets from the United States. The cash loss to the Iranian treasury amounted to about $150 million per hostage.
            Iran also mishandled the end game of the 1980-1988 war with Iraq. Khomeini stubbornly refused to give up earlier, preferring to push Iran’s armed forces and economy to their limit. He said that accepting the ceasefire was “deadlier than swallowing poison.” Khomeini probably could have ended the war sooner on similar to terms to the final agreement.
            In 1989, Khomeini made another mistake by issuing a fatwa calling for the death of British author Salman Rushdie for his book “The Satanic Verses.” Iran cut off diplomatic relations with Britain, only to reestablish low level relations with it in 1990. The fatwa further damaged Iran’s international reputation. Western nations condemned the decree, claiming it violated universal human rights.
            Under Iranian law, it is not clear if the government can revoke Khomeini’s ruling. But the regime has failed to cancel or lower the reward for Rushdie’s killing. In 1998, 150 out of 270 members of parliament reportedly signed an open letter stressing that the fatwa cannot be revoked. In 2012, a semi-official religious foundation increased the reward from $2.8 million to $3.3 million.
Nuclear Program
            Tehran most likely does not view its nuclear policy as a failure. But the Islamic Republic is facing unprecedented economic sanctions because of its lack of transparency. Iran could comply with U.N. investigators and maintain nuclear reactors for medical research and producing power. Instead, Tehran has denied access to some of its facilities and continues to develop its program. Iran seems to have not yet decided whether or not to build a weapon. The regime’s goal may be to sign an agreement that allows it to maintain this strategic ambiguity. But this strategy is risky.
            Tehran seems to think that Washington and its allies will not attack its nuclear sites. Iran’s leaders probably assume that they could bleed the United States, rally the nation, and consolidate power in the event of an attack. The Islamic Republic’s hard-liners count on tension with the United States to sustain their rule. Some of them may not view a U.S. attack as a strategic loss, rather as a validation of their revolutionary rhetoric. The line is thin between what some leaders might see as a success and what others might see as a failure.
Daniel Brumberg is a senior adviser to the Center for Conflict Analysis and Prevention at USIP, where he also served as acting director of USIP's Muslim World Initiative.      
Photo credit: Official Website of the Presidency of The Islamic Republic of Iran http://www.president.ir
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