In late December, Iran was hit by a wave of protests. Demonstrators from many segments of society, including students and middle- and lower-class citizens, demanded the government do something about rising food prices. The protests started in a major city in the northeast but soon spread to dozens of towns, villages and urban centers throughout the country. They were the largest demonstrations since 2009, when more than a million people poured into the streets of Tehran to protest the presidential election results. The recent demonstrations are smaller but more widely dispersed than those in 2009.

Iran is, however, in a different position now than it was roughly 10 years ago. The country has emerged from the Syrian civil war in arguably the best position out of all the powers in the region. In Iraq, the state security forces and the Popular Mobilization Forces – a coalition of mostly Shiite militias – are largely under Iranian control. In Syria, the regime of President Bashar Assad, an Iranian ally, is still intact, partly due to Iranian support. In Lebanon, Tehran maintains substantial power through its proxy group Hezbollah. And in Yemen, the Iranian-backed Houthi rebels continue to threaten the Saudi-led coalition.

Still, the protests that began just two weeks ago had some observers questioning whether the regime was facing a serious threat. But the country has withstood large-scale protests before. In 1999, Iran experienced widespread student demonstrations after the closure of a reformist newspaper. Ten years prior, the death of the founder of the Islamic Republic, Ayatollah Ruholla Khomenei, led to a split between moderate conservatives and hard-line clerics – a split that is the foundation of some of the instability the country has seen since.

This Deep Dive will explore what’s driving the current bout of unrest. It will compare these protests with three previous episodes of unrest the country experienced in the past four decades and examine what the demonstrations could mean for the regime and the country’s role in the region.

Protests in Historical Context

The current protests began on Dec. 28 in Iran’s second-most populous city, Mashhad, situated in the northeast near the border with Turkmenistan. On the first day, three cities held demonstrations. (Some reports say it was five.) On the second day, an additional nine cities saw protests. By the sixth day, the protests had spread to all corners of the country, from the capital to small towns and villages with only tens of thousands of residents.

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Initially, the protests seemed to be focused on economic concerns, namely, the sharp increase in prices of two food staples: poultry and eggs. While inflation rates have declined in Iran over the past five years, from roughly 45 percent to 10 percent, a rapid decline in poultry supplies due to the culling of more than 15 million birds over avian flu fears and an increase in the cost of imported feed led to a 40 percent increase in the price of poultry and eggs.

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But within days of the initial protests, the demonstrations turned political, with protesters chanting anti-regime slogans such as “death to Khamenei,” “Khamenei’s regime is illegitimate” and “free political prisoners.” President Hassan Rouhani delivered a speech acknowledging people’s grievances but stating that “violence and damage to public property” would not be tolerated. Ayatollah Ali Khamenei, the supreme leader of Iran, also gave a rare speech, accusing outsiders of instigating the uprising.

At first, the government was hesitant to respond with force to protests over food prices. But as the protests continued, police began to crack down. Estimates on the number of protesters at each rally range from 100 to thousands, while nationwide the demonstrations drew tens of thousands. Gen. Mohammad Ali Jafari, commander of Iran’s Revolutionary Guard, said that by Jan. 3, approximately 15,000 people participated across the country. This figure does not include the pro-government protests organized by the regime that took place at the same time. The government has claimed that 22 people were killed in the protests nationwide, while the opposition claims that 50 people died.

But a brief look at the past 40 years of Iranian history shows that the recent protests are not unprecedented. The Islamic Republic, after all, was founded after an uprising that began in 1978 and caught the Shah of Iran and his extensive security apparatus off guard. A deteriorating economic environment marked by austerity, inflation and inequality, combined with unpopular land reform policies and top-down Westernization initiatives, made strange bedfellows of an array of groups from all levels of society. The result was widespread unrest, and by early 1979, security forces were refusing to crack down on the protests. The Shah went into exile and Ayatollah Ruholla Khomenei became the country’s first supreme leader.

As the new clerical regime set about consolidating power and restructuring the state security apparatus to ensure it would not experience the same fate as the Shah, Iran faced a new question that in many ways has yet to be answered: Could the country function as both a parliamentary republic and an Islamic Shiite regime governed by clerical elites? This was the nature of the divisions that would define the political landscape of Iran for the next four decades. As Iran’s grueling, eight-year war with Iraq limped toward stalemate in the late 1980s, a power struggle emerged between hard-line and moderate/reformist camps within the conservative regime over the direction of the new supreme leader Ayatollah Ali Khamenei. (Ayatollah Khomenei died in 1989.)

Iran’s first post-1979 uprising began forming in 1997, when the reformists, led by Mohammad Khatami, captured control of both the presidency and the parliament. The new government eased restrictions and introduced some social reforms. In 1999, the shutdown of a reformist newspaper by a hard-line court triggered a week of mass protests in Tehran and other university cities by supporters of Khatami, most of them students and underemployed urban youths. The restructured security forces – still largely under the control of conservative clerics who also form part of the government – including a sprawling new volunteer paramilitary force called the Basij, responded decisively, arresting an estimated 1,500 demonstrators, killing as many as 17, and injuring thousands more. This uprising essentially marked the first instance of public backlash against the clerical establishment since the founding of the Islamic Republic. By this point, the tension between the religious leadership and the country’s democratic institutions was clear.

The same internal tensions came to the fore once again during the 2009 Green Movement, following ultraconservative President Mahmoud Ahmadinejad’s fraud-marred re-election. Beginning in the late 1980s, Khamenei, who lacked the devoted following of his predecessor, built a base of support by empowering the security apparatus to take on a greater role in political and economic affairs, overturning a ban on political activities Khomeini had placed on groups like the Revolutionary Guard. Ahmadinejad’s ascent to the presidency in 2005 marked the rise of a political alliance between hard-liners and the security establishment, giving greater control over the Iranian government to the Revolutionary Guard.

The 2009 election race between Ahmadinejad and reformist former Prime Minister Mir Hossein Mousavi, a Khatami acolyte, generated Iran’s highest-ever voter turnout. And when it was announced that Ahmadinejad had been re-elected with more than 60 percent of the vote (winning many districts with 100 percent support), the protests that followed were Iran’s largest and longest since 1979. As many as 3 million Iranians took to the streets over the next seven months to demand the result be overturned. For the first time since 1979, chants denouncing the supreme leader, who had signed off on the election result and was seen as condoning the violence waged by the Revolutionary Guard and the Basij, were widespread.

But the protests never gained much traction in the smaller cities and largely rural areas where Ahmadinejad was most popular. And the ruthlessness of the crackdowns – employing around 20,000 members of a special unit of Iran’s police force as well as the Basij militia – left the movement divided. It petered out in February 2011.

What’s Different This Time?

There are a number of similarities between each of Iran’s major uprisings. First, each of the major protest movements gained traction during periods of heightened economic stress. Second, all were fueled by widespread perceptions that the ruling class (whether under the Shah or the clerics) had become sclerotic, corrupt and self-serving, breeding a sense of alienation and inequality. Third, each movement was exacerbated, in part, by specific moves to suppress the political opposition. Finally, all escalated in size and intensity after initial crackdowns.

Only one of the three previous protest movements – the 1979 revolution – resulted in a change in government. This can be attributed to two factors: the demographic makeup of the protests during the revolution and the failures of the security apparatus.

None of the post-1979 uprisings involved nearly the same breadth of disaffected segments of society as were involved in the Islamic Revolution. By 1978, an unlikely alliance was forming between opposing sides of Iran’s myriad ethnic, regional and socio-economic groupings, leaving the Shah’s regime without a substantial base of support to use as a bulwark. But in both 1999 and 2009, the uprisings did not manage to bridge these divides. The bulk of the protesters in 1999 were students and underemployed urban youths, in addition to supporters of Khatami. The 2009 Green Movement had a similar demographic makeup. It never gained much traction beyond urban supporters of the opposition. In both 1999 and 2009, the core base of support for the clerical regime – the rural, the religious and the hard-liners – largely stayed on the sidelines and at times held counter-protests. The 2009 uprising was also supported by a number of people outside Iran, who presented the unrest as more significant than it actually was.

The most recent protests included demographic elements from the clerical regime’s traditional base. But as urban, middle-class moderates – who are more insulated from the country’s economic woes than rural, lower-class protesters, and who would be wary of seeing a relative moderate like Rouhani replaced by a hard-liner – have largely remained on the sidelines, the protests have been smaller and less diverse than those of 1979. This might explain why the regime didn’t seem too alarmed by the demonstrations this time around.

The other factor that forced the Shah from power was that his security apparatus crumbled. The military and the Shah’s CIA-trained secret police, SAVAK, were well-funded and had successfully dismantled opposition and guerrilla movements prior to 1978. But SAVAK was smaller than its modern counterparts. (Estimates vary wildly, from 5,000 to 60,000 at its peak, compared to up to 150,000 for the Revolutionary Guard today.) Perhaps more problematic, unlike the security apparatus currently underpinning the Islamic Republic, neither the military nor SAVAK were structured in a way that may have made it possible for the Shah to exploit Iran’s internal fractures in order to stay in power. Both were modeled after the Shah’s vision for Iran as a secular, Westernized country that had moved past its internal cleavages. Recruitment, for example, was open to all segments of Iranian society. That meant the forces were beset with many of the same internal divides, and thus more brittle. They were willing to crack down on narrow protest movements led by fringe elements, but when faced with a ballooning protest movement that reflected its pan-Iranian demographic makeup, a critical mass of the forces laid down their guns.

From the start, Khomeini and the clerical regime knew that the country’s security forces would need to be restructured to be more cohesive and ideological to prevent the regime from being toppled in the same way they just took power. Thus, atop Iran’s conventional military and police forces, the clerical regime built a vast new security apparatus to cement the inchoate revolution and ensure that a complex web of people would always be looking over the shoulders of anyone who might challenge the new regime’s authority.

At the system’s heart are two forces: the Islamic Revolutionary Guard Corps and the Basij. The 100,000-150,000-strong Revolutionary Guard is substantially larger than SAVAK and is tightly ideologically aligned with the Islamic regime. Early on, the Revolutionary Guard was filled with fervent supporters of the new republic and remains beholden to the clerics. Over time, it has been allowed to expand its political and economic involvement and sway over Iran’s foreign affairs, particularly under Ahmadinejad, giving it deep-rooted interests in ensuring the survival of the clerical regime. The Revolutionary Guard has increasingly become involved in managing state-owned companies and projects, further benefiting from the alleviation of sanctions, more so than most of the rest of the population. In other words, it has the self-interest, mandate and ability to ensure that it will reliably crack down on the opposition when called upon to do so.

The roughly 1 million-strong Basij is effectively the glue that keeps the regime from crumbling when facing grassroots unrest. Founded in 1979 but placed under the purview of the Revolutionary Guard shortly thereafter, the Basij are more widely diffused throughout the country, more informally structured and more ideologically aligned with the hard-line conservatives in the regime than anything the Shah ever had at his disposal. The force is demographically homogeneous, with volunteer members recruited primarily from the Iranian heartland, ensuring a relatively high degree of cohesion and perhaps greater willingness to suppress, for example, the Westernized protesters it deems to be on the wrong side of Iran’s urban-rural divide. Plainclothes Basij operatives are known for infiltrating protests to stir up chaos, sour public opinion of protest movements and conduct extreme acts of violence intended to demoralize the protesters.

To sustain public support, Basij units are embedded deeply in the everyday life of the towns where they are based, taking part in public works projects and underscoring the regime’s legitimacy as the guardian of Islamic principles. This also allows the force to serve as an early warning function for the regime, detecting potential sources of unrest bubbling up in remote areas of Iran. Whereas the Shah relied on a highly centralized security apparatus, the Basij give the current regime a highly decentralized, largely autonomous tool with which to detect and respond quickly to emerging threats to the regime.

In short, since 1979, Iran hasn’t faced the same kind of broad uprising that felled the Shah, and Iran’s rulers have developed a much larger security apparatus that is less likely to split along the cleavages being exposed by mass protests. As a result, the subsequent protest waves, including the most recent, have failed to bring about regime change. Ultimately, so long as the regime and the security forces remain tightly aligned, the Islamic Republic can withstand mass unrest. But the current round of protests has raised a key question: What happens to the regime’s suppressive capabilities if Iran’s myriad political divisions spread to its security apparatus? And what would happen if control over the security forces becomes contested amid deepening splits within the clerical regime that were exposed by the 1999 and 2009 uprisings?

Internal Weakness

With the current wave of protests emanating primarily from bastions of support for the regime – and that of the security forces – the new uprising has laid bare an internal weakness inside the Islamic Republic. And in many ways, the regime in its current form is at an impasse where its existing structures are increasingly unable to placate the citizenry. It will have to evolve, and this will entail a messy process in the years to come.

The Islamic Republic of Iran is not your average dictatorial regime. Rather, it is an odd amalgamation of Shiite Islamist theocracy and Western parliamentary democracy that blends traditional Islamic law and modern parliamentary processes. At its apex is the supreme leader, who is selected by a body known as the Assembly of Experts composed of 86 clerics. The supreme leader appoints the judiciary and, more important, the Guardian Council, which is also made up of clerics and has the power to veto legislation and vet candidates for public office, including the president. On paper, at least, the supreme leader also controls the Revolutionary Guard.

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The Supreme National Security Council includes the leaders of nearly every major branch of government and the security forces; its decisions must be made collectively and require sign-off from the supreme leader. Meanwhile, the public elects the president every four years, as well as the parliament, whose membership includes clerics but also representatives from all segments of society, including women. The public also elects the Assembly of Experts, though all candidates must be clerics. High-profile instances of fraud notwithstanding, elections are generally considered to be legitimate, though the Guardian Council does influence the outcome.

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This system functions via a maze of institutional structures that is designed, in part, to keep the various factions and power centers in balance and subservient to the supreme leader. On balance, the hard-line conservative clerics hold the most power in this system, but they are not omnipotent as is often portrayed. If they were, they would not have allowed reformists like Mousavi or Rouhani to run for president in 2009 and 2013, respectively. In reality, no one really has unchecked freedom of action – the clerics or otherwise. The Revolutionary Guard derives its legitimacy from the clerics, who derive legitimacy from the constitution – the republican center. None of them can act alone.

Iran’s blend of Islamism and republicanism means conflict is woven into the fabric of the clerical regime. This blend has shown itself primarily during election campaigns, when one camp privileges clerical oversight and the other emphasizes popularly elected government. The recent pattern of protests is merely an outgrowth of this perpetual push and pull. The government may have no qualms about suppressing political dissent, but it will also be willing to make modest political or economic concessions afterward to release some pressure. From this perspective, the protests are once again a demonstration of the system’s resilience, not its vulnerability.

But the domestic political landscape is no longer a function of the old partisan structures. The Ahmadinejad and Rouhani presidencies have led to a further fragmentation of the conservative camp. Meanwhile, the reformists are also divided and do not command the leadership of the public, a good chunk of which is seeking substantive political and economic change. Similar divides exist even within the Revolutionary Guard, as many commanders support the reformist and centrist camps, despite recent moves by Rouhani’s government to rein in the Revolutionary Guard’s business interests in sectors ranging from energy to mining to telecommunications. As a result, the political establishment is, now more than ever, a collection of power centers and factions, making the regime and its security forces increasingly prone to infighting, impasse and paralysis in a crisis.

This is particularly problematic because Ayatollah Khamenei is now 78, meaning a fight is looming over the selection of the next supreme leader. Whatever his own constraints on action, Khamenei is the unmatched source of regime legitimacy with religious conservatives and is uniquely empowered to balance factions, break impasses and keep the security apparatus in check. His death may open up a renewed scramble for control over Iran’s future if it further divides the clerical establishment and, therefore, control of the security forces.

Economic Challenges

The recent protests indicate that Iran’s leaders are willing to admit that the country faces legitimate economic problems. The regime, however, doesn’t have many options, and the one option it does have will almost certainly decrease its ability to spend money on foreign adventures.

The crux of Iran’s economic and domestic political challenges is that the country needs more jobs. Unemployment remains high despite positive economic growth generated by the Iran nuclear deal and the lifting of sanctions. In Iran, the biggest hurdle to creating jobs is a lack of investment. Investment can come from either international or domestic sources, but both come with their own challenges.

The long-standing sanctions regime has made it difficult for Iran to attract international investment. Tehran signed the nuclear deal because it was supposed to lift these sanctions, assimilate Iran into the international financial community and clear the way for greater capital inflows into the country. Rouhani staked his second presidential term on this premise. This was not, however, universally seen as a positive move. Many hard-line conservatives opposed the deal, but the promise of jobs was sufficiently popular that Rouhani won his second term in a landslide. The nuclear deal, however, exacerbated rather than healed rifts between the reformist and conservative factions.

What’s more, the deal hasn’t worked as Rouhani planned. There has been growth, but it has primarily been driven by more oil sales, the profits of which are held by a small minority in the government and security apparatus, including the Revolutionary Guard, which controls several of the country’s state-owned oil companies. Economic growth has not been distributed equally. Some of the protesters even said that the deal has benefited only a few people in the state. The agreement did seem to attract new foreign direct investment in 2016. Iran approved $11.8 billion in FDI projects, a six-fold increase over the previous year, and $3.4 billion in foreign capital was actually invested, a 64 percent increase over 2015 levels.

It is unsurprising that the regime would first provide economic benefits to the Revolutionary Guard, the entity responsible for maintaining its own security. But the regime has failed to deliver benefits to a broader segment of society, and the subsequent protests increase uncertainty in the eyes of potential international investors. With the deal increasingly called into question by both the U.S. and factions within Iran, and with sanctions unrelated to the nuclear deal still in place, outside investors are understandably hesitant to spend money in the country. It’s unlikely, with this degree of uncertainty, that Iran can expect to see the full extent of the capital inflow it was hoping for. To spur greater investment, it must therefore rely on domestic sources.

There are two potential sources of domestic investment: private and public. One way to increase private investment is to make it cheaper to access capital – that is, to decrease interest rates. But this isn’t an option for Iran. Interest rates are high right now – the benchmark rate sits at 18 percent – in part because the government has been fighting inflation. While inflation is still high – about 10 percent – five years ago it was even higher – closer to 45 percent. Lowering interest rates would risk raising inflation again, as well as weakening the Iranian rial, the country’s currency, which has already declined relative to the dollar from about 25,000 rial per dollar in 2014 to about 36,000 today. If the rial becomes devalued, then imports will become even costlier. And the government wants to avoid spikes in prices for consumer goods. It was, after all, the high cost of imported grain feed that spurred the most recent protests.

Further, Iranian banks are stretched thin. In addition to already having extended quite a lot of credit – and, as a result, operating with relatively low capital reserves – there is also an abundance of nonperforming loans in the banking system. Offering more credit and further depleting bank reserves would greatly risk the stability of Iran’s financial system. For these reasons, raising investment through domestic private capital is not a great option either.

The last source of investment, then, is domestic public capital (i.e. government spending). If the government were to spend more on business investment, however, it would have to spend less on other things like defense and social services, a potentially dangerous move. The 2018 budget released in early December, just weeks before the protests erupted, showed that the government planned to decrease the number of people receiving cash subsidies by 45 percent. (Nearly 95 percent of Iranians receive some form of cash subsidy.) The government claims it will divert some of these funds to encouraging production, which could lead to job creation. (The government claimed it will create 634,000 new jobs in 2018.) But even if this strategy works perfectly – and they rarely do – there will still be a gap between the time that people lose their subsidies and the time that new jobs actually become available.

In addition, the 2018 budget increases defense spending by 20 percent to about $11 billion, of which $8 billion is allocated to the Revolutionary Guard. So while the people are receiving fewer subsidies, the security and intelligence establishment is getting a boost, not only from increased oil sales, but also from increased public funds allocated to them by the government. The nationwide uprising has forced the government to consider shifting its cuts to defense spending rather than social subsidies. This, of course, is a risky prospect considering the Revolutionary Guard’s involvement in the country’s political and economic affairs, as well as its role in carrying out the country’s imperative abroad and ensuring the regime’s survival at home.

It seems the protests have been, for now, fairly well-contained by the regime. Nevertheless, the regime is now aware that its prior attempts to fix the country’s economic problems have been unsuccessful, and it will therefore need to consider allocating a greater portion of the public budget to investment in the economy and measures that could encourage job growth.

The broader consequence of this development is that it could force Iran to reconsider some of its objectives abroad. With operations in Yemen, Syria and elsewhere, it may be finding that it is overstretched and that its efforts, and its money, would be better used maintaining stability at home rather than pursuing ambitions throughout the Middle East.

Xander Snyder
Xander Snyder is an analyst at Geopolitical Futures. He has a diverse theoretical and practical background in economics, finance and entrepreneurship. As an investment banker, Mr. Snyder worked in corporate debt origination and later in a consumer-retail industry group at Guggenheim Securities, participating in transactions ranging from mergers and acquisitions, equity and debt capital raises, spin-offs and split-offs to principal investing and fairness opinions. He has worked on more than $4 billion worth of transactions. He subsequently co-founded and served as CFO for Persistent Efficiency, an energy efficiency company that used cutting-edge technology to create a new type of electricity sensor for circuit breakers and related data services. In his role, he was responsible for raising more than $1.5 million in seed capital and presented to some 70 venture capital and angel investors in the process. He also signed four Fortune 500 companies as customers, managed all aspects of company accounting, budgeting and cash flow, investor relations, and supply chain and inventory management. In addition to setting corporate strategy, he helped grow the company from two people to a 12-person team. As an independent financial consultant, Mr. Snyder wrote an economics publication for a financial firm that went out to more than 10,000 individuals and assisted in deal sourcing for a real estate private equity fund. He is an active real estate investor and an occasional angel investor. Mr. Snyder received his bachelor’s degree, summa cum laude, in economics and classical music composition from Cornell University.
Phillip Orchard
Phillip Orchard is an analyst at Geopolitical Futures. Prior to joining the company, Mr. Orchard spent nearly six years at Stratfor, working as an editor and writing about East Asian geopolitics. He’s spent more than six years abroad, primarily in Southeast Asia and Latin America, where he’s had formative, immersive experiences with the problems arising from mass political upheaval, civil conflict and human migration. Mr. Orchard holds a master’s degree in Security, Law and Diplomacy from the Lyndon B. Johnson School of Public Affairs, where he focused on energy and national security, Chinese foreign policy, intelligence analysis, and institutional pathologies. He also earned a bachelor’s degree in journalism from the University of Texas. He speaks Spanish and some Thai and Lao.