We forecast an auspicious future for the Islamic Republic of Iran over the next 10 years. Trends and likely developments indicate an improved economy, relative stability in internal politics, and a sustained aggressive foreign policy that brings Iran closer to its goal of regional hegemony. However, there remain critical issues that Tehran will still have to navigate.

Economy

The top levels of the religious theocracy have renewed their emphasis on fixing Iran’s economic woes, a trend that is likely to continue for the next decade. President Mahmoud Ahmadinejad’s winning campaign in 2005 focused on populist economic issues, and Supreme Leader Ayatollah Khamenei recently called for global integration and a strengthening of the private sector (source). The debate reflects a prioritizing of the economy and a philosophical maturity from the early days of the Republic, in which founder Ayatollah Khomeini famously quipped: “We did not make the revolution to lower the price of watermelons.”

Iran will continue to grow an economy that relies on prodigious energy and gas reserves and builds on trade relationships with regional neighbors: China and Russia. The rising influence of the conservative pragmatist bloc (see below) is likely to seek accommodation with the international community, as it aims to draw foreign capital to Iran and technical expertise for a dilapidated and under-producing oil industry.

Despite the positive outlook, the Iranian economy will continue to be drained by massive subsidies and pervasive corruption (Previous Report), preventing it from realizing a far greater potential. A key test for the government will be whether it raises the domestic price of oil and addresses the military’s entrenched and inefficient role in the economy, both volatile issues.

Internal Politics

Iran will experience relative stability in its inherently mercurial internal politics. Across the ideological spectrum, those seeking to reform or to maintain the status quo will pursue their interests within the political system. Moreover, the Iranian populace is eager for stability, having endured the chaotic early days of the Republic, a devastating eight-year war with Iraq, and the disappointment of the reformist regime.

Within the next 10 years, the pragmatic conservative bloc will likely come to dominate the Iranian political scene. A strong indicator of this development is the bloc’s success in recent municipal and ‘Assembly of Experts’ elections; the latter will place pragmatic conservatives in prime position to capture the top prize: Supreme Leader. The reformists will temporarily ally themselves to the pragmatic conservatives during this period, having learned that boycotting the system—as it did in 2005–brings to power hard-line figures like Ahmadinejad.

However, the potential exists for political destabilization, including the process of selecting a replacement for the consistently ailing Supreme Leader Khamenei (Previous Report). The most threatening issue is likely outside a 10-year projection but bears noting. The various groups (students, women, human rights, and growing middle class) that comprised the reformist movement remain a latent force in Iranian society. The failure to institutionalize power, not a lack of popular will, doomed the reformists’ rise to power in the late 1990s. Though it may take a decade or more to rebuild real momentum, its resurgence and ensuing clash with conservatives is nearly inevitable.

Foreign Policy

As a result of its own domestic and economic stability, Iran will be well positioned to increase its political, cultural, and military influence in the Middle East. More importantly, the Sunni wall enclosing Iran and containing its regional ambition has cracked, a direct consequence of US military action in Afghanistan and Iraq. Iran will challenge US interests as it approaches regional hegemony, a status Persians view as a historic entitlement from their legacy as an empire.

A ‘Shiite crescent’ is, indeed, rising in the Middle East. The Sunni Arab states’ nervous response—coalescing with US and Israel–is indicative of the phenomenon’s growing momentum. Rather than ‘exporting the revolution,’ a pan-Islamic goal of the early Republic with anti-imperialistic overtones, Iran will lead the resurgence of Shiite identity and political power in the region. Iran will aid Shiite communities in Iraq, Lebanon, and the Gulf states in asserting political (and potentially military) power with the aim of building Iran-friendly governments.

Virulent anti-American and anti-Israeli sentiment will remain a touchstone of Iranian identity, specifically within the generation that leads over the next ten years. In this regard, the Iranian Revolutionary Guard will continue to develop and strengthen proxy forces to destabilize Israel and undermine US regional interests. Toward the end of the decade timeframe, Iran will also have likely acquired a nuclear weapons capability, a national pursuit in keeping with the goal of regional hegemony, and the ultimate deterrent against foreign invasion. Subsequent to this development, Iran will be more aggressive in its regional asymmetric warfare while operating under a nuclear umbrella.