Annex I
IRAN'S DOMESTIC POLITICAL SITUATION
Political structure
1. Under the Iranian Constitution, Iran
is an Islamic Republic and the teachings of Islam are to be the
basis of all political, social and economic relations.
2. The structure of authority is opaque,
with competing power centres. Overall authority is vested in the
Supreme Leader, currently Ayatollah Ali Khamenei, who was preferred
in this role by Khomeini to be his successor in 1989, a choice
then made official by the Assembly of Experts, a body of 96 religious
scholars elected by universal adult suffrage from all over Iran.
The President too is elected by universal adult suffrage, and
serves a four-year term. He may serve no more than two consecutive
terms in office.
3. The Majles (parliament) has 290 elected
members representing regions or one of the three recognised religious
minorities (Jews, Christians and Zoroastrians). The Majles also
approves the members of the Council of Ministers (the President's
Cabinet).
4. Political parties were legalised in 1998
after a 13-year ban and are still at an early stage of development.
Factions, particularly in the Majles, are often defined broadly
as "reformist", "hardline conservative" or
"pragmatic conservative".
5. Legislation passed by the Majles must
be approved by the Guardian Council, which reviews it for constitutionality
and adherence to Islamic law. The Council is composed of six theologians
appointed by the Supreme Leader and six jurists nominated by the
judiciary and approved by the Majles. The Council has the power
to veto candidates in elections to parliament, local councils,
the Presidency and the Assembly of Experts.
6. The Council for the Discernment of Expediency
was created in 1988 to resolve disputes over legislation between
the Majles and the Guardian Council. It also advises the Supreme
Leader on national policy and constitutional issues. It is currently
led by former President Ali Akbar Hashemi Rafsanjani and includes
the heads of all three branches of government and the clerical
members of the Guardian Council. The Supreme Leader appoints other
members for a five-year term.
Political situation
7. The "reformist" President Khatami
was elected in August 1997 with an overwhelming majority, and
re-elected in June 2001. However, there has been a swing towards
more hardline conservative forces in recent years, in part because
of the reformists' failure to address growing economic concerns.
In the most recent Majles (parliamentary) elections in 2004, conservative
candidates swept the board (after the Guardian Council—which
can veto candidates it considers contrary to the interests of
the Islamic Republic—blocked the candidacies of more than
a third of the 8,000 candidates, most of whom were reformists,
and 85 of who were incumbent MPs).
8. The vetting procedures dissuaded many
potential candidates from even putting their names forward. The
Guardian Council has vetoed all female candidates from standing
in any presidential election as well as the December 2006 Assembly
of Experts elections.
President Ahmadinejad
9. Ahmadinejad was elected in June 2005,
on a platform of "economic justice" (especially improving
the economic situation of the poorest), anti-corruption, and nationalism.
His campaign stressed his humble background, simple lifestyle
and personal piety.
10. Since coming into office, Ahmadinejad
has used economic and political tools to entrench the control
of his hardline supporters over the key levers of power. Members
or former members of the Islamic Revolutionary Guard Corps (IRGC),
created by Ayatollah Khomeini in May 1979 to "protect the
revolution and its achievements" have taken on more political
roles (including Ministerial and provincial governor positions)
as well as their growing commercial interests. There has also
been increased activity by the IRGC-linked Basij (revolutionary
volunteers) and morality police.
11. While Ahmadinejad is not the key foreign
policy player, he has put his stamp on foreign policy, particularly
through public statements—including his vitriolic comments
about Israel, as well as the nuclear file.
12. But over the past year Ahmadinejad has
come under increasing domestic criticism, for his confrontational
foreign policy, poor management of the economy, and failure to
fulfil campaign promises to tackle corruption. His relations with
some other regime leaders are strained or hostile, and his support
in the Majlis remains fragile. In December 2006, his candidate
list, "The Pleasant Scent of Service", did poorly in
local elections, on a high turnout. Pragmatic conservatives showed
a stronger performance.
Economic outlook
13. Ahmadinejad's populism is also leaving
its imprint on the economic outlook. He has tried to win favour
among the poor with high levels of public spending. High oil prices
helped him promote this agenda. Budget mismanagement and soaring
inflation are evident. And the government's insistence that banks
must pay out cheap loans has hit the financial sector hard.
14. Since Ahmadinejad came to power, much
needed but painful structural reforms—eg on fuel subsidies—have
been further delayed. The Revolutionary Guards are further extending
their grip over the economy; huge contracts have been handed to
companies they control, often without any form of tendering.
15. Ahmadinejad's confrontational foreign
policy approach has also had an impact. Fear of possible future
sanctions has hit economic and investor confidence: businesses
are deferring investment decisions and the stock market has fallen
below 10,000 points. Foreign investment has all but dried up,
foreign export credit agencies are taking steps to limit their
exposure and firms are finding it harder to raise international
finance for major projects. US actions against Iranian banks and
UN Security Council sanctions against Bank Sepah have made Western
financial institutions more cautious and many have reduced services.
16. Technocrats in the oil industry are
especially concerned. The health of the sector—which provides
50% of government income—is an indicator of overall economic
performance. At present, projects lie stalled and foreign firms
are increasingly reluctant to invest in Iran because of the political
situation. As a result, and given the annual decline in production
from some of the largest and ageing oil fields, Iran faces a real
challenge simply to bring enough new production on stream to maintain
stable production and export levels. In the current climate there
is no prospect of Iran significantly increasing its small gas
export volumes. Temporary solutions—such as turning to parastatal
bodies and the Oil Stabilisation Fund to finance and deliver oil
and domestic gas projects—continue to make the economy's
structural problems worse medium term.
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