Thousands of years in ten minutes.
With growing concerns of a potential escalation in the Israel-Gaza conflict, this week’s Not in Dispatches takes a deep dive on Iran, its foreign policy and business environment.
Iran is one of the world’s most complex countries. Careers are spent trying to understand it. Its rich culture, complicated history, diverse society and layered politics defy summary.
But we’re going to try anyway.
Iran is an anomaly in the Middle East. Iranians are mostly Persians, not Arabs. They mostly speak Farsi, not Arabic. And Iran, as a political entity, has existed for thousands of years in different forms, unlike most of its neighbours whose borders are largely the imaginings of former colonial empires.
Persian exceptionalism – rooted in pride as an ancient civilisation – has long driven Iran. Henry Kissinger once wrote that “for millennia, Iranians have had a sense of serene self-confidence and cultural superiority”. Iranians tend to look down, quite literally from their impenetrable plateau, on what they view as their unruly Semite (Jewish and Arabic) neighbours.
Even the name “Iran” speaks to this sense of superiority.
In 1935, enamoured by Nazi thought, Reza Shah renamed Persia after the Sanskrit phrase “Airyanem Vaejah”, or “Home of the Aryans”. The 1979 revolution, originally about deposing the shah, piggybacked off efforts to reclaim a unique Persian identity. But once Ayatollah Khomeini returned from Paris (perhaps imbued with the city’s Jacobin legacy), what ultimately emerged was something that would have been once unthinkable to the modish Tehran of the 1960s: a theocratic state built on a hardline interpretation of Shiism.
Forty years on, Iran remains a theocracy and has since styled itself as “the Islamic Republic”. Khomeini’s successor, Ayatollah Khamenei, is not just a domestic political figure but “the Supreme Leader of the Islamic Revolution”, supposedly with universal spiritual power transcending national borders. Iran’s rulers are still the religious mullahs of the revolution with millennialist views.
But while they once wanted to export the revolution, today they are more nationalist than imperialist in spirit.
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Independence, isolation and isotopes.
Animated by Persian exceptionalism, informed by revolutionary Islam, and run by religious zealots, Iran nevertheless has a consistent foreign policy founded on strategic interests and prosecuted by deft statecraft. While common, it is a mistake to see Iran as run by madmen.
Above all, Iran strives for an independent foreign policy. It wants to control what it sees as the chaos surrounding it.
Tehran is haunted by the Iran-Iraq war (1980-88), one of the most destructive conflicts of the late 20th century, which killed 1-2 million and saw Saddam Hussein (with the West’s help) take almost a quarter of the country. Iran opposes what it sees as American hegemony. And the regime wants to protect its borders, avoid internal strife, and resist foreign interference.
Many Western commentators think that Iran just wants to stir trouble.
This is wrong. As soon as Iran sees chaos, it moves to lock it down. Funding Hezbollah and Shia militia proxies is not about inciting conflict but extended deterrence: moving the frontline away from its borders. But whether “offensive” or “defensive”, such an approach creates unavoidable tensions with its neighbours (mostly Sunni-majority states), Israel and the West.
Iranian deterrence relies largely on “asymmetric” means.
Iran may have formidable mountain borders, but it also has only a small air force, a limited navy, and an isolated economy incapable of developing sophisticated weaponry. Instead, Iran deters by building missiles and drones, funding and arming proxies (including Hamas), conducting assassinations (including in the US), and threatening to develop nuclear weapons.
Sometimes this capability serves to embarrass Iran (as in January 2020, when it accidentally shot down a passenger jet heading to Kyiv). But sometimes it is terribly effective (as in September 2019, when it effectively shut down 5.7 million barrels of daily oil refining capacity by attacking Saudi Arabia’s Abqaiq and Khurais facilities).
On its weapons of mass destruction, Iran arguably has a greater interest in remaining at the threshold of nuclear capability than actually developing the bomb, which would be expensive and could trigger strikes by Israel and an arms race in the region. But this is nonetheless a real risk with high stakes for all – a major change in the regional balance of power, a blow to international law, and another nail in the coffin of nuclear non-proliferation.
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Iran’s interests in the Israel-Palestine conflict are real, but sometimes exaggerated.
Iran’s rhetoric is strong both against Israel (it has professed a desire to “wipe it off the map”) and for Palestine (it labels the ayatollah “the Leader of the Islamic Ummah and Oppressed People”). But Iran is often more bark than bite.
Iran largely uses the conflict to distract from its own domestic challenges and mostly cares about Palestine’s fate to the extent it affects its own security. Iran would only “do something” in response to Israel’s attacks on Gaza if they threatened Hamas’s complete destruction. And beyond a handful of proxies in Syria and Yemen, it would most likely only act through Hezbollah, which it can influence but does not control.
Hezbollah, based in Lebanon, is a grass-roots movement with its own interests and contacts with Iran only at the elite level. Even then, Iran would have to balance against the risk of an Israeli attack or the Americans getting involved, both disastrous outcomes for the regime.
And as for Hamas, while we may never know, Iran probably armed the Palestinian group but did likely not direct it on 7 October. More likely, Hamas leaders were planning the attack for a long time and then surprised themselves with their success in being able to get past the Israeli Defense Force so easily. Hamas could become the victim of its success.
Iran’s chief competitor in the region is not Israel (which was an ally before the Islamic Revolution), but Saudi Arabia. Both countries see themselves as natural leaders of the Islamic world but from different branches of the faith. Iran did have a strategic interest in the Israeli-Saudi rapprochement being scuppered. But their animosity runs deeper.
Many Saudis view the Iranians as not to be trusted. And many Iranians view the Saudis as short-sighted (with their oil wealth and US partnership) and unworthy as guardians of Mecca and Medina. All of which makes them naturally suspicious of, and competitive with, each other.
Iran’s relations with the great powers are also complex.
Iran and the US see each other as enemies.
The US views Iran as fundamentally challenging the (historically Western) regional order. There also remains a deep animus in Washington – thanks to the Beirut US embassy bombing in 1983 and the Iran hostage crisis in 1979 – and almost no relationship to speak of. Recent negotiations over the release of prisoners took place with diplomats sitting in different rooms while Qatari officials walked between to pass messages.
No normalisation of relations is feasible so long as the revolutionary regime remains in power. Antithetical worldviews, strategic misalignment and bad blood make détente an option only for the next generation.
Iran has better relations with Russia and China.
But both are transactional affairs. Iran distrusts Russia, which it views as a historic foe. After US sanctions were imposed, China became a lifeline, but many Iranians believed Beijing took advantage of them. And many in the ruling elite, even if they view the United States as the key geopolitical foe, look up to the West as a fellow “Aryan” civilisation.
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Fundamentals vs fundamentalists.
Iran’s key foreign policy drivers – Persian exceptionalism, a fierce insistence on independence and minimising the risk of violence on its frontiers – suggest Iran is likely to be uninterested in escalating the Israel-Palestine conflict, sowing chaos through its proxies or exporting terrorism (largely, in any case, a Sunni phenomenon). But since Iran only influences, rather than controls, Hamas and Hezbollah, escalation cannot be ruled out.
Iran’s geopolitical posture can affect oil markets. Iran itself is the 8th largest oil producer, representing 4% of total production. But its output (3.6 million barrels per day) is much less than it was pre-revolution (7 million barrels per day). And starved of investment, cut off by sanctions, and with crumbling infrastructure and underdeveloped oil fields, Iran may have missed the boat to become a major player during the oil boom of the past sixty years.
Iran does, however, control the Strait of Hormuz, through which 30% of the world’s oil flows. This is Iran’s trump card and part of its deterrence strategy. In the case of an attack, Iran could shut the Strait and take everyone else down with them. But markets often react too strongly to any mention of Iran, which would only do this in extreme circumstances.
For now, Iran’s economy offers little to foreign businesses.
Iran’s consumers mostly remain poor. Its mountainous terrain hampers inter-connectedness (though Moscow and Delhi are trying to develop a Caspian-Indian Ocean corridor). Years of high inflation have caused people to spend fast and store in gold and foreign currency. Severe sanctions have decimated Iran’s oil exports, cut off investments and caused wild currency fluctuations.
Some foreign businesses have capitalised on Iran’s disconnection (Germany’s Rocket Internet, for instance, succeeded in setting up a copycat of Uber), but don’t expect an easy path. Getting money in and out is hard. Relationships matter more than contracts. Businesses must be comfortable operating in an economy where the government is omnipresent and will often, in some way, want to be involved.
The next few weeks will see a lot more commentary on Iran, what drives it, and what it could do to worsen the Israel-Hamas war. There will also be more commentary as Iran’s role in Russia’s war in Ukraine takes shape and as the Islamic Revolutionary Guard Corps and other factions gear up for an expected power-struggle as Ayatollah Khamenei enters his 85th year.
One thing to remember is that Iran is not Hamas and Hamas is not Iran. Iran has its own strategic drivers and interests. Moreover, it is as fractious and constrained as any other Middle Eastern actor.
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Michael, Cameron, Damien, Yuen Yi, Andrea, and Kim.