Commentary. Iran has rested not so much on religion, but on a system of welfare state and subsidies which, thanks to oil rents, had secured true popular support. And this pillar has long since begun to falter.

The Iranian regime and the impossible reforms

Perhaps unknown to Iran’s Generation Z, the best-known scholar of contemporary Iranian history, Ervand Abrahamian, an old opponent of the Shah, argued some time ago in the New York Review that he thought a third revolution after the 1905 and 1979 revolutions was “unlikely.” But Abrahamian also suggested something else: so far, Iran has rested not so much on religion, but on a system of welfare state and subsidies which, thanks to oil rents, had secured true popular support. And this pillar, born out of the revolution’s ideology of social populism and the “red” Shiism of philosopher Ali Shariati, has long since begun to falter, with the result that it’s no longer only Iranian youth who are protesting in the streets, but there are also strikes by traders and in various economic sectors.

The crisis of this system in Iran intersects with the protests against women’s headscarves and a powerful generational shift, with young people taking to the streets who obviously didn’t experience the Khomeinist revolution of ‘79 or the Iran-Iraq war (1980-1988).

There are 86 million Iranians today, of whom more than 40 million were born after the revolution and half are between 10 and 24 years old (source: UNDP). For comparison, on the eve of the revolution, Iran’s population was 38 million and oil production was twice what it is today, 2.5 million barrels a day, largely headed to China.

Sanctions have hit hard since the last round in 2012, and Iran’s currency has since lost two-thirds of its value against the dollar, while inflation is above 50 percent. Iran’s welfare state, along with subsidized food and energy prices, which cost about $100 billion a year, almost half of the estimated 2020 GDP of $231 billion, has seen a collapse by 40 percent.

In May, President Ebrahim Raisi announced a resounding cut in the subsidies for the prices of wheat and flour. But what does this system consist of, at its core?

Making profits and paying no taxes: that was the dream cultivated for two decades by the Iranian bazaars who generously financed Imam Khomeini’s Islamic revolution. After the fall of the Shah in ’79, this partly came true with the Bonyads, the tax-exempt foundations that swallowed up not only the imperial crown’s immense holdings but also most of the conglomerates and businesses that were owned by the famous 100 families introduced to the Palhevi court. The nationalizations had nothing to do with socialism or Marxism, which were also part of the ideological currents of the revolution along with Shiite Islam: instead, a new ruling class simply replaced the old one.

In the excitement of revolutionary utopia, the mullahs’ turban replaced the imperial crown. All this – at that’s what Khomeini would have wanted – was intended to benefit the mostazafin, literally “the disinherited,” the dispossessed and oppressed in whose name the revolution was accomplished. What actually happened was that clerics, former revolutionaries, the Pasdaran and businessmen took over the business of a country with huge oil and gas reserves.

Today, not only are the poorest getting poorer, but the middle class is also in crisis.

The ayatollah economy of the foundations is the backbone of power, a patronage and welfare state network that branches out into society and extends beyond the borders of the Islamic Republic. The Bonyads – a hundred or so, of which a dozen are vital – also have charitable and welfare institutional purposes, but don’t forgo profits and employ five million Iranians, more or less directly: they have thus been essential in these decades in the regime’s machinery to secure popular support. There is no doubt that the Bonyads are at the heart of this economy: they hold at least 30-40% of GDP and have taken space away from private individuals by favoring only a few of them, those close to the circle of power.

And that is precisely the problem. Ahmad Zeidabadi, a reformist journalist and former political prisoner, explains it perfectly in a recent interview with Ilna, the semi-official agency of labor unions: ”A good part of the system in power thinks that dignity and wealth belong only to the insiders and hardcore loyalists, while the rest of the population has no right to participate in it. But this new Iranian generation that has grown up with the Internet and satellite TV,” Zeidabadi says, “no longer recognizes any authority, neither in the family nor in school or at the university, and sees a dark future ahead of it, with no skilled jobs, no alternative political space or room for expression.”

In the end, the key question is: is it possible to reform such a society and economy? When President Mohammed Khatami tried in 1997, the reforms lasted for a short period; then Hassan Rouhani signed the nuclear deal with the U.S. in 2015, promising a new era of prosperity, and Trump canceled it in 2018. Few are harboring any illusions. As they say in Iran, in order for the system to change, it would have to cut off the tree branch on which it has been sitting for more than 40 years. At the moment, it doesn’t seem possible.

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