Stunted and distorted
 

The economy is too dependent on oil and gas, and too dominated by the state
 

IRAN'S economy grew by 4.8% in real terms in 2001-02, after 5.7% the year before and 3.6% the year before that. Not bad, you might think: GDP per person in 2002 was 20% up on ten years earlier. But for many Iranians, even the young, the comparison they make is with the 1970s, when GDP per person was 30% higher than it was last year. For anyone old enough to remember the days of the shah, that statistic means something. Stationary in an evening traffic jam behind the wheel of his Paykan, Bahman, who works by day for the power ministry, says: “Before the revolution, I used to go out for a beer in a café after work. Now, in order to make ends meet, I have to start another job driving this lousy taxi.”

What has gone wrong with the economy? Not recent macroeconomic policy, which received a generally favourable report from the IMF last September, despite 17% inflation and a growing fiscal deficit. Whatever the improvement, though, it has not made up for the upheavals of the revolution, years of subsequent mismanagement born of dogma and incompetence, the long, destructive war with Iraq and the Khomeini-inspired population explosion. All have played their part, adding to two enduring problems: Iran's continuing dependence on oil and gas despite many efforts to diversify, and the dominance of the state throughout the economy. Not surprisingly, politics lies behind both.

Iran has nearly 10% of the world's known oil reserves and more gas than any country but Russia. It said that at the end of last year it was producing about 3.4m barrels a day, slightly more than its OPEC quota of 3.2m, but well below its claimed capacity of 4.1m. Under the latest five-year plan, it hopes to produce 5m b/d by 2005, but, at least according to the consultancy Atieh Bahar, it is unlikely to succeed. Even if it does, it will still be well behind the 6m b/d pumped in the mid-1970s.

Some oil lies beneath the Caspian Sea, but most is in the west, in Khuzestan province. There it is cheap to extract—$1-2 a barrel onshore—though the fields are old, little exploration has taken place for 30 years and the installations have suffered from war damage and lack of investment. About 250,000 b/d of production is lost each year through the exhaustion and depletion of old wells.

However big its reserves, Iran is not staking its future on oil, which has proved a fickle friend, bringing plenty when its price rises but poverty when it falls. The vulnerability has proven hard to shake off. The oil industry no longer accounts for the 30-40% of GDP that it did 30 years ago, but it still provides 10-20% and, more seriously, 40-50% of government revenue and 80% of export earnings. The country has prudently built up a fund to help cushion it against oil-price falls, but it must nonetheless dread any lasting price collapse.

Iran could get better value from its oil if it wasted less of it. Just as it squanders water (consumption per person is twice the world average), so it squanders energy. Iran uses three times as much energy per person as Malaysia, ten times as much as China and 16 times as much as India. No wonder: the stuff comes cheap. Petrol, most of which is imported, can be bought for six cents a litre, even though to buy it and transport it to the point of sale costs about 30 cents. In general, Iranian petrol prices are about 10% of world prices, and have been rising more slowly than inflation. The government fears a revolt if energy subsidies—which are variously put at 12-18% of GDP—were abolished, though a World Bank study last year said that, if transferred back to households in equal amounts, the incomes of the poorest people in towns would double and those of the poorest in the countryside would treble. As it is, some say Iran will become a net importer of oil (only petrol is imported at present) within a decade.

The government, however, is less eager to boost the production of oil than of gas. Gas must be injected into some oil wells to keep them in production. The pressure must be maintained in semi-depleted wells, partly to make extraction easier from the reservoirs, partly to prevent collapse, partly to reduce the amount of salt water that inevitably bubbles up along with the petroleum. There is also optimistic talk of using compressed natural gas in cars. But the main reason to make gas a priority is that, although Iran has South Pars, the biggest gas field in the world, it shares it with Qatar, and Qatar is pumping the stuff out as fast as it can.

Iran wants to be producing 700m cubic metres of gas a day by 2007, but at present manages only 300m. The reason is largely political. No one except those at the very top likes to take a decision. So approval for anything tends to be drawn out, and approval for something involving foreigners, as oil and gas production does, is likely to pit reformers against conservatives, making it even more delicate and controversial.

The central awkwardness lies in the constitution, which forbids foreigners to own concessions, operate oil projects or enter into production-sharing agreements. After some puzzling, Iran found a way round this problem through a “buy-back” system, whereby foreign companies finance and develop a project, but are reimbursed in dollars, not oil. Foreign oil companies do not like the system, because it gives them no long-term stake. They also complain of the shortage of qualified Iranians and the expense of employing expatriates, at ten times the cost of a local. Nor do they like the hard bargaining, delays and indecision; they would much prefer either a play-by-the-book democracy or a my-word-is-law dictatorship. But they reckon Iran is too big a source of oil and gas to ignore. Almost all the big oil companies, even Exxon, have a presence in Iran, and TotalFinaElf, the only company to have gone through a complete buy-back cycle, seems well enough pleased with it.

For Iran, though, oil and gas are problematic. As it wastefully devours oil, for which the market is generally a seller's one, the country looks ever more nervously at its plentiful gas, which must be sold in a buyer's market. Western Europe would like another source of supply besides North Africa (limited life expectancy) and Russia (too fragile a basket to hold all the eggs). But Iran is some way from Europe and the stuff must be transported. Turkey said it would take 10 billion cubic metres of Iranian gas a year by pipeline, but its eyes seem to have been bigger than its stomach; supplies have been suspended. East Asia would be a fine market, but how would the gas be delivered? India, another fancied market, is much closer, but the idea of a pipeline through Pakistan produces only a mirthless laugh.

So does salvation lie in those parts of the economy outside oil and gas? It could do, if Mr Khatami's reform proposals, embodied in the 2000-05 five-year plan, were ever allowed to bear fruit. Much of the plan is devoted to promoting the rule of law, non-oil exports, privatisation and deregulation. But the president has little to show for his efforts, because most of these reforms would strike at the power of the clerics, or of their commercial allies, the bazaaris.

About 60% of the economy is directly controlled by the state; another 10-20% is in the hands of five semi-governmental foundations

The big difficulty he confronts is that about 60% of the economy is directly controlled and centrally planned by the state (the constitution actually implies it should be much more) and another 10-20% is in the hands of five semi-governmental foundations. These bonyads were set up after the revolution chiefly to administer property confiscated by the state, supposedly for charitable purposes. They control much of the non-oil economy, exploiting their preferential access to domestic credit, foreign exchange, licences and contracts. They are accountable to no one except the supreme leader, and subject to no public scrutiny. The incoming head of the biggest, the Foundation for the Dispossessed and War Disabled, said in 1999 that he would get rid of 250 of its 350 mostly loss-making companies. But though their sale is central to Mr Khatami's plans to privatise 538 enterprises, few if any of the bonyads' companies have in fact been sold.

Progress on other fronts has been equally slow. Iran now has one genuinely private bank, Karafarin Bank, with three branches in Tehran, one in Isfahan and three others under construction. It claims to be more efficient than the state banks, and on lending rates beats them by 3-3½ basis points. Three other banks are nominally private, though in fact linked to state-owned enterprises or parastatals.

The car industry is stirring, too, and Iranian-made Peugeots, Kias and a home-grown model, the X7, are now joining the traffic jams. But locals speak scathingly of domestically produced cars; even makers with good reputations abroad apparently build sub-standard vehicles in Iran. Moreover, they sell at vastly inflated prices. An Iranian-made Kia Pride can be bought in Syria for less than half its price of roughly $8,000 in Iran and, being an export model, will be better built than the local version.

Iran claims to want foreigners. Last year, after much wrangling, it eventually passed a foreign-investment law to attract them. Most analysts say this is a step forward, but still leaves much to be desired. Foreigners dislike the thicket of taxes through which they must fight, the high prices they must pay (hotels routinely charge foreigners two or three times as much as locals), the fact that it is virtually impossible to lay off labour and the endless haggling and quibbling. Even so, some foreigners are doing business, lured by the size of Iran's market, its educated workforce and its potential as an export base for the Middle East.

There would be more of them if Iranians themselves were investing, but they are not. The various free-trade and special economic zones that have been set up have attracted some money, but so far the trade zones, at least, have been used more for importing than for exporting. Iran's exchange rate, set by a managed float, makes exporting difficult. On the other hand, the average tariff of nearly 30% should encourage production for the home market, but Iranians seem to prefer property or commerce to industry. Certainly, there is plenty of money, some local, some from émigré Iranians, to finance the building boom in northern Tehran. But the suspicion lingers that Iranians prefer the long-practised arts of the bazaar—importing, exporting, trading—to the dirty world of making things. Moreover, the system actually encourages illegal trading: smuggling out across leaky borders commodities, notably petrol, that are subsidised in Iran, and bringing back goods that can be legally made at home only by going through an endless round of bribes and permits.

Iranian businessmen's attitude is “wait and see” while a distorted economy labours on. The central bank, the main engine of economic reform, does its best. Last year it unified Iran's multiple foreign-exchange rates, and successfully launched a euro625m bond. Soon the World Bank may resume lending, despite American opposition. But the political deadlock means economic deadlock too. The clerics dare not abandon their control over the state enterprises and bonyads. They dare not antagonise their supporters in the bazaars with a programme of privatisation, deregulation and freer trade. Nor do they dare risk a mass uprising by reforming the subsidy system, which affects not just energy (at least $13 billion a year) but wheat, rice, cooking oil and sugar too (at least another $1.6 billion). Whatever the intention, the subsidy system helps the better-off much more than the poor. Iran cries out for a proper welfare system, directed at those most in need: 15% of the population subsist below the poverty line, and average living standards are no higher than 20 years ago. But no real change is in prospect.

Meanwhile, it may be asked, who will provide the jobs for the burgeoning number of young people? The oil, gas and petrochemicals sector employs only 120,000 workers, and is hardly going to mop up the job-seekers. The government has recently started to hand subsidies to employers to take on extra staff. But with job-creation lagging behind the increase in the labour force—1.8m people turn 18 each year—and registered unemployment of 16% (probably five points below the true figure), the number of people out of work can only rise from its current 3.2m, perhaps to an explosive 7m or 8m in the next few years.

Stuck on the axis of evil?
 

Dogma, not logic, determines most of Iran's foreign policy

HOW different would Iran be if it were not a pariah state, branded by George Bush as part of the “axis of evil” and subject to American sanctions and more general misgivings, if not ostracism? Very different, it is tempting to think. Since terror, weapons of mass destruction and rabid anti-Americanism seem to be innate characteristics of the regime, Iran would by definition be rid of its autocratic government and therefore a respectable member of the family of nations, and probably a democratic and prosperous one at that.

So how can it get from here to there? First, it must persuade the outside world, America in particular, that it is not trying to go nuclear. Iran makes no secret of its missile programme, which now enables it to fire a rocket, the Shahab-3, over a distance of 1,300km (800 miles). It has other rockets, too, and last September said it had successfully tested a new one, the Fateh-110, though no details of its range or payload were given. There seems no reason to doubt that the rocket programme is primarily defensive, though it also serves to deter—American forces in the region would be in range—and to bolster Iran's image as an Islamic power. The question is, however, whether it could be used to deliver nuclear weapons.

Good gracious, no, says Iran. Yes, the Russians are building it a nuclear power station near Bushehr, but Iran has signed all the main arms-control treaties and can point to the International Atomic Energy Agency's declaration that it knows of no Iranian breach of the Nuclear Non-Proliferation Treaty. Yet suspicions persist. They are based on spying, on patterns of procurement and research, and also on logic: why should Iran, so rich in oil and gas, want nuclear power, with all its problems of expense and toxic waste? And so far from wanting to scale down nuclear operations in the light of new gas discoveries, the Iranians seem to be scaling them up: three weeks ago Russia and Iran agreed to study the construction of a second power station, and two more may follow.

Nuclear weapons may well seem appealing to Iran. Several countries close to it—Russia, India, Pakistan, Israel—have, or are assumed to have, nukes. Iraq, which used chemical weapons against Iran less than 20 years ago, is said also to be developing nuclear weapons. Even Russia, long considered a friend and strategic partner, suddenly looked a bit less stalwart last year when it palled up with NATO and said it would hold military exercises in the Caspian. And Iran feels ever more nervous about America, a force in the region, and one that often uses its missiles there. Moreover, America has installed a friendly government in Afghanistan, and may do the same in another neighbour, Iraq. To make matters worse, it describes Iran as evil and conducts war games (Millennium Challenge 2002) based on an invasion of it.

On the other hand, as Shahram Chubin, in a study for the International Institute for Strategic Studies (IISS), points out, acquiring nuclear weapons “would put Iran into a different league of risk and reprisal, and this would not necessarily leave it with enhanced security.” Israel's prime minister, Ariel Sharon, has called for Iran to be the next target as soon as America has dealt with Iraq—and it was Israel, it may be remembered, that took pre-emptive action against Iraq's nuclear power station at Osirak in 1981. Last month satellite photographs confirmed that Iran was developing other nuclear plants, hitherto undisclosed, and the Iranians said they were speeding up work at Bushehr. Fortunately, even the Americans think Iran is years away from a bomb.

That does not mean Iran is off the hook, though. America still regards it as the most active state sponsor of international terrorism. The days may be gone when Iran sent its agents round the world, allegedly to blow up Jews in Buenos Aires, probably to sabotage Arabs in Bahrain, and certainly to murder its domestic critics in Berlin restaurants. But they are not gone when it comes to the Arab-Israeli dispute. Iran still supports Hizbullah in Lebanon, and it is accused of helping the Palestinian groups Hamas and Islamic Jihad. Though it is not clear that it has armed or trained these organisations, it seems to have given them money. There is certainly no doubt that it provides moral support in their rejection of the peace process. Iran regards the Palestinians' fight, whatever their methods, to be a struggle for national liberation. As for Hizbullah, as Mr Chubin of the IISS study says, it constitutes a validation of Iran's model: the “party of God” is both a Shia parliamentary force in Lebanon and a militant group that helped to expel the Israelis in 2000. And hatred of Israel is utterly central to the ideology of the Iranian regime.

Or rather the ideology of part of the regime. The hardliners are certainly as fierce as ever. Clerics rant at Friday prayers, the weekly religious-cum-political propaganda session, when the revolutionary spine is stiffened by the supreme leader's representatives; the cry of “Death to Israel!” goes up as often as its counterpart, “Death to America!” One of the all-but-official bonyads takes pride in sending money to Palestinian “martyrs”. And other help is probably given clandestinely, for example, by sending arms to militant Palestinians on boats like the Karine-A, captured by Israel a year ago.

But whereas the hardline view is that no two-state solution to the Palestinian problem is possible, meaning Israel must be destroyed, Mr Khatami has sometimes said Iran would be content with any settlement satisfactory to the parties themselves. In other words, in foreign affairs, as in all others, Iran has two policies. Moreover, as in all others, the reformist policy is often sabotaged by the hardliners. Hence, no doubt, the Karine-A episode—which a majority of the majlis wanted investigated, to learn whether it had really benefited Iran's national interest.

So despite Mr Khatami's efforts, Iran's national security policy—which is determined by a small, albeit changing, group under the supreme leader—has altered little since he came to office; but the president can at least claim some successes in foreign policy. An early one was to repair relations with the Gulf states, including Saudi Arabia, which had been poisoned by suspicion and subversion. Another was to dissociate Iran's government from the fatwa against Salman Rushdie, a British writer whose book “The Satanic Verses” had infuriated Khomeini. That, and the sacking of Ali Fallahian, the Iranian intelligence minister who had been named by a German court in the Berlin bombing case, led to an improvement in relations with Britain and Germany, and thus the rest of the European Union.

Whereas America has steadfastly turned its back on Iran, the EU has started to talk about a trade and co-operation agreement

The new atmosphere has enabled Mr Khatami to cultivate the EU, which he has done with some success. Whereas America has steadfastly turned its back on Iran, the EU—partly seizing the commercial opportunity, partly playing soft cop to America's hard cop—has started to talk to Iran about a trade and co-operation agreement. Its original “critical” dialogue, with conditions about terror, human rights and suchlike attached, has become a “comprehensive” one. Political issues have not been forgotten, say the Europeans; on the contrary, meetings to discuss them began in Brussels last October, and the EU is now taking the credit for the possible suspension of the Iranian practice of stoning convicted adulterers. For his part, Mr Khatami is keenly promoting his “dialogue of civilisations”, a formula for improving foreign relations without provoking the hardliners. It has brought him several visits to Europe—to France, Germany, Italy and Spain—and several bilateral trade agreements, though few involve much money.

Europe may be counted a feather in Mr Khatami's cap, but relations with America are a no-go area for him. They are the very stuff of revolutionary dogma and, as such, reserved for the supreme leader. Yet here, too, signs of change were afoot, at least until Mr Bush's axis-of-evil speech a year ago.

The agent of change was Afghanistan. Iran hated the Taliban, a bunch of Sunni thugs who sent 2m refugees over the border, turned off its water supply (the Hirmand river), persecuted Shias as heretics and slaughtered Iranian diplomats in Mazar-e-Sharif. Iran, or at least reformist Iranians, did not even care for Afghanistan's guest of honour, Osama bin Laden, whose brand of terrorism the reformists now realised served only to isolate their country; it had anyway lost much of its appeal for them since it had been used so horribly against likeminded dissidents at home. Accordingly, Iran was ready to play a fairly helpful role when America decided to deal with the Taliban. It let America send humanitarian aid through Iran to Afghanistan, and said it was ready to rescue American troops or pilots in trouble on Iranian territory. It pledged $567m over five years to assist in the rebuilding of Afghanistan, and helped dissuade its former client, Burhanuddin Rabbani, from trying to become president, thus leaving the way open to American-backed Hamid Karzai. Revolutionary Guards even served alongside the Northern Alliance—as did Americans.

In return for this co-operation, Iran was promoted to the axis of evil. Why? America's new hostility to terrorism of any kind played a part. So, perhaps, did the claim that Iran had helped al-Qaeda members to flee Afghanistan via Iran. It denies that charge, claiming that it arrested over 250 al-Qaeda suspects (some were sent to Saudi Arabia), though it confirms that last year it deported some 20 people—one of whom turned out to be a son of Osama bin Laden—to Pakistan. By then, though, it had taken serious umbrage at Mr Bush's words.

Mr Bush shows no signs of repentance. On the contrary, the United States has renewed the two American measures that impose trade sanctions on Iran (neither does terrible damage) and, more significantly, the administration has stopped making any favourable references to the reformists. Instead, spokesmen such as Zalmay Khalilzad, a special assistant to Mr Bush on Iranian affairs, take pains to criticise the unelected, as distinct from the elected, members of the regime.

But it is no secret that several members of the administration have, like many Iranian students, given up hope that the reformists can deliver real change. In a statement on July 12th, Mr Bush directed his appeal to the “people”, not the government, and in August Mr Khalilzad elaborated a “dual-track policy based on moral clarity” which spelled out what was “destructive and unacceptable about Iran's behaviour” while promising “partnership and support for the Iranian people”. Three months later, asked what he thought about the student protests on the streets of most large Iranian cities, Richard Armitage, the deputy secretary of state, was saying it again: “Well, what's important is not what I believe, nor, for that matter, what the United States believes. What's important is what the people of Iran believe.”

Meanwhile, his colleagues were telling the world about Iran's evil side. One aspect of that is its declared interest in technology for handling the nuclear fuel cycle—from the making of the stuff to its management when spent—which may lead on to the production of weapons-grade plutonium. Another worry was the statement last April by the Vienna organisation that administers the Comprehensive Test Ban Treaty that Iran had ceased to co-operate with it. To make matters worse, says Mr Khalilzad, Iran has other nasty weapons; it has made blister, blood and choking agents. And it is pointed out that Mr Khatami himself seems keen to rearm; after a trip to Moscow in 2001 he signed an arms deal with the Russians worth $7 billion.

Does all this worry the Iranian regime? The unchanging vehemence of official diatribes suggests no governmental wish to be either more or less friendly. Though some moderates, such as Behzad Nabavi, the deputy speaker of parliament, are conciliatory, no one dares to be judged pro-American. Some clerics may reckon that the hardening of American opinion serves to show the failure of the reformists' policies, and thus strengthens their position, at least for a while. And many hardliners seem to believe, perhaps correctly, that Iran is indeed under threat. They think America has designs on its oil, and will act against Iran once it has disposed of Saddam Hussein. Hamidreza Taraqqi, a conservative theoretician, says better relations are blocked by huge differences on ideological, cultural and political matters.

In the longer term, though, the conservatives cannot just take pleasure at the reformists' discomfiture. The opinion polls suggest that most Iranians like America. After September 11th 2001, some Arabs could scarcely conceal their delight, or at least their Schadenfreude; by contrast, hundreds of Iranians took part in a spontaneous candle-lit demonstration of solidarity in Tehran. America is host to about 1m Iranian émigrés, whose families back home do not understand why they should, as an article of faith, hate the Great Satan. Iran can, apparently, hold talks with Iraq, an enemy that has slaughtered Iranians on a vast scale, but it cannot with the United States, which, 50 years after the British-and-American-promoted coup against the government of Muhammad Mosaddeq, is an increasingly unconvincing bogey. Equally awkward is the prospect of an American-led attack on Iraq. It would bring about an end that is heartily desired in Iran by mullah and layman alike. Yet the very idea is reviled as an anathema.

Some people think this state of affairs cannot last. Saeed Laylaz, a prominent reformer who was once an ally of ex-President Rafsanjani, considers a resumption of relations with America an inevitability. The regime is essentially flexible, he says, though it knows that in times of political turbulence it is dangerous to make radical U-turns: that was one lesson from the Iran-contra affair, when Mr Rafsanjani's government was revealed to be doing business with the Americans. Even so, the mutual interest in seeing a new regime in Iraq presents intriguing possibilities. Some reports indicate that Syria voted for the resolution against Iraq in the UN Security Council last November only after it had received Iran's blessing. An extra concession may come, it is suggested, with Iran's agreement to help America retrieve airmen from its territory in the event of a war against Iraq, just as it did in Afghanistan. But, this time, Iran will be looking for a reward, not a punishment. If it gets even a small one, the makings of something bigger could indeed lie ahead.

A secular democracy-in-waiting
 

The certainties and uncertainties about the future

WHERE will it all end? In a secular democracy, it seems safe to predict, though it may be called something else. But how and when are harder questions.

It is still just possible that the current power struggle could lead to a compromise, in which the conservatives let Mr Khatami have his two bills, somewhat watered down. The contradictions inherent in the constitution would remain largely intact, the central question of where sovereignty resides would stay undecided, and the final showdown left for another day.

Religion in its right place, the background

More likely, the conservatives, perhaps through a miscalculation by hardliners, could dig in their heels, leaving Mr Khatami little choice but to resign, perhaps taking a large part of the majlis with him. Handled skilfully by Mr Khamenei—who was chosen by Khomeini for his political, not his religious, skills—such a crisis need not be the end of the system. But, mishandled, it could lead to another student uprising, with unpredictable consequences. The outcome then might be a conservative coup, brutal repression or perhaps some kind of victory for the reformists.

What would such a victory consist of? Not, alas, an immediate secular state. Mr Khatami, after all, though he is undoubtedly sincere in describing himself as a democrat, is a confused one: his call for a “religious democracy” is really an expression of belief in the system, which he hopes to save by reform. Some of his fellow-reformers are secularists, but many of the dissident clerics linked to Ayatollah Montazeri, who is often seen as the biggest threat to Mr Khamenei, are hostile not so much to the supreme-leader system itself as to the man who currently holds the job.

One large imponderable is beyond any Iranian's control. If Iraq gets a new leader and a secular, democratic government, Iran will feel the consequences. Iraq is the only other country with a Shia majority, long persecuted by Saddam Hussein. With someone else in power, many of the Iraqi ayatollahs and lesser clerics who long ago decamped to Qom might return to Iraq's holier cities of Karbala and Najaf. Albeit diminished, Qom would probably survive as a religious centre. But a tolerant, Shia-dominated democracy next door—not, admittedly, an altogether likely prospect—could pose an awkward competitor for the concept of the velayat-e faqih in Iran.

Other external forces—America is the most likely agent—could bring even more rapid change to Iran. Some hardliners fear that Mr Bush, having got rid of Mr Hussein, will keep grinding his axis. One possibility would be a military attack—not, presumably, an invasion to bring about “regime change” in Iran, but perhaps a strike against the Bushehr reactor. An alternative would be just stronger diplomatic and rhetorical isolation of Iran. As it is, it will be difficult for the EU to continue its trade and other relations if the regime cracks down much harder on its dissidents.

A fall in the price of oil, perhaps after the removal of Mr Hussein, is yet another possibility. A low price would wreak havoc with Iran's budget and add to popular discontent; any lower than $18 a barrel is sometimes said to spell serious trouble.

If outside events are uncertain, so are many inside factors. Iranians are in no mood for another violent upheaval, it is often suggested; instead of turning to politics, they vent their frustrations through the arts, which are flourishing, and wait for evolutionary change. Yet riots, apparently unpolitical, often flare up, for example in Tehran when Iran was beaten in qualifying matches for the soccer World Cup in 2001. More recently, a proposed division of the north-eastern province of Khorasan had to be postponed because the previous attempt had led to violence. Khuzestan province saw riots three weeks ago after a crackdown on shops selling illegal videos.

Equally doubtful is the resolve, or effectiveness, of many participants in the struggle. Some students are doughty, but they are few in number and their leaders have been locked up and silenced. Members of the majlis, too, show courage by passing reformist bills and resolutions in support of dissidents. But how many are really ready to give up the perks of office? As for the reformist leaders, they are far from unified: the political liberals are not necessarily economic liberals, and factional infighting is commonplace. Could they ever agree on change? On the other hand, the conservatives may wonder whether they can safely rely on the loyalty of their forces to quell sedition. The hated basij are often called in to do the work of thugs, and the accusation is frequently heard that many of the bully-boys are really Arabs—widely disliked in Iran—imported from Palestine or Lebanon.

In Iran, however, the certainties are more telling than the uncertainties. One is the economic failure of the regime. “This revolution is not just about the price of watermelons,” Khomeini once said, but, insofar as it is, it has failed. It has failed in other ways, too: the polling firm Ayandeh last year found 94% of respondents saying the country was in urgent need of reform. Some 71% backed a referendum to choose a new form of government, and 63% were looking for “fundamental change”.

Too many Iranians feel betrayed by the revolution that so many once supported

So far, Iranians have been given little more than a relaxation of some of the rules governing the way they must live their daily lives. This is reminiscent of the changes to “petty apartheid” that were promoted in the 1970s by verligte (enlightened) white South Africans as a way of appeasing the black masses. Unless vastly amplified, the reformists' relaxations will fail just as surely. Too many Iranians feel betrayed by the revolution that so many once supported. Now they want to be more like other people, whom they increasingly know about. The country's first constitution, it is said, came in with the telegraph a century ago, and Khomeini's revolution with the audio cassette. Now the satellite dish and the internet—the 1.75m said to have access today are expected to become 20m by 2007—are bringing the world, with its secular and democratic as well as Westoxificated ideas, into Iranians' homes. To be sure, many Iranians are religious, but no more than 1-1½% attend Friday prayers, and lots of those who do are dragooned into being there. Three years ago one cleric said that 73% of Iranians did not even say their daily prayers.

The biggest threat to the regime, though, may come from the combination of demography and unemployment. Unless jobs can be found fast, discontent is sure to rise. Yet jobs will be difficult to create in an economy that is largely run to serve the narrow interests of those in power—many of them rustic clerics ill-suited to solving modern problems—and their allies in the bazaar. Moreover, for all the intellectuals' interest in ideas, it does not seem to extend to economics.

Adding to their weakness is an Achilles heel of the mullahs' own making: the experience of democracy, however frustrated, that Iranians have gained since 1979. This has given them a taste for the ballot-box that will be hard to remove—and, incidentally, an electoral record without rival in the Middle East. No other people there has so often cast its votes in free elections for reformers. Even more strangely, no other Middle Eastern people is so pro-American. Since Iran's national interests, viewed objectively rather than ideologically, are also in tune with America's, a change must one day be in order.
 

It is tempting to compare the unravelling of Iran's revolution with changes of regime elsewhere. Are the conservatives like Soviet Communists, cynically clinging to power without much belief in their bankrupt ideology? Are the reformists like French Thermidorians, determined to end a reign of terror? Is Mr Khamenei a Brezhnev, a Ceausescu, a Honecker or a Jaruzelski? Is Mr Khatami a Gorbachev, a Salinas, a de Klerk or a Cory Aquino? Whatever the similarities, the parallels are inexact, so the answer to such questions is probably no.

What is happening in Iran is above all an Iranian drama, with its roots in the 19th century and beyond. The 1979 revolution is often explained as a reaction to the efforts of an autocratic, corrupt and impatient shah who, when he tried to modernise his country, did it too quickly, just as Mossadeq, in a different, nationalist way, had been in too much of a hurry in the early 1950s. These events were undoubtedly episodes in Iran's long struggle between despotism and modernity, a struggle that goes back at least two centuries to the Iranians' defeat by Russia.

Iran has indeed suffered much at the hands of foreigners over the centuries, and many Iranians still like to blame outsiders for all the failings of their country. Yet their destiny, though it may be affected by outside events, lies chiefly in their own hands. The 1979 revolution marked a climax to the efforts of the Shia clergy, who had been arrogating powers to themselves over decades. The revolution has failed, and is irreparable. The time has come for the clergy to withdraw, as many of them realise, for Islam's sake as much as for their country's.

In time, Iran may well return to the 1906 constitution, its first, as the basis for a new one. The people will still be Muslim, by both religion and culture, so room may be found for some religious institution to scrutinise democratically passed laws; but with luck it will be only advisory. In the meantime, though, the power struggle must be played out. It may be long and nasty, or short and sweet. That uncertainty is, above all, for Iranians to settle.