Iran – A Powerful Regional Leader

Iran Situation Report

Comprising a land mass twice the size of Texas, Iran is the second largest country in the Middle East and home to one of the oldest civilizations in the world. Before 1935, Iran was known as Persia, one of the most powerful empires in the world. The country continues to maintain this cultural identity by retaining its own language and following Shia Islam.

The country is a regional power: influencing international energy security and the world economy through its large supply of fossil fuels. Iran is a member of the United Nations and OPEC, and is ruled by a government that combines parliamentary democracy and theocracy.

Iran and the United States have had a tumultuous history, beginning in the 1950s. The CIA assisted with overthrowing a democratically-elected government in Iran, and supported the shah, a monarch who brutally tortured his opponents. In 1979, Iranians overthrew the shah and took 52 Americans hostage at the U.S. embassy for 444 days. Since the 1980s, Iran has been considered a “state sponsor of terrorism” and an enemy of the United States.

The End of Iran’s Nuclear Program?

Last summer, the United States, Germany, Great Britain, China, Russia and France began to discuss a deal to reduce international economic sanctions on Iran, in exchange for Iran’s agreement to end its pursuit of nuclear weapons. The international community began to implement the plan starting in January 2016, starting by lifting the sanctions.

Over the next decade, Iran will be required to reduce its stockpile of uranium and centrifuges by 98% -- key items needed to produce nuclear weapons. The country still maintains an ability to use nuclear energy and stresses that its nuclear program is only for peaceful purposes. Its secret nuclear plant at Fordo will be transformed into a research center. For the next 15 years, the International Atomic Energy Agency (IAEA) will have the right to inspect any site in the country they deem suspicious and the Iranian government will have 24 days to comply with each request.

Opponents of the deal believe that lifting sanctions will give Iran more money to fund terrorism all over the world. President Obama and his administration argue that the deal was required as a way to cut off Iran’s pursuit of nuclear weapons.

Although many sanctions “in theory” have been lifted, the U.S. continues to impose many of the same economic restrictions put in place in regards to Iran’s human rights policies and support for terrorism. While U.S. companies and banks are still barred from most forms of investment or trade with Iran, European and Asian organizations are free to engage – and they are. Ever since the deal was agreed upon, companies, banks, and representatives from the rest of the world have been visiting the country to claim potentially lucrative business deals and reestablish embassies.

Since Iran has been cut off from most of the Western world for almost 40 years, it is a daunting challenge to conduct business in Iran. However, Europe and Asia are developing a strong business relationship with Iran. Many American businesses are ready and willing to invest, but the remaining sanctions are keeping the U.S. effectively cut off from the country until Congress removes the remainder of the sanctions, which is not predicted to happen any time soon.

Regional Rifts with Saudi Arabia

Iran has also been in the news lately for its criticism of Saudi Arabia’s decision to execute a Shiite cleric, even after Iran made it clear that carrying out the death penalty against him would have repercussions. Soon after the execution, attacks were carried out on the Saudi Embassy in Tehran, where protestors broke windows and furniture and set the building on fire. Iran has since acknowledged it regrets these actions and has arrested the protestors.

This rift growing between Saudi Arabia and Iran could not only threaten regional security, but also affect the wars in Syria and Yemen and could strengthen the Islamic State. For example, some are concerned that the fragile peace process in Syria, led by the UN Security Council, could fall apart without the support of other Middle Eastern countries.

Furthermore, the proxy wars in Syria and Yemen could worsen because Saudi Arabia and Iran support rival groups in those conflicts. At the root of this proxy war is the historic conflict between Shia and Sunni Muslims, as well as control over oil markets and the associated economic power. Saudi Arabia has always maintained a Sunni government and supported its Sunni-led neighbors like Kuwait and Iraq. However, the Iranian Revolution in 1989 called for an overthrow of these Sunni-led governments, to be replaced with Shia leaders.

Saudi Arabia and Iran see themselves as locked in a battle for Middle East supremacy, and the relationship each country has with the United States is a part of this battle. On top of the religious differences, the dropping price of oil has spurred a fight for economic superiority between the two nations. Because of the oil boom in the U.S., dependence on Saudi oil has decreased over time. Secondly, Saudi Arabia is against the nuclear deal with Iran and fears losing its relationship with the U.S., and then losing its status in the Middle East. Finally, the United States has recently begun to acknowledge the ties Saudi Arabia has to Islamic extremism, which may make it difficult to continue such friendly relations in the future.

Recent Elections Could Spur Change

In February 2016, parliamentary elections were held in Iran to elect members of the Islamic Consultative Assembly. A second round will be held in April for constituencies where the candidate did not receive the minimum 25% of the vote. This assembly will serve for four years, until 2020.

The election in February was held as part of the general election for the Assembly of Experts, and it is the first time both bodies have been elected simultaneously. Qualifications for candidates are very strict. For example, the candidate must have a master’s degree, be a practicing Muslim, and be a supporter of the Islamic Republic. Candidates can be disqualified if they support the shah in any way or have converted to another faith.

The results of the February election indicated a hung parliamentary, so no one party has the majority of the power. The reformists achieved a plurality, meaning they received the most votes but were not designated as the majority in parliament. This vote in February was important because it was the first election after the nuclear deal with the United States. Over 6,000 candidates ran for only 290 seats in parliament. However, more than 12,000 people initially registered as candidates, but over half were disqualified in an effort by the state to control the election.

This election was also unique because the Assembly could theoretically replace the supreme leader, the Islamic Republic’s “founding father.” Sayyed Ali Hosseini Khamenei is 76 years old and many believe that after his next eight years as ruler, the Assembly will vote for a replacement. Reformists and moderates aim to throw their support behind former president Ayatollah Ali Akbar Hashemi Rafsanjani, the first speaker of parliament after the 1979 Islamic Revolution.

Rafsanjani is a centrist who supports a free market economy and a moderate position when it comes to foreign affairs, seeking to avoid conflict with the West. He tried to run for president in the 2013 elections but was disqualified by the Guardian Council.

Changes in the region and within the country could have a large impact on Iran moving forward. Due to the recent nuclear deal with the United States and the upcoming presidential election, whatever happens in Iran is bound to affect the U.S.’ foreign policy decisions in the future.

To keep up-to-date on what is going on in Iran, check out the Iran Risk Assessment Country Guide.

Call us today at +1.202.872.0060 or 800.872.0067 or email to discuss solutions tailored to your organization's insurance needs.

Iran Country Risk Assessment Guide