The Islamic Republic of Iran

Political and Economic Changes

Presentation Outline

IV. Political and Economic Changesa)Iranian Revolutionb)Cultural Revolutionc) 1989 amendmentsd)Economic Policy under the Shahe)Economic Policy since 1979

IV. a) Iranian RevolutionDiscontent with the Shah’s regime led to the collapse of his regime. A power vacuum was created. Who would lead the new Iran? It was clear from the picture who would?

• In 1979, students, communists, members of the middles classes, and Muslim clerics all joined together to demonstrate in the street and push the Shah out of Iran

Members of Iran’s Communist Party join forces with radical Muslims to demonstrate on the streets of Tehran.

March, 1979 Referendum• On March 30, 1979

Khomeini’s provisional government held a state-wide referendum asking citizens whether they were in favor of creating an Islamic republic.

• Nearly all Iranians voted yes which lent a great deal of legitimacy to the new regime.

IV. b) Iran’s Cultural Revolution

From 1980 to 1987 Iran’s Supreme Leader Ayatollah Khomeini launched a cultural revolution to purge Iran of non-Shi’a Islamic and all Western elements

Targets of the cultural revolution included:• university students• communists• Americans and other foreigners• minorities in Iran

Cultural Revolution headquarters were established to carry out the revolution. Often slogans were written outside the headquarters' main building.

Communists, and opponents of the regime were arrested, many of whom were also tortured as well.

American embassy hostagesDuring the 1979 Revolution American embassy employees were taken hostage by Islamic student radicals. They were not released until 1981. This event permanently damaged relations between Iran’s new theocratic regime and the Western World.

Persecution of the Baha'iThe Bahai’ are a religious minority group in Iran. They are not Muslims but do believe in a supreme being or God. The religion was founded in Iran in the 1800s. They have been persecuted throughout their history but this had intensified after the 1979 Revolution.

• During the 1980s and early 1990s many Iranian dissidents fled Iran and emigrated to places such as the United States.

IV. c) 1989 amendments

• After Khomeini’s death in 1989 the Iranian Constitution was amended to:

• allow political parties, including reformists• give adult women the right to vote• to create the Assembly of Religious experts as

a “check” on the Supreme Leader’s power

IV. d) Economic policy under the Shah• The Shah relied heavily on oil revenues

making Iran a rentier state• More than 80% of the government’s

revenues came from oil during the 1970s• Although the Shah attempted to

modernize Iran’s society and economy, he relied on the import substitution policy which offered subsidies to Iranian businesses and protected them from foreign competition

• During the 1970s oil prices were high which poured a lot of money into the Shah’s hands. Roads, schools, and modern university were built but most of Iran’s population remained poor and the Shah continued to rely on “Black Gold” as his number 1 revenue source.

Oil prices peaked in 1979 just before the revolution.

IV. e) Economic policy since 1979 • Iran still is still a rentier state as 80% of its total

exports are from oil• Falling oil prices in the 1980s and 1990s severely

reduced government revenues leading to high levels of inflation and unemployment- both of which weakened the legitimacy of the regime during that time

• Since 2004 oil prices have been on the rise again but Iranian oil exports have been low due to sanctions triggered by Iran’s nuclear program

Huge drop in oil prices during the 1980s and 1990s

Inflation in Iran has been highest when oil prices have been low.

Even despite higher oil prices Iran’s unemployment rate has been increasing. 15% of Iranians are unemployed- a high number!

Attempts at privatization

• Because of Iran’s diplomatic isolation there has been relatively little pressure to privatize its economy.

• Iran has not undergone the type of economic liberalization that Mexico, Russia, and China have.

• Over half of Iran’s economy is still state-run

• Nevertheless, President Ahmadinejad has made it a goal to attempt to privatize Iran’s economy so that it will be less dependent on oil in the future.

• He has encouraged foreign direct investment from China and Arab states and recently privatized Iran’s biggest steel maker.

Esfahan Steel Company is one of Iran’s largest privatized companies and its largest steel producer.

Iran Telecommunications Company was also recently privatized.

• In 2010, despite widespread protest, Ahmadinejad ended government subsidies for oil and gas. This dramatically raised the price of oil and gas as Iranians had to buy petrol and heating gas at the world market rate.

• By doing this, though, the government has saved money and encouraged Iranians to be more environmentally conscious

Despite these attempts at privatization, Iran’s economy cannot said to be economically liberalized. The World Bank and International Monetary Fund (IMF) have criticized Iran for its lack of privatization and its unwillingness to fully integrate into the global economy.