Iran’s recent protests show the hard choices the country needs to make


Iran's Supreme Leader Ayatollah Ali Khamenei attends a meeting with students in Tehran, Iran, October 18, 2017. via REUTERS
Supreme Leader Ayatollah Ali Khamenei

Thomson Reuters

  • Protests in Iran that broke out in late December
    illustrate deeper social divisions.
  • The government faces a dilemma of whether to foster the
    domestic economy or continue focusing on the military and
    foreign affairs.

On Dec. 28, 2017, protests broke out in Iran’s second most
populous city, Mashhad. In the next six days, the unrest expanded
to dozens of towns, villages, and urban centers throughout the

Initially, the protests seemed to be focused on economic
concerns. One of them was a sharp increase in prices of two food
staples: poultry and eggs. But within days they turned political,
with protesters chanting anti-regime slogans.

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Futures via Mauldin Economics

President Hassan Rouhani delivered a speech acknowledging
people’s grievances but stated 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.

Now, the protests have died away. And it seems that things have
largely returned to normal. But while the regime was able to put
down the unrest, it has been unable to address its underlying
causes: a lack of economic opportunities, frustration over the
regime’s continued spending on its own defense, and foreign
interventions in places such as Syria, Lebanon, and Yemen.

Iran at a crossroads

Iran has two options:

  • increase spending on domestic economic initiatives that
    address the concerns of the population
  • or maintain the strength—and loyalty—of the security
    apparatus that ensures the regime’s very survival

Both options come with drawbacks, none of which the regime can
take lightly.

The regime has a history of suppressing protests and making small
concessions to try to relieve the pressure. Its response to the
most recent protests is no different.

A leaked version of the 2018 budget sparked anger in December
over funding for the Islamic Revolutionary Guard Corps (IRGC) and
cuts to public subsidies. (95% of Iranians receive such

The regime subsequently made changes to the budget, and these
changes appear to address some of the concerns. For example, the
planned cuts to cash subsidies will now target higher-income
earners. In addition,a hike in fuel prices that was in the
initial budget has been eliminated.

And the government will set aside $3.3 billion to cover two
million to three million depositors affected by unregulated
credit institutions.

But Khamenei also allocated $2.5 billion of the country’s
National Development Fund—which was estimated to have $68 billion
in assets in 2016—for additional defense spending.

Why would Iran continue to increase defense spending if it was
the perception of a privileged IRGC that set off the protests in
the first place?

The short answer is that it has no other option. Iran is facing
increasing security risks both at home and abroad, and it can’t
afford to let its security institutions go underfunded.

Internal divisions

Further complicating the situation are the divisions within the
regime that are magnified by increasingly apparent socio-economic

To bolster his support base, Rouhani is using the recent protests
as evidence that the policies of the clerical elites (the main
backers and beneficiaries of the IRGC) have failed.

Khamenei, who is part of the clerical establishment, has
cautiously acknowledged the concerns of the protesters but
remains focused on strengthening and funding the IRGC to ensure
its loyalty lies with the clerics.

At the same time, Khamenei instructed the IRGC last week to
divest large portions of its business interests, which represent
a substantial portion of the Iranian economy—30% by some

The IRGC became increasingly involved in the management of the
Iranian economy following the Iran-Iraq war when critical
infrastructure needed to be rebuilt.

Khamenei’s reasoning for wanting the IRGC to withdraw from the
economy is two-fold.

First, it attempts to address some of the protesters’ concerns by
decreasing the IRGC’s economic power, but without actually
defunding it. Second, and more important, privatization is seen
as a step toward increasing transparency and, therefore,
attracting more foreign investment, which remains at risk due to
uncertainty over US commitment to the nuclear deal.

Either way, divestment could create even more internal divisions,
both between the clerics and the IRGC and also within the IRGC
itself, because the organization’s leadership is split on whether
to support the move.

External risks

The external pressures on Iran come from various sources but meet
in one location: Syria.

President Bashar al-Assad, an Iranian ally, is facing new
challenges in western Syria. Turkey has invaded the northwestern
Afrin region. Given the size of the Turkish force, its
technological superiority, and the relatively small number of
Kurdish defenders, it seems likely that Turkey will take control
of it.

And with that, Turkey will have essentially surrounded Aleppo,
Syria’s largest city, on three sides.

Around Aleppo, Turkish forces present a major threat to both
Assad and Iran. Iran knows the risks that a resurgent Turkey
would pose to it.  For this reason, it will be motivated to
keep its proxies in Syria and Iraq.

Closer to home, the IRGC clashed with 21 Islamic State militants
in western Iran on Jan. 27. Iran believes that the fighters
emerged from hiding in Kurdish-held areas of Syria, although it
doesn’t seem to believe that the Kurds were assisting the

The Islamic State has lost most of its territory in Syria, but
that doesn’t mean IS fighters have all left the country—they have
simply blended into the local population. This was a small
skirmish—although three Iranian soldiers were killed—and the IRGC
was able to defeat the militants.

IS suicide bombers and gunmen attacked Tehran in June, but the
Jan. 27 attack was the first time an organized IS militia has
attacked Iran, driving home the fact that Iran is still at risk
within its borders. The growing IS presence in Afghanistan, which
shares a border with Iran, is also a concern.

While Iran has emerged from the Syrian civil war in a strong
position relative to its regional adversaries, its social and
political stability has been shaken.

Eventually, Iran will be forced to make a choice, and this will
limit its foreign adventures. This occurs just as Turkey, its
longtime nemesis, increases its power and its involvement in
Syria, presenting an ever-greater challenge to Tehran.

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