What makes a revolution? Mass dissatisfaction with the existing order certainly plays a role, but anger is only the first ingredient. Iran’s successful 1979 revolution, which overthrew Shah Mohammad Reza Pahlavi, was the result of a confluence of factors. The populace resented the regime’s political repression and its modernization reforms that left many impoverished and displaced. The shah was widely perceived as a Western puppet installed after the ouster of democratically elected Prime Minister Mohammad Mossadegh. And, critically, Iran’s clerics wanted to establish a modern-day Islamic republic. Today, Iran is facing threats from all directions and may be approaching the edge of a precipice. There are echoes of 1979 in today’s crisis, but there are significant differences, too. On the 40th anniversary of the Islamic revolution, we take a look back – and see what 1979 can teach us about Iran today.

1979

A driving force of Iranians’ anger in 1979 was the fallout from the shah’s modernization reforms. The shah had two key motivations for these reforms: to weaken power relations and to appease the United States – both in a bid to hold onto power.

The economic reforms, designed to jump-start rapid economic development, promoted large-scale enterprises that could both compete internationally and generate surpluses of agricultural products at home. The shah’s government expropriated landlords’ holdings and redistributed them to peasants. This model was instituted at the expense of power structures that had bound laborer to landlord in a nearly feudal relationship. The landlords were not the only elite class he sought to weaken. The clergy, another center of power, was stripped of its adjudicating role in certain legal disputes that had remained outside the government’s purview. In both cases, the shah was working to minimize the chance that a powerful opposition could arise and challenge his relatively young regime.

The shah wasn’t the only one concerned about his grip on power. The U.S. – the shah’s key backer that had helped reinstall him after the coup against Mossadegh – feared that conditions in Iran were ripe for a communist revolution. (Soviet leader Nikita Khrushchev at one point claimed that “the regime in Iran will fall like a rotten apple.”) The U.S. believed that if Iran could achieve rapid economic development, it would increase the standard of living and avoid a class-based revolution, and it pressed the shah to make changes.

The reforms backfired. The sudden fracture of traditional relationships and other rapid societal changes left so many lives in limbo that opposition sprung up simultaneously across many social strata. This made for a remarkable alliance that included the disenfranchised middle class, which despised the shah for disrupting their trade; rural Iranians, whose lives were upended by land reform and the expansion of cash economies; landlords, who were stripped of their property; academics and students, who saw the regime as oppressive and desired freedom of thought and expression; and the clergy, whose power was hobbled by the regime.

This formidable opposition began to coalesce around a shared goal: bringing down the shah. But a key question remained: Who would replace him? The answer came in the form of the ulema – the deeply respected Islamic scholars of religion and law. These scholars and clerics could unite the opposition under a religious cloak, binding together the disparate interests under a shared, righteous identity. Once the opposition was united, it was not long before the shah fell.

Iran Today

Forty years later, Iran is beset by familiar problems, chief among them a crumbling economy. The collapse of Iran’s currency, the rial, has driven up the cost of living and eroded the savings of the poor and middle class alike. It has made imported feed for livestock even more costly. And food has become so expensive that, according to reports that surfaced late last year, the government may have been subsidizing and rationing imported food. The financial system is riddled with nonperforming loans, and banks are struggling to find sources of funding to recapitalize.

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At the same time, drought affects 97 percent of the country, and severe drought affects 28 percent of the population, driving farmers and agricultural workers to urban areas in search of alternative livelihoods. People have blamed the government’s poor water management for exacerbating the problem. Moreover, in 2018 the regime faced large-scale, nationwide protests, in part over cuts to cash subsidies, the savings from which were used to fund Iran’s military operations abroad. (The subsidies were later reinstated to appease protesters.) Adding insult to injury, the U.S. reimposed sanctions on Iran last year, cutting its oil exports – one of the country’s main revenue streams – by over 50 percent, according to some estimates.

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As in the years preceding 1979, economic hardship is hitting a broad swath of Iran’s population. Everyone is hurting: farmers who can’t find water or pay for feed for livestock, merchants who can’t afford to import their products, and anyone whose savings to buy a car or house have been torpedoed by the failing currency. Even after a security crackdown and regime concessions quelled the early 2018 protests, demonstrations have regularly popped up across the country.

Iran’s economic situation has become so severe that its leadership is considering drastic measures. On Feb. 6, Iranian news website ISNA reported that Ali Larijani, the speaker of the Iranian parliament, said Ayatollah Ali Khamenei wanted to implement “structural reforms” within the next four months. But when questions arose about what exactly these reforms would entail, the parliament’s public relations office quickly walked back the statement. Iran’s clerics, undoubtedly familiar with how the shah’s structural reforms infuriated the populace, know that such reforms can have unintended, uncontrollable consequences. Statements like Larijani’s, therefore, are dangerous. They raise expectations of real change, which could lead to disappointment and even anti-regime sentiment if the people don’t see substantial improvements in economic conditions.

Larijani’s announcement aside, it seems likely the regime is mulling more serious changes to pacify growing public discontent. After all, it’s harder to put down a revolution than to avoid one in the first place. The mere consideration of 1979-scale reforms indicates that the regime has to find options beyond just muddling through the status quo. Still, Iran today isn’t facing the same kind of pressure it had to cope with in 1979. There’s no powerful ally pushing for reform; the U.S. is still applying pressure, but no longer as an ally, and sanctions have failed to compel sweeping changes in Iran in the past. With more room to breathe than the shah had, the current regime will be able to dull the pain of reforms through a more gradual rollout, hoping to avoid antagonizing poor and rich, urban and rural all at once.

But structural reforms might also affect the Iranian Revolutionary Guard Corps. Upon ascending to power, the clergy established the IRGC, separate from the military’s chain of command, to safeguard the revolution and its ruling clerics. The IRGC controls a huge chunk of the economy (some estimates put it at one-third) and its members hold significant governmental leadership positions. It seems unlikely the government will confiscate the IRGC’s wealth, as the shah confiscated landowners’ holdings. But the regime has to perform a difficult balancing act with the budget: It must tighten its belt while still keeping the IRGC happy. Khamenei allowed the government to draw from the National Development Fund to keep defense spending high. (Notably, the NDF is a sovereign wealth fund meant to invest in projects with economic returns, such as infrastructure and oil sites. Its funds are not normally spent on defense.) The regime may also have to decrease its spending on engagements abroad; indeed, the budgetary squeeze is the main reason we expect Iran to pull back from Yemen and Syria in 2019. At the same time, Khamenei and President Hassan Rouhani have called on the IRGC to give up some of its economic holdings, and the government arrested a dozen IRGC members and associates to force repayment of certain earnings. In response, the IRGC divested its shares in Iran’s telecom company. Still, these seem like token gestures; it’s unlikely Iran’s clerics would impinge on the IRGC’s power enough to anger the very force that ensures their survival.

Another Revolution?

Though protests continue, they lack a common purpose that brought together the 1979 revolutionary factions. But this doesn’t mean regime change is impossible. The IRGC is the most powerful organization in Iran, and in the event of a nationwide uprising with slogans like “down with the clerics,” it is the most capable entity to take advantage of and fill the resulting power vacuum. This would not amount to a social revolution of the sort seen in 1979, but a political revolution or coup d’etat that places the country under military control.

Iran does not seem to be on the verge of implosion, but its leaders are finding a shrinking number of solutions to Iran’s problems. Some of the few options that remain risk recreating the kind of opposition that led to the current regime’s ascendancy in the first place – a thought not lost on Khamenei. Iran’s leaders will likely continue to do what they do best – pound their chests, fire missiles and brag about the regime’s strength – while in private desperately trying to manage an economic transition that mollifies the Iranian public without destroying the regime itself.

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.