Iran has gone through great changes in the past two and a half years. After Hassan Rouhani’s election in June 2013, the country has reached a deal with the P5+1 (the permanent five members of the United Nations Security Council plus Germany) that promises to bring an end to the twelve-year old dispute over its nuclear program. Consequently, Iran has managed to improve its international ties, engaging in direct talks with the United States, resuming diplomatic relations with the United Kingdom, and attracting an increasing number of political and trade delegations to Tehran from all over the world. In the aftermath of the nuclear agreement, Iran has then focused on regional issues and, by securing a seat at the Syria peace talks in Vienna, has been recognised as «part of the solution» to solving current crises in the Middle East. This successful record on foreign policy issues, however, has not been matched by developments on the domestic front. Despite rising expectations by the Iranian populations after Rouhani’s advent to power, particularly with regard to political and social freedom and to the improvement of the economic situation of the country, the current government has not managed to achieve its stated goals. Starting from these premises, the present chapter explores the major changes introduced by Rouhani and his Cabinet in the past two years in the social, economic, political, and diplomatic sphere. In so doing it addresses the complexities of Iran’s political system and power hierarchy, most notably the relation between President Rouhani and the Supreme Leader Khamenei, the impact of the nuclear deal on the domestic front, the frustrations voiced by the reformists, and the recent hardliners’ attempted comeback to the Iranian political scene.

1. Introduction

Iran has gone through great changes in the past two and a half years. After Hassan Rouhani’s election in June 2013, the country reached a deal with the P5+1 (the permanent five members of the United Nations Security Council plus Germany) that promised to bring an end to the twelve-year-old dispute over its nuclear programme. Consequently, Iran managed to improve ties at the international level, engaging in direct talks with the United States, resuming diplomatic relations with the United Kingdom, and attracting an increasing number of political and trade delegations to Tehran from all over the world. In the aftermath of the nuclear agreement, Iran focused on regional issues. By securing a seat at the Syria peace talks in Vienna, it has been recognised for the first time as «part of the solution» of the current crises in the Middle East. This successful record on foreign policy issues, however, was not matched by developments on the domestic front. Despite rising expectations by the Iranian populations after the Rouhani’s advent to power, in particular with regard to political and social freedom and to the improvement of the economic situation of the country, the government did not manage to achieve its stated goals.

Starting from these premises, the article explores the major changes introduced by Rouhani and his Cabinet in the past two years in the social, economic, political, and diplomatic sphere. In so doing, it addresses the complexities of Iran’s political system and power hierarchy, most notably the relation between President Hassan Rouhani and the Supreme Leader Ayatollah Ali Khamenei, the impact of the nuclear deal on the domestic front and the recent hardliners’ attempts for a comeback to the Iranian political scene. It starts with an analysis of the negotiations on the Iranian nuclear programme, assessing the steps that first led to the interim agreement and then to the Joint Comprehensive Plan of Action (JCPOA). The authors opted for starting their analysis with the nuclear dossier because this constituted the priority of the Rouhani administration since it was elected in June 2013. Furthermore, the nuclear negotiation development and outcome strongly affected the government’s room for manoeuvre on the domestic, economic, and international front. The rest of the analysis is devoted to the evolution of Iran’s foreign policy beyond the nuclear issue and to an assessment of the changes occurred in the economic, social, political, and cultural spheres in the past two years.

 

2. The Iranian nuclear issue: Steps and outcome of two years of talks

Iran started January 2014 on the right foot with regard to the nuclear issue. Only a few months after the election of President Hassan Rouhani, Iran sealed an interim deal with the P5+1, known as the Joint Plan of Action (JPOA).[2] This constituted the first agreement reached by the negotiating parties since 2004, when the E3 (the United Kingdom, France and Germany) and Iran signed the Paris Agreement.[3] The deal was the result of a number of factors. The opening of the US administration to enabling uranium enrichment on Iranian soil constitutes one of the main elements that triggered the agreement between the two sides, but being beyond the purpose of this article it will not be discussed.[4] The other main factor facilitating the sealing of the interim deal was the election of Rouhani.

On 14 June 2013, defying most expectations, Rouhani won Iran’s 11th presidential elections, succeeding to Mahmood Ahmadinejad. Rouhani is a moderate cleric who held senior positions within the establishment, who had represented the Supreme Leader Ali Khamenei on security-related issues for more than 16 years in the Supreme National Security Council (SNSC). Despite having built a strong working relationship with the Iranian leadership, Rouhani run on a campaign of «moderation and prudence», which attracted a large amount of votes from reformist sections.[5]  In his electoral programme, Rouhani highlighted the necessity to improve relations with regional and international powers, prioritising, in particular, the resolution of the nuclear issue as a crucial element facilitating rapprochement with the West.[6] The newly elected president was familiar with the nuclear dossier, which he had handled, as chief nuclear negotiator, between 2003 and 2005, when the issue first became an international concern. Rouhani’s nickname – «diplomatic sheikh» – was an indicator of the conciliatory approach the president was known for, particularly with regard to the nuclear issue. In the presidential debates before being elected, Rouhani sharply criticised the confrontational approach adopted toward the negotiating parties, the P5+1, by the previous administration and, in particular, by previous Iran’s nuclear chief negotiator, Saeed Jalili.[7] Rouhani stressed the need to return to a confidence-building approach, reversing the aggressive rhetoric adopted under president Ahmadinejad. Questions were thus immediately raised about what his victory meant for Iran’s foreign policy posture, particularly with regard to the nuclear issue.

According to Article 110 of the Iranian Constitution, the Supreme Leader constitutes the central institution with regard to all key national security and foreign policy issues, matters on which his word is final.[8] Presidential powers are, on the other hand, constitutionally limited.[9] Nevertheless, by chairing the SNSC – a key institution in shaping national security and foreign policy matters – the president can still have a strong impact on the country’s international posture and overall approach toward the West; also he can channel new diplomatic initiatives and set Iran’s tone as far as international affairs are concerned.[10]

As a cleric who covered high-ranking positions in the Iranian regime, Rouhani was expected to have the power to influence Iran’s foreign policy. To demonstrate his commitment to change Iran’s approach to the nuclear negotiations, Rouhani took two practical steps in the first few weeks after being elected. Firstly, he removed the management of the nuclear dossier from the SNSC, which had been in charge of the file since 2003, handing the responsibility to the Ministry of Foreign Affairs. The decision was due to the tighter control the president has over the Ministry’s appointees and to the need of simplifying the decision-making process over the matter.[11] Secondly, Rouhani nominated a new and more moderate negotiating team, led by the newly appointed Foreign Minister, Mohammad Javad Zarif. A US-educated diplomat who had handled the dossier between 2003 and 2005, Zarif was viewed by the international community as a «pragmatic» diplomat because of his previous post as Iran’s representative at the United Nations.[12] Shortly after the new President undertook these changes, Khamenei stated in a speech to the Iranian Revolutionary Guards Corps (IRGC) that he was not against diplomacy and supported the idea of «heroic flexibility» in diplomacy.[13] The election of Rouhani thus raised hopes about the prospects of finding a diplomatic solution to the nuclear dossier.  A few months later, once the signing of the interim agreement with the P5+1 was announced, it seemed that domestic and international expectations were going to be met.

Under the JPOA, the two sides committed to reaching a comprehensive agreement on the Iranian nuclear issue within six months, closing the dossier that had been on the radar of the international community for more than a decade by 20 July 2014. Few days into 2014, on 20 January, the provisions of the JPOA entered into force. Iran started to scale back parts of its nuclear programme, while, in return, the United States and the European Union agreed to relax some of their unilateral sanctions against Tehran.[14] This represented a major breakthrough, not only for the resolution of the nuclear dossier but also for the improvement of Iran’s relations with the West.

Few months after the implementation of the interim agreement, the nuclear watchdog of the United Nations, the International Atomic Energy Association (IAEA), issued a report, which highlighted how Iran was meeting its end of obligations under the JPOA, in what constituted the first group effort with the Agency since 2008.[15] Once the report confirmed that Iran was curbing its most sensitive nuclear activities, in line with what agreed with the six powers in November 2013, international confidence over the ability of the Rouhani administration to deliver on its promises on the nuclear issue further increased.

Despite the positive momentum, the P5+1 and Iran missed twice their set deadline to reach a comprehensive nuclear agreement in 2014. In July, after the negotiators spent three intense weeks in Vienna’s Palais Coburg, attempting to meet the original expiry date, it was eventually decided to extend the JPOA and talks for four additional months.[16] On 24 November, the negotiators announced a second extension, which, however, required the parties to reach a political agreement within four months and to complete the necessary technical annexes by the end June 2015.[17] The failure to find a compromise was perceived as a setback by most observers, a signal that, despite the initial hopes, a peaceful solution to the nuclear issue remained far away.[18] The Iranian administration grew increasingly impatient with the subsequent extensions of the JPOA. Since the resolution of the nuclear issue was depicted by Rouhani and his team as the first priority of the administration and a precondition to gain a bigger margin of manoeuvre on other matters, both domestic and international, the presidency and the foreign ministry increasingly found it difficult to maintain their legitimacy and support from within Iran. Beginning with spring 2014, as the Rouhani administration was getting close to celebrate one year in power, the government was consistently subject to forceful criticism by the hardliners. In May, a newly established group of right-wing Members of Parliament, which called itself «We’re Worried», complained about the posture of Iran’s negotiating team and their disregard for national interests in the nuclear talks.[19] The level of pressure exerted on the negotiating team further increased in the following months. When the second extension of the JPOA was announced in November, the Iranian ultra-conservative newspapers Kayhan ran the headline «Village headman [United States] wasn’t trustworthy, sanctions extended», indicating not only that Iran did not gain any concessions from talks with the P5+1, but also that the international sanction regime against Tehran did not halt.[20] Another hard-line newspaper, Vatan-e-Emrooz, titled his cover page «Nothing», and argued that the talks with the six powers did not translate into the results Rouhani wanted to achieve.[21]

Criticism toward the negotiating strategy of the new administration started to increase also because, despite the limited and reversible sanction relief granted under the JPOA by the EU and the United States, Iran did not gain the economic benefits it was expecting.[22] A large number of trade delegations, especially from European countries, visited Tehran once the interim agreement came into force to explore opportunities in the Iranian market and to assess whether new deals could be arranged.[23] However, because of the nature of the US legislation against Iran still in place, no new contracts were signed.[24]

Despite the increasing rants about the outcome of negotiations, the Rouhani administration managed to avoid any interference of hardliners on talks with the P5+1, an achievement, which in itself was remarkable. To rebuff the criticism, Foreign Minister Zarif stated that his team had the full mandate to pursue negotiations according to the guidelines set by Khamenei.[25] In a televised address to the nation, Rouhani stated that as a result of engagement with the international community «no one in the world ha[d] any doubt that Iran must have nuclear technology, including enrichment on its soil, and no one ha[d] any doubt that sanctions must be lifted».[26]

2015, therefore, started with less optimism with regard to the chances of the Iranian government to close the nuclear dossier once for all. However, on 2 April 2015, 18 months after the JPOA was signed, the P5+1 and Iran announced that a «framework» agreement was reached, and made public the key points of a comprehensive deal.[27] The agreement, which was the result of complex negotiations and of an unprecedented number of consecutive days spent by the parties in Lausanne discussing the remaining sticking points, was defined by Zarif and EU High Representative Federica Mogherini as a «decisive step», and constituted the basis of discussions on a comprehensive nuclear deal for the following three months. The announcement was welcomed with celebrations in Tehran, ranging from cars driving through the streets and honking horns, to citizens welcoming the negotiating team at the airport or chanting «Thank you, Rouhani».[28] In spite of few exceptions, the agreement was also supported by hardliners previously critical of engagement with the West, because it enabled Iran to meet Iran’s two red lines – the preservation of existing centrifuges and the acceptance of the country’s «right» to enrich uranium on its soil.[29]

Only three months after the Lausanne agreement, Iran and the P5+1 reached the Joint Comprehensive Plan of Action (JCPOA).[30] The agreement was a complex document which sets out 5 different phases after which, in about 10 years time, the agreement will be terminated. The «finalisation day», namely day when the deal was announced, was followed by the approval by the UN Security Council, the US Congress, and the Iranian Parliament (the Majlis) of the agreement.[31] On 18 October 2015, once all three steps were made, the parties announced the second phase of the deal, «adoption day».[32] In the last months of 2015, Iran moved toward meeting its obligations under the JCPOA, curbing its most sensitive nuclear activities and cooperating closely with the IAEA to address concerns about the military nature of the country’s nuclear programme.

Completion of the Iranian obligations constituted a real priority for the Rouhani administration, which, after having sealed a historic nuclear agreement in July 2015, thus fulfilling one of its key electoral promises, now wanted to deliver on its second priority, the improvement of the Iranian economy. This was intertwined with ending the international isolation from the global financial market under which the country found itself since 2010, when EU and US unilateral sanctions were imposed.[33] Under the JCPOA, these sanctions were going to be lifted only once Iran met its end of obligations, triggering phase three of the JCPOA, known as «implementation day». Since Rouhani aimed at countering any remaining opposition toward his nuclear diplomacy and the negotiations’ outcome, Iran moved quickly toward curbing its nuclear activities, aiming at having sanctions lifted at the beginning of 2016.

Because of its successful nuclear diplomacy, Iran found itself in a very different place compared to two years before. The administration gained the trust and respect of the international community, and this in turn affected Tehran’s relations with the West on regional issues, as discussed below. Rouhani and the nuclear team also gained the support of the Iranian population that, attracted by the prospects of better standards of life and normalisation of ties with the West, endorsed the outcome of the negotiations, strengthening the administration’s support basis. Much of this outcome was the result of the unprecedented political capital invested by both the US and the Iranian administrations in reaching the deal. The commitment of US president Barack Obama to prioritise diplomacy in solving the nuclear dossier has played a crucial role in containing the efforts of some influential regional actors, Israel in particular, to derail the negotiation process. By pushing back on issues such as the «breakout time» – the time required to produce enough weapons-grade uranium for one single bomb – and by emphasising how the deal increased the security of all countries in the Middle East, the Obama administration has made it possible for Rouhani to sell the deal at home, side-lining domestic criticisms.[34] As explained in the following sections, the administration’s success on the nuclear front was not matched in other issues.

 

3. Iran’s foreign policy beyond the nuclear issue

The signing of the nuclear agreement with the P5+1 affected Iran’s foreign policy in various ways. First and foremost, the deal had a profound impact on the country’s relations with the West, notably the United States and some key Western European countries. Rouhani entered office stressing the importance of re-opening the dialogue with his Western counterparts, a step he considered vital for the resolution of the nuclear crisis and the normalisation of Iran’s relations with the international community.[35] The president’s so called «charm offensive», including his phone call with President Obama and his conciliatory remarks before the UN General Assembly in September 2013, can be placed in this context.[36] In his efforts to win the trust and respect of those who continued to look with suspicion at Iran’s new international posture, Rouhani was assisted and supported by his Foreign Minister, Mohammad Javad Zarif, whose diplomatic experience and soft manners soon earned him a widespread popularity. As the Iran and the P5+1 worked towards a comprehensive agreement that could finally solve the dispute over Tehran’s nuclear programme, a few bricks of the decades-old wall of distrust began to fall. However, it was not until the signature the JCPOA in July 2015 that this new climate of hope started to translate into a new political phase: the failure to meet two deadlines for the final agreement in July and in November 2014 suggests that many obstacles remained on the road to a deal and that success was not to be taken for granted.

Yet, the goal was eventually accomplished. The agreement achieved in Vienna undoubtedly represented a game changer in Iran’s relations with the West. The JCPOA and the determination shown by the parties in overcoming the difficulties that arose during the negotiations, though not meaning the complete dismissal of reciprocal suspicions and concerns, have undoubtedly inaugurated a new phase in Iran’s relations with its Western counterparts. By the end of 2015, the new atmosphere of collaboration resulted in mounting interest by European companies in re-entering Iran’s market, in the improvement of ties with EU countries, and in a timid rapprochement with the United States.

Already in the months following the signature of the interim agreement, Western companies, particularly from European countries, organised a large number of visits to Tehran to test the ground on re-entering Iran’s attractive market. In February 2014, for instance, more than 100 French companies visited Iran, including major names such as Total, Renault, and Peugeot, car manufacturers that were active in Iran before sanctions were imposed. Other countries, such as Belgium, Germany, Italy, and Austria, soon sent their trade delegations to Tehran. As a consequence, also political ties between Iran and European countries have intensified since the beginning of 2014. Trade delegations were often accompanied by political ones, in many cases of senior officials visiting Iran for the first time in many years. Furthermore, the UK decided to re-open its Embassy in Tehran that had been closed since November 2011, after it was stormed by an unidentified crowd of Iranian protesters. The French embassy in Tehran subsequently reversed the decision to cut its personnel. The improvement of ties between Iran and the West extended even to the United States. Besides the cooperative attitude showed throughout the nuclear talks, facilitated by direct talks between Kerry and Zarif’s negotiating teams, the Obama administration for the first time recognised Iran as «part of the solution» of current crises in the Middle East, offering, after years of hesitation, a seat at the Syria peace talks in Vienna to Tehran. The choice represented the first time in which the United States chose to formally engage the Iranians diplomatically on this issue, a decision that denotes a gradual but undeniable shift in Washington’s strategy in the region and in US-Iranian relations.[37]

This brings us to the second set of consequences produced by the nuclear deal on Iran’s foreign policy: those related to the regional scene. During Mahmood Ahmadinejad’s eight years in power, many commentators showed increasing confidence that Iran was on the verge of becoming the new regional hegemon: Tehran’s dynamism in Central Asia, its decades-long alliance with Hezbollah in Lebanon and with Assad’s regime in Syria, its expanding support to Hamas, and, even more, its growing influence in neighbouring Iraq and Afghanistan seemed enough to prove its gradual but incontestable transformation into a regional power. In the past few years, however, some new developments altered this scenario, first and foremost the rise and rapid expansion of the Islamic State (also known as ISIS or DAESH). Tehran did not reduce the nature and the extent of its commitments abroad. Nevertheless, the situation changed; in the words of a well known American academic: «its forces have lost more and more territory in Syria […] in Iraq, the government that they backed went from controlling the country, nominally all of the country to actually losing control of large parts of it. And then even if you looked at Lebanon, the combination of refugee crisis which has changed the demographics of Lebanon, it actually has put Hezbollah in a very complicated situation of being engaged in a very unpopular war in Syria where there has been quite a lot of bleeding in Hezbollah.»[38] Despite the territorial losses and military toll Iran had to pay, the rise of ISIS did not mean only a deterioration of Tehran’s position in the region. The strengthening of the Islamic State and the escalation of tensions in the Levant provided the Iranian authorities with a further justification to keep their forces both in Syria and in Iraq. The defence of Baghdad by the Shia militias trained and financed by Tehran received Washington’s de facto endorsement, something that would have never been possible until a couple of years ago. The fate of General Soleimani offers a revealing case in point in this regard: leader of the special forces unit of Iran’s Revolutionary Guards responsible for their extraterritorial operations, the Quds forces, the so-called «Shadow Commander» shifted from being seen as one of the main threats to the regional and international security to receiving US protection and support in its war against the Islamic State. In this sense the emergence of the ISIS threat represented both a setback and a strategic advantage for Iran.

In this situation, the achievement of the JCPOA produced two sets of effects: on the one hand, it further exacerbated the tensions with the countries that opposed the deal, particularly with Israel and Saudi Arabia. Both felt that they were not given enough say in the negotiations that led to the Vienna agreement and were clearly unhappy at the loss of their leverage vis-à-vis the United States concerning the management of regional crises, most notably their vetoing power regarding Iran’s participation to the negotiations over the future of Syria. On the other hand, Tehran’s boosted legitimacy, epitomised by its aforementioned inclusion in the Vienna talks, reinforced Tehran’s standing and diplomatic role in the region, encouraging the Iranian leadership to present itself as an indispensable partner in the fight against ISIS and to improve its relations with the other regional players.

The rapprochement with Washington and Western Europe and the end of Iran’s diplomatic isolation provide encouraging signs for the future of Tehran’s relations vis-à-vis the international community. However, it is also important to notice that these efforts still fall short of indicating a complete reintegration of Iran in the international community and a full acknowledgment of its role by other states in the region. Despite reports on Tehran’s coordination on the ground with US forces to deal with ISIS in Iraq,[39] obstacles remain for instance when it comes to the country’s collaboration with the West on issues such as Yemen or the future of the Assad regime in Syria. The conflict in Yemen, in particular, is one of the most contested terrains of Iran’s involvement in the Middle East. The country, where the Zaidi Shia community represent more than 40% of the population, witnessed in the past two years a revival of the conflict between the government in Sana’a and the Houthis, a Shia insurgent group originally from the north of the country.

In September 2014 the Houthis took control of the capital and of a significant part of Yemen’s territory, leading to the fall of the Saudi backed government. Their military successes triggered Saudi reaction: Riyadh intervened to contrast the advance of the Houthis, and launched a campaign, together with the Yemeni government, to denounce Iran’s alleged support to the group. Such allegations contributed to growing speculations about the fighting in Yemen as a proxy war between Iran and Saudi Arabia. These speculations appear, however, exaggerated: while it’s true that reports have increasingly proved Tehran’s military and financial help to the Houthis, Iran’s leverage on the local actors continued to be limited, especially in comparison to what claimed by the Saudis. «Its [Iran’s] support for the Houthis – has argued Rouzbeh Parsi – has not been a game changer nor has it influenced the group in any particular direction since, irrespective of Tehran’s ambitions, the conflict in Yemen is home grown and structural, having played out over several decades. What this support has achieved is of course to cement Saudi fears and draw Riyadh further into a quagmire it has been skirting around for many years.»[40] As for Syria, the country remains an integral part of Iran’s «forward defense policy.»[41] Tehran did not withdraw his presence on the ground. However, Syria has been costly to Iran – both financially and in terms of reputation – and Iranians, particularly within the Rouhani administration, have seemed more inclined to consider a transitional process which would not require them to compromise the country’s national interests.[42] This confirms the idea whereby Iran’s actual behaviour is «much more pragmatic and reactive than the accompanying rhetoric would let on.»[43]

In other words, the deal with the P5+1 did not assure a more cooperative attitude by Iran towards a series of problems, from the fate of Bahar al-Assad to human rights, nor did it prevent a further escalation of tensions with its regional enemies, as testified by the recent storming of the Saudi Embassy in Tehran in reaction to the execution of Sheikh Nimr al-Nimr, a leading Shiite cleric who had criticised the kingdom’s treatment of its Shiite minority.[44] However, the settlement of the nuclear crisis has made it possible to shift from seeing a rise in Iran’s stature as an entirely hostile development to acknowledging the possibility of using Tehran’s influence to lay the bases for a new policy in the Middle East. This, in turn, encouraged the most pragmatic elements of the Iranian leadership to act as viable and credible partners in the search for new paths for the pacification of the region.

The events that, at the very beginning of 2016, led to the occupation of the Saudi Embassy in Iran on 3 January and to the rupture of the diplomatic ties between Riyadh and Tehran are relevant in this regard. Not only they demonstrated the extent of Saudi hostility towards the inclusion of Iran in the inner circle of regional diplomacy, and the risks that this hostility poses for the pacification of Yemen and Syria. They also indicated the numerous ramifications of Iran’s domestic power struggles and their potential consequences on Tehran’s foreign policy. Especially in the months after the nuclear agreement was signed, the Supreme Leader felt it had to balance the legitimacy gained by the Rouhani administration, allowing radical forces to bring Iran’s policy back on a path of confrontation with actors outside the country, both within and outside the region. Because of that, for instance, despite the participation of Iran’s Foreign Minister Javad Zarif in the talks on Syria, the dossier has remained largely in the hands of the Iranian Revolutionary Guards, who have made of the survival of the Assad regime their main priority. In spite of Rouhani’s determination in reinforcing the country’s cooperative stance with the international community, which resulted in Iran’s inclusion in the Syrian talks, together with the improvement of Tehran’s ties with the West, the Rouhani administration did no manage to gain the room for manoeuvre hoped for. The rupture of relations between Riyadh and Tehran, followed by similar initiatives by the United Arab Emirates, Bahrain, and Sudan among others, indicated that a complete shift of Iran’s stance in the region remains hard to achieve. Similarly disappointing has been the outcome of the administration on the domestic level.[45]

4. The social sphere and the fog of change

Whereas when looking at the nuclear issue and, more broadly, at Iran’s foreign policy, the benefits of Rouhani’s pragmatic attitude in 2014 and 2015 have been evident, when it comes to the social, political, and economic spheres, the progress made by his administration has been slower and seems to be caught in what Robin Wright calls the fog of change. «It’s tempting simply to credit a visionary leader, the human spirit, or a historical trajectory», Wright pointed out. «Change, however, is often foggier. It takes a convergence of causes also selfish, crudely commercial, strategically pragmatic, and more reactive than altruistic.»[46] The reasons are manifold, and include the complexities of the decision making process in Iran, the position of power enjoyed by conservatives and hardliners within some of the key institutions such as the Assembly of Experts and the Judiciary, and the very notion of change from within. It is not by chance that most of the comparisons that have been made in the past two years with regard to Rouhani’s plan of reform are with one of the most celebrated example of reformers from within: Mohammad Khatami.[47] However, the comparison hides substantial differences: as many observers pointed out, Rouhani is not a reformism à la Khatami, as he was hastily defined in many Western media[48]; nor he wants to reinvent the foundations of the Islamic Republic. According to the authors of a 2013 interview to Iran’s president: «Rouhani is more technocrat than cleric. He belongs to the conservatives’ pragmatic wing that considers diplomatic engagement rather than confrontation essential to the survival of the Islamic Republic. He makes little reference to religion and is said to be particularly fond of studying statistics tables.»[49]

At the beginning of his mandate, Rouhani emphasised the importance of de-securitising the atmosphere in the country, i.e. reversing the process that has enabled the state to use extraordinary means in the name of security. De-securitisation meant, first and foremost, the freeing of some prominent political prisoners and the lifting of house arrest for Mir Hossein Mousavi and Mehdi Karroubi, key figures in anti-regime street protests after the disputed 2009 presidential election. Yet little was achieved: the situation of political prisoners remained unvaried, also as a result of Khamenei’s public condemnation of the government’s initial call for the release of Mousavi and Karroubi;[50] moreover, the annual report on the death penalty in 2014 showed that the Iranian authorities had executed more than 1.193 people since the election of President Rouhani in June 2013, marking an increase rather than a drop compared to the last phase of Ahmadinejad’s mandate.[51] The campaign of repression did not target only the reformists or the opponents of the regime, but came to involve one of the founders of the Islamic Republic: Ali Akbar Rafsanjani. In August 2015, after years of attacks from the hardliners, his son Mehdi Hashemi presented himself at Tehran’s Evin prison to serve a ten-year sentence on charges linked to embezzlement, bribery and what state television called «anti-security issues». The media coverage and the social media commentary of the episode were a testament not only to the polarising position the Rafsanjani family holds in Iranian politics today, but also to the intensity of the political struggle and the pervasive role of Judiciary in it.[52]

Ayatollah Ali Khamenei showed limited but crucial support for Rouhani’s initiatives on the nuclear issue, which included curbing hardliners from sabotaging nuclear talks. However, he did not give the same backing to Rouhani’s government on other issues, particularly on the domestic level. Furthermore, constitutionally, prisons are controlled by the Judiciary, one of the power bases of hardliners who, though small in number, used their stronghold to block any meaningful political and cultural reforms.[53]

Similar observations can be made with regard to women’s rights and to the problem of female unemployment. Rouhani’s initiatives have so far included the appointment of some women as provincial governors, the nomination of the first female ambassador since the 1979 revolution (Marzieh Afkham, Iran’s new representative in Malaysia), the increase of activities in women-related NGOs, and the removal of restrictions on certain subjects in higher education. Nevertheless, also on this matter, criticism from within remains, and the widely publicised achievements hide a situation of persistent disparities and violation of basic rights. Women in Iran still hold only 3% of seats in Parliament;[54] female unemployment in the age group between 18 and 24 is at 42.7%. According to Mohsen Ranani, professor at the University of Esfahan, some 75% of female university graduates remain without an appropriate job, and that is a heavy price for a country that is aiming to economic grow and where an average of 60% of university students are women.[55]

The same goes for cultural freedom: reformists’ initial hopes for a cultural flowering and an easing of internet censorship were not met in the first two years of Rouhani’s mandate. Flourished during the two mandates of Khatami, NGOs made a comeback between 2014 and 2015. During Rouhani’s first year in office the number of registered NGOs in Iran rose by 30% to 7,000. Most of the newly established NGOs focus on health, the environment, and entrepreneurship, avoiding to address more controversial topics such as human rights.[56] In the atmosphere of rising expectations, fuelled by the progress achieved by the administration in the negotiations with the P5+1, hope spread that civil society and interest groups could have helped the new president to achieve the reforms the country needed. «While the democratic opposition within Iran still suffers from organisational weakness and the lack of a unifying long-term strategy, – two analysts of Iranian politics wrote in the Washington Post in April 2015 – the nuclear breakthrough seems to have recharged the emotional battery of reformist activists and supporters and contributed to an optimistic perception about short-term electoral progress.»[57]

Yet, the picture remains gloomy when it comes to political rights. In 2014-2015, the Judiciary persisted in stopping reformist journalists from publishing new newspapers. Social networks, such as Facebook and Twitter and VChat, continued to be blocked. Furthermore, while some moderate politicians were appointed to regional governorships, there are few prominent reformists in Rouhani’s administration.

The struggle for cultural freedom, which represents one facet of the wider battle between the president and its opponents, was particularly fierce in the capital Tehran, where the president and conservative Mayor Mohammad Bagher Qalibaf (who lost the presidential election both to Ahmadinejad in 2005 and to Rouhani in 2013) clashed over the limits of the new climate of relaxation of the city’s cultural life. In December 2015, the reopening of the Tehran Museum of Contemporary Art and the debates over possible collaborations with some foreign partners spread hopes for the beginning of a new phase in Iran’s social and artistic scene, similar to what happened in 1997, following the election of Khatami.[58] Earlier in the year, during his visit to Tehran’s prestigious book fair, president Rouhani raised the thorny issue of censorship.[59] Though not directly challenging the tight control imposed on authors, Rouhani called for simplifying the guidelines that regulate the publishing process in Iran, guidelines that became much stricter after the approval of a some related rules in April 2010.[60] Yet, the road remains long and full of obstacles, not only because of the complex maze of Iranian politics, but also as a result of all the steps forward that were made in the past few years. «For every liberalising move like this, – an Iranian journalist commented in December 2015 – the conservatives will get mad and want to take something back. So, this being Iran, you can only count on the fact that nothing will go as planned.»[61]

The chances of meaningful progress in the social sphere have been further reduced by the priority attached from the very beginning by Rouhani and by his entourage to the achievement and implementation of the nuclear deal with the P5+1. The political capital they invested in the diplomatic marathon that culminated with the Vienna agreement  paradoxically translated into less negotiating leverage vis-à-vis other internal key powers and actors in the social field. As mentioned in the previous section, Khamenei had indeed to re-balance the gains obtained by the administration on the nuclear front, providing more power to the opposite factions on other issues, such as de-securitisation within Iran. «Other than foreign policy and nuclear negotiations and to some extent the economy, it is difficult to find out what the government’s policies in cultural and political fields are» noticed a reform-minded analyst in January 2014.[62] The pressure on the reformist and moderate forces did not only result in growing frustration among those who supported Rouhani in the hope he would introduce meaningful change in the political and social life of the country. It also risks weakening their position in the coming elections. At the end of February 2016, Iranian citizens will be called to elect both the members of the next Majles (Parliament), currently dominated by the conservatives, and the Assembly of Experts, which might have to choose the successor of Supreme Leader Ayatollah Ali Khamenei. The vote will be a test of confidence for the government and for its conduct, after two years and a half in power. At the same time the elections will be decisive in setting the tone of the political struggle in Iran, delimiting the playground where a series of key battles will be fought. These include the hardliners’ possible comeback, the reformists’ attempts to push the government towards a more assertive stance on social and political issues, Khamenei’s efforts to keep change under control, and Rouhani’s attempt to carry on with his delicate diplomacy, at home and abroad.

 

5. The economic sphere: Rouhani’s battle for growth

Whereas some critics could accuse the president of not having paid enough attention or spent enough energy on social matters, few would question the importance he attached from the beginning of his mandate to the economic sphere. Economic rehabilitation ranked at the top of Rouhani’s agenda, along with the nuclear issue. He installed an experienced group of technocrats and economic planners to manage Iran’s recovery, most of whom had been forced out of government by Ahmadinejad. The president also openly condemned the choices and conduct in the economic management of the country throughout the two Ahmadinejad’s mandates.

Rouhani’s commitment to the improvement of the economic outlook resulted in some accomplishments. According to the World Bank’s annual report, following two years of recession, the Iranian economy recovered during the 2014 Iranian calendar year (i.e., March 2014-March 2015). The economy expanded by 3% in 2014, after annual contractions of 6.6% and 1.9% in 2012 and 2013, respectively. The inflation rate declined from a peak of 45.1% in 2012 to 15.6% in June 2015 as a consequence of the tightening of the monetary policy by the Central Bank of Iran (CBI).[63]

Yet, in the words of the deputy director of the Foreign Policy program at the Brookings Institution, the president «[had] promised the Iranian people more than just a halt to the crisis; Rouhani [had] pledged to generate growth, development, and jobs»,[64] and in this regard the picture was far from rosy. The unemployment rate remained high and rose slightly in 2014. It reached 11.4% in 2014, up from 10.4% in 2013. The unemployment rate remains much more elevated among women (20.3% for women against 8.7% for men), among the population between the ages of 15 and 29 (17.9% for men and 39% for women in this age cohort) and in urban areas (11.7% in urban areas and 7.4% in rural areas). This weak labour market performance took place within a context of a subdued and declining labour force participation rate with only 37.2% of the country’s population being economically active in 2014, down from 37.6% in 2013 (62.9% for men and 11.8% for women). The government estimated that 8.5 million jobs should be created to reduce the unemployment rate to 7% by 2016.[65]

According to estimates upon the EU and US sanction relief which, based on the phases of the JCPOA implementation described earlier, should take place in the first quarter of 2016, real GDP should rise to 5.8 % and 6.7 % in 2016 and 2017, respectively, as oil production reaches 3.6 and 4.2 million barrels per day.[66] The progressive removal of sanctions is expected to be accompanied by reforms of the business environment and the financial and banking sectors. According to many observers, the positive fulfilment of all these conditions could pave the way for a significant improvement of Iran’s economic outlook, mostly as a consequence of the surge in oil exports, the release of about US$100 billion in frozen assets, and the prospect of re-engagement with the international markets. Iran has the word’s second-largest gas reserves, third-largest oil reserves, and significant rare earth deposits; it has a diversified economy, a trade surplus, and a well-educated urban population The country’s 77 million consumers have been locked out of global markets since 2010, when EU and US unilateral sanctions were clamped on Iran, but the situation is expected to change because of the agreement signed in July 2015.[67]

However, while the implementations of the deal is taking place, it becomes increasingly clear that Iran’s recovery from years of mismanagement and isolation will not be as easy as initially envisioned. In 2015 the cost of crude fell to levels not seen for 11 years and the decline may have further to go, a phenomenon which Tehran blames on the Saudis and that strongly links the future of oil prices – and of the Organisation of the Petroleum Exporting Countries (OPEC) – with the rising tensions between Tehran and Riyadh.[68] Iranian authorities have been waiting for months to increase the country’s oil exports after the drastic drop in sales produced by the embargo imposed in 2012 by the European Union. Iran’s oil exports had fallen to 700,000 barrels per day (bpd) by May 2013, compared with an average 2.2 million bpd in 2011. Throughout 2015, Tehran exported 1.1m barrels of oil per day, but in December 2015 the Iranian oil minister, Bijan Zanganeh, announced that the country was aiming to double that amount within six months after sanctions being lifted.[69] In an effort to attract foreign investment in the post-sanctions era, Iran also offered new oil and gas contracts designed to benefit both international contractors and the National Iranian Oil Company, particularly affected by the falling prices of oil.

Despite these efforts, the Iranian government was not able to attract foreign investors. Already after the implementation of the interim agreement, despite the interest shown by European companies, Iran was experiencing severe difficulties in benefitting from the limited sanction relief granted under the JPOA. The difficulties were mostly linked to the practical challenges of delivering money to a country largely isolated from the global banking system and to the hesitation of financial institution in authorising even legitimate trade and humanitarian transactions with Tehran because of the nature of US sanctions.[70] Iran also had difficulties in improving its economy, exploiting the limited sanction relief, because of the resistance raised by some sectors of its establishment, particularly the IRGC, which remain hostile to a change in the image and structure of power of the country,. They were determined to make sure that Rouhani could not take the credit of the lifting of sanctions and the resulting economic recovery. Additionally, these groups have been among those benefitting the most from bribes and lucrative sanction-dodging schemes and were understandably keen to maintain their privileges intact. To avoid the increased presence of Western companies in Iran as a consequence of the JCPOA reached in July 2015, hardliners thus conducted a witch-hunt against «spies» to counter what IRGC commander, General Mohammad Ali Jafari, defined a «prolonged sedition of infiltration».[71] In this scenario, based on the World Bank’s 2015 Ease of Doing Business Index, Iran ranked 130th out of 189 countries – not prohibitively low, but far from optimal. Moreover Iran was 111th out of 131 countries in a 2013 worldwide ranking of property rights regimes, 136th out of 174 countries on Transparency International’s 2014 Corruption Perceptions Index, and 83rd out of 144 countries in the World Economic Forum’s 2014-15 Global Competitiveness Index.[72] Therefore, although lifting the international sanctions against Iran might remove a substantial impediment to the improvement of the country’s economic recovery, it will not automatically create the legal and regulatory framework necessary for sustained investment. The inability of the new leadership to attract investors, to effectively tackle issues such as corruption, and to resist the attempts by the more conservative elements within the élite to sabotage the new course, was crucial in hampering Rouhani’s image domestically. The outcome of this struggle, fought on the terrain of economy but with clear political implications, is bound to have a crucial impact not only on the success of Rouhani’s project of economic rehabilitation, but also on his own political standing. «People are not economic experts. – dissident journalist and writer Akbar Ganji commented in March 2015 – They expected the Rouhani administration to improve the economy rapidly. But, since that has not happened, Rouhani’s popularity has plummeted.»[73] The situation partially improved after the signing of the JCPOA in July: a poll conducted by iPOS [Iranian Elections Tracking Polls] in August 2015 suggested that a majority of Iranians favoured the nuclear deal with the West. 77% approved the plan while 3% percent disapproved. The positive stance on the nuclear deal boosted Rouhani’s overall popularity: in occasion of the same interviews 39% of Iranians said they approved the way he was handling his job as president, while 15% said they somewhat approved.

Yet such rise in popularity is unlike to last throughout the second half of the president’s mandate unless the promise of a widespread relief from economic hardship is fulfilled. As noted by Suzanne Maloney in September 2015 «to date, the nuclear diplomacy has provided no meaningful ‘trickledown’ effect for Iran’s economy or its population at large […] expectations for Implementation Day are sky-high at home among Iranians, and Rouhani will be risking his mandate and his presidency if he does not deliver on real results.»[74] Finally, the question of how to allocate the funds that will be made available by the lifting of sanctions continues to loom at the horizon. Whereas the official priorities remain job creation, a stimulus to the private sector and sustainable growth, domestic dynamics and power struggles will continue to affect the actual implementation of the initiatives designed by the president and by his economic advisors.

Since the 1979 revolution, Iran has made several attempts to transit to a market-based economy, most notably during the Rafsanjani administrations between 1989 and 1997, and following the revision of Article 44 of the Iranian Constitution in 2004.[75] Iran’s efforts have largely failed due to the political rationales of most of the economic measures adopted, and difficulties encountered when introducing measures aimed at increasing transparency and productivity and tackling corruption and inflation. As it has been argued by Najmeh Bozorgmehr in the Financial Times, the initial call for the establishment of an economy based on an amalgamation of Islamist and socialist ideologies was soon abandoned to leave room for the creation of «a class of oligarchs, nominally operating in the private sector, linked to and dependent on the survival of the regime» in a society where «wealth that is associated, as great fortunes usually are, with political patronage rather than individual entrepreneurship.»[76] There is no doubt that this time the international as much as the domestic situation suggests a more favourable outcome; yet the road towards an effective policy of economic reforms remains long and rocky.

The first months of 2016 will prove crucial for the future of Iranian political and economic outlook. Should Iran meet its end of obligations under the JCPOA, the beginning of the year might bring the lifting of nuclear-related sanctions. The implementation of the agreement might dissipate some of the doubts on the actual impact of the long-awaited removal of the measures that have crippled Iran’s economy for decades. Sanctions relief will be followed by the elections for the Majles and the Assembly of Experts scheduled for February. The candidates include Ali Akbar Rafsanjani, who has been recently defeated in the elections for chairman of the Assembly of Experts by ultraconservative Ayatollah Mohammad Yazdi, Ayatollah Mohammad Taqi Mesbah-Yazdi, and Khomeini’s nephew, moderate senior cleric Hassan. The climate of accusations and tensions that has so far dominated the electoral campaign is a clear indicator of the importance of the elections in shaping the domestic and foreign policy of the country for the year to come.[77]

 

6. Conclusions

There are few doubts that the election of Hassan Rouhani as president in June 2013 heralded a new phase in the history of the Islamic Republic of Iran. Rouhani was elected on a platform of moderation, pragmatism, and reintegration of Iran into the international community. He openly criticised the conduct of the previous administration in a number of key fields, most notably the nuclear policy and the economic management of the country, and promised to improve Iran’s international standing and to bring relief to the population after years of economic hardship.

Two-and-a-half years later his record shows mixed results. On the one hand, Rouhani and his negotiating team headed by Foreign Minister Mohammad Javad Zarif managed to achieve a deal with the P5+1, the JCPOA, that pledges to bring an end to the twelve-year old dispute over the country’s nuclear programme. The agreement, when and if fully implemented, will lift the economic sanctions imposed on Iran since 2006 by the UN, the US, and the EU in exchange for the Tehran’s commitment to limit its sensitive nuclear activities. The deal represents a crucial step in the normalisation of Iran’s relations with the West and its reintegration into the international community, as testified by Tehran’s inclusion in the Syrian peace talks in October 2015. However, Iran’s rapprochement with the West and regional cooperation over key issues, such as Yemen and Syria in particular, continue to be limited, given the domestic infight between Tehran’s centres of powers for the control of the different dossiers.

Furthermore, the success achieved on the diplomatic front of the nuclear issue was not matched by meaningful developments on the domestic front. The beneficial impact of the agreement was not felt by the population, which continued to struggle against unemployment and low growth rates. The long-awaited and badly needed increase in foreign investments, which was supposed to take place already after the interim agreement entered into force in January 2014, was undermined, among other things, by the persistence of corruption and the lack of transparency in the Iranian economy. The limited economic growth compared to what anticipated by the Rouhani administration was also the result of the collapse of oil prices, but, once again, the conflicting interests of Iran’s factions played a major role in hampering the country’s economic recovery in the past two years.

Limited progress also characterised the administration’s record on the political and social sphere. At the end of the period under review, Mir Hossein Mousavi and Mehdi Karroubi were still under house arrest, the situation of political prisoners remained unvaried, while executions have been increasing since the advent to power of Rouhani. Despite a few symbolic achievements, also the situation with regard to women’s rights and cultural freedom remained critical. Whereas the number of registered NGOs in Iran significantly increased, along with hopes of more freedom and influence for civil society and interest groups, these hopes were mostly unfulfilled. Censorship continued to be in place, the judiciary persisted in stopping reformist journalists from publishing new newspapers, and the pace of change remained slow. «Having got the nuclear deal he desperately wanted, Hassan Rouhani is now suffering the backlash» – wrote The Economist in November 2015. While the president was busy fending off the risks of a comeback from the hardliners and trying to restart the economy, Khamenei, which backed the president throughout the nuclear talks, seemed content to divide and rule.[78] «Mr Rouhani is stronger than before the deal,» – the article continues – but «a stalled economy may hurt him as much as his conservative foes».[79]

The past two years were thus characterised by a mix of successes, hopes and failed expectations for the Rouhani administration. All in all, the presidency largely constituted the decision-making power within Iran compared to the previous administration, particularly on a major international and security issue, such as the nuclear dossier. Because of the structure and the principles at the basis of the Islamic Republic, however, the Supreme Leadership has been careful in rebalancing the power of the Rouhani administration, enabling different figures, close to the hardliners and to the IRGC, to retain control over domestic issues and over other foreign policy dossiers. 2016 will likely constitute the year in which factional politics will reach its peak. With the looming parliamentary elections and the starting campaign for the presidential elections which will take place in June 2017, foreign policy, domestic reforms and economic prospects will likely all be a mere representation of who will ultimately win the domestic infight. Whether regional tensions, notably with Saudi Arabia, or more importantly the implementation of the nuclear agreement will play a crucial role in this, remains to be seen.