The unrest has encouraged the Iranian opposition abroad to intensify their campaigns against the Islamic Republic. In some cases, nostalgia for the rule of Shah Reza Pahlavi, toppled by the revolution in 1979, has been articulated. Since his downfall, a Shia Islamist regime has been running the country. Regime-change advocates in Washington hope to benefit from the current scenario, but things may easily turn out worse than they expect.

Containing the political impact

Iranʹs President Hassan Rouhani is currently struggling to contain the political impact. Islamist hardliners who are close to the Supreme Leader, Ayatollah Ali Khamenei, resent him. Now they say that the "moderate foreign policy" of his "centrist" government has failed.

Iranian President Hassan Rouhani (source: IRNA)
Under pressure: President Rouhani wants the Iranian parliament to pass bills in order to meet FATF conditions, but powerful hardliners are obstructing their passage. They say the bills would infringe on Iranʹs national sovereignty and hinder its support for such Islamist groups as Hezbollah in Lebanon and Hamas in the Palestinian territories

On 31 January, Rouhani admitted that the economic situation is tough. He tried to divert criticism: "Today the country is facing the biggest pressure and economic sanctions in the past 40 years. (…) Our problems are primarily because of pressure from America and its followers and the dutiful government and Islamic system should not be blamed."

Fiscal constraints have begun to affect the defence budget. That is unusual – particularly in times of growing international and domestic pressure – and can only be explained with fiscal bottlenecks. President Rouhani presented relevant plans in parliament in late December. The defence budget for the next fiscal year (21 March 2019 to 20 March 2020) will amount to the equivalent of almost $ 15 billion. That is 16 % less than in the current fiscal year. The defence budget includes spending for the Revolutionary Guards, the army, the police and all other kinds of security forces.

At this point, Tehran arguably lacks a coherent and long-term strategy to cope with the Trump administrationʹs "maximum pressure" policy. On the one hand, the Supreme Leader has repeatedly called for the development of a "resistance economy". He wants to wean Iran off global trade and international finance. In his view, part of such a "self-sufficiency" strategy is to systematically boost domestic production, supply and demand. An obvious problem, however, is that, in lack of oil revenues, Iran does not have the financial means to kick-start such dynamism.

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