Iran is at a crossroads. More than two decades after the revolution that swept Supreme Leader Ayatollah Ruhollah Khomeini into power, its people and leaders are deeply torn about the country’s future. The outcome of the struggle for the revolution’s soul will resonate across the Middle East and have major implications both strategically and for ongoing efforts to curb violence, including terrorism, in the region. The internal struggle is fluid and unstable. While the notion of a clear-cut battle pitting conservatives against reformers is appealing, it does not do justice to the reality. There are divisions within both camps and connections between them; indeed, some actors may be “conservative” on certain issues and “reformers” on others. Likewise, the idea that Iran’s rulers can be dismissed en bloc as obstacles to reform overlooks the genuine differences that exist regarding the proper role of religion, democracy, social norms, economics and foreign policy. The complexity of Iran’s domestic situation makes it all the more difficult – but also imperative – for the international community to exercise caution, properly fine-tune its actions and anticipate their impact.

Powerful conservative clerics and security officials do maintain significant control over many key centres of power, including the military, intelligence services and the judiciary, and use covert means to circumvent their rivals’ nominal control of the foreign policy apparatus. Supreme Leader Ayatollah Ali Khamenei, Ayatollah Khomeini’s successor, stands at the head of this loose coalition. Although Khamenei still wields tremendous power, it is far less than that enjoyed by Khomeini, whose authority from 1979 to 1989 was undisputed, restricted by neither constitution nor parliament. In contrast, Khamenei does not possess the personal authority or full religious credentials to neutralise the rival clerical camps. As a result, he has to work much more actively to maintain a conservative coalition that supports his over-arching role in Iranian society.

At the same time, driven by economic dissatisfaction, a thirst for greater political representation and a decline in revolutionary passion, increasing numbers of Iranians are pushing for broad social and economic change. Forms of democracy unknown to most of the Middle East region have appeared, and the once all-powerful conservative clerical elite must contend with competing actors and institutions, as well as with an increasingly young and restive population that demands wholesale political, social and economic reform. President Mohammad Khatami, a liberal cleric elected in 1997 and re-elected in 2001 by wide margins, has become the symbol of Iran’s reform movement. Pro-reform candidates have consistently won roughly 70 percent of the vote in parliamentary and local elections. As a result, a disparate group of reformers has taken over all the country’s elective offices, though conservatives still control key non-elective positions, including that of the Supreme Leader, and the principal levers of power.

The composition of the reform movement is symptomatic of its growing appeal. Today, it is a coalition of the modernist (technocrat) right and the Islamic left – a remarkable evolution from only a decade ago, when the Islamic left, which had directed the take-over of the U.S. embassy in November 1979, still advocated hard-line, radical positions. At the same time, a strong internal movement of Islamic and intellectual dissent is appealing to sections of public opinion.

The power struggle between conservatives and reformers has largely resulted in deadlock in domestic and foreign policies alike. Forced to engage in a perpetual balancing act to sustain reform momentum without provoking a backlash, and unable to control vast areas of internal and external policy, President Khatami has been unable to undertake meaningful economic reform, significantly curb the power of the security services or open up the system to allow genuine freedom of speech and political participation. Since Supreme Leader Khamenei has ultimate authority over the army and an array of other security organisations – the Revolutionary Guards, the Basij militia, Law Enforcement Forces and intelligence agencies – conservatives enjoy a de facto monopoly on coercive force.

While Khatami has improved relations with Europe and much of the Arab world, relations with the U.S. remain hostage to hostile actions of the more conservative elements of Iran’s power structure. The ambiguities of Iran’s foreign policy are especially significant with respect to the highly sensitive issues of terrorism. Indeed, there is considerable evidence that Iranian security services continue to give support to political groups that resort to violence and acts of terror, particularly in the Middle East, where Iran’s policies have deliberately sought to undermine the peace process.

Iran’s political turmoil comes at a time – not coincidentally – of renewed debate in the West and particularly in the United States concerning policy toward that country. The reformers´ inability to take control of domestic and foreign policy has of late led to divergent policy responses by the West. The European Union, believing that it can bolster the more moderate elements of the regime, is continuing the cautious engagement policy it calls “critical dialogue”.

The United States has traditionally shared the goal of moderating Iran´s policies and strengthening the reformist wing but believed that this could best be achieved through the imposition of strict economic sanctions coupled with discrete overtures to the regime and the incentive of further engagement. Convinced that this policy mix has failed to alter Iran’s domestic and especially foreign policies, however, the United States more recently appears to have given up on the reformers’ ability to fundamentally transform the regime from within. Instead, it is increasingly placing its hopes in the popular movement of Iranians who support democracy.

The international debate about how best to deal with Iran reflects genuine uncertainty about how certain actions will play out in Iran’s highly complex and fluctuating domestic environment. Neither the outcome of the current internal power struggle nor the precise impact on that power struggle of specific outside interventions can be predicted with any certainty. Perhaps all that can be said at this stage with any confidence is that:

• Europe’s policy of critical dialogue has not yet translated into any fundamental change in Iran’s policies – whether in terms of its support for groups engaged in political violence and terror abroad or repression of those seeking greater freedom at home.
   
• A policy of blatant intervention in favour of the reformers within the ruling circles is not likely to be helpful, risking exposing them to the accusation of being agents of foreign design.
   
• Wholesale denunciation of Iran’s rulers threatens to force reformers in the power establishment, fearful of being branded as traitors to the revolution, to reluctantly close ranks with their conservative adversaries for the sake of national unity. Moreover, by allowing the conservatives to foster a siege mentality, such an approach is likely to help them perpetuate their hold on power.
   
• While frustration with the pace of reform and with the conduct of Iran’s foreign policy is understandable, it is too early to conclude that the conservatives have definitively neutralised the reformers.
   
• It is hard to believe that a popular uprising against the regime lies around the corner. Analogies with the situation that existed in the 1970s are tempting but misleading. Unlike the Shah’s regime, the current regime enjoys genuine support from significant sectors of the population, including among some who strongly oppose its policies.

This report seeks to make clear, above all else, that the situation in Iran is one of great fluidity. There are complex connections between conservatives and reformers, neither of which should be seen as a homogenous group. At the same time, and while the differences between the two coalitions probably are less than originally hoped, they almost certainly are greater than currently feared. Distinctions on important policy issues exist between Khatami and Khamanei; moreover, while the reform coalition may be forced to compromise with conservatives to avoid triggering a violent confrontation that few Iranians desire, it is steadily broadening the space in which civil society can operate.

Given the current context, the international community must carefully calibrate its actions toward Iran, recognising that conservatives continue to dominate and to thwart reform initiatives, and at the same time seeking to strengthen the reform process without stripping legitimacy from its adherents by making them appear beholden to the West. This will mean the West listening carefully, as we have sought to do in preparing this report, to the voices of those many people at all levels of Iranian society and government who want reform.

This approach will require the European Union to take even more seriously concerns about Iran’s human rights record and support for groups that engage in acts of violence, particularly in the Middle East. It also means that the United States should seek ways to reach out to various Iranian political constituencies both within and outside the regime and intensify people-to-people contacts, resisting the temptation both to lump conservatives and reformers together and to wager that popular discontent somehow can be translated into rapid – and constructive – political upheaval.

Amman/Brussels, 5 August 2002