Iran is headed for a rough ride, but not a revolution

By Cliff Kupchan

In Iran last week, sanctions pressure pushed frustration into violence. Iran’s currency has lost half its free market value over the past month, and a clumsy policy response made matters worse.

The rial’s dramatic depreciation is stoking a level of inflation that has become the most serious threat now facing the regime. The official inflation rate stands at 23.5 percent, but anecdotal evidence suggests the rate is much higher and climbing. The government’s lack of a coherent anti-crisis strategy, economic mismanagement, corruption, and heavy transaction costs imposed by sanctions suggest the worst is yet to come. Sporadic protests are likely to become a fact of life in Tehran.

As a result, the bickering within Iran’s political elite is becoming more vitriolic. President Mahmoud Ahmadinejad blames foreigners and their sanctions for the current crisis; parliamentary speaker Ali Larijani instead points the finger at the incompetence of Ahmadinejad’s government. Ahmadinejad can’t seek re-election next June, but his exit won’tprevent these fights from heating up in advance of the vote.

Yet, there is no evidence that Iran is close to the boiling point. Following the controversial presidential election of 2009 and the street demonstrations that followed, the regime proved it can and will use deadly force to intimidate Iran’s fractious opposition. Nothing has happened to suggest that new protests would produce a different result.

So what should Western governments, anxious to slow Iran’s momentum toward a nuclear program, be hoping for? Iran’s economic turmoil is unlikely to topple the regime, at least not anytime soon, but it just might bring about a more conciliatory Iranian approach to nuclear talks after the U.S. presidential election — and especially after Iran’s presidential election next year.

Over the past half decade, Tehran has demonstrated an almost existential commitment to the nuclear program, but the sanctions-induced pain is squeezing Iran’s economy ever tighter, and that could make Iran more flexible. In turn, it’s now very important for Western negotiating partners to offer a diplomatic proposal that allows Iran’s government to save face before its people.

The Iranian government will never negotiate away its domestic legitimacy, but there might be room for a crucial compromise on the nuclear issue. Without such a breakthrough and relief from tightening sanctions, the Iranian regime has a bleak future — and the country’s leaders know it.

Cliff Kupchan is director of Eurasia Group’s Eurasia practice.