Iran: So Much For Harmony At The Top

Business Week:

When Iran elected hard-liner Mahmoud Ahmadinejad as President last June, it looked as if Tehran might finally have a united conservative government capable of moving forward on everything from business projects to the diplomatic front. But just months after Ahmadinejad took power, the conservatives are fighting among themselves, paralyzing the government. Executives, once eager to invest in Iran's vast oil and gas resources, are preparing for a long wait.

Business was worried about Ahmadinejad, the relatively unknown former mayor of Tehran, but there was an attractive side to him. At 49, he was youthful, enthusiastic, and untainted by a long history in Iran's seamy politics. Now his zeal and inexperience are proving liabilities. His provocative statements have worsened Iran's confrontation with the West over Tehran's nuclear program, scaring foreign investors.

Fleeing funds

At the same time, the President's erratic domestic policies are spooking local investors. They're worried about Ahmadinejad's populist proposals for spending Iran's expected $35 billion or so in oil revenues this year, such as handing $1,100 to every newlywed couple. And Ahmadinejad has been tapping inexperienced unknowns for top positions. Parliament has rejected his first choice as Oil Minister, Ali Saeedlou, as lacking background in Iran's key industry. Iranians are shipping money to Dubai and dumping shares in the Tehran Stock Exchange, whose index is down 20% since the May campaign.

Ahmadinejad looked like the sort of President that Iran's top religious authority, Ali Khamenei, wanted. They come from the same ideological quadrant. But far from a love fest, Tehran is rife with rumors of angry phone calls from Khamenei to Ahmadinejad. In early October, Khamenei decreed that the Expediency Council, a powerful unelected body, would have overall supervision over the government. The move had two motives: to blunt Ahmadinejad's power and to boost the council's chairman, former President Hashemi Rafsanjani, whom Ahmadinejad defeated in the election. Rafsanjani has made clear his disdain for Ahmadinejad's approach. On Sept. 30, he warned Iran's nuclear negotiators that "you need diplomacy and not slogans."

Tensions may continue because the President comes from a different mold than Khamenei and Rafsanjani, elderly clerics who were associates of the late Ayatollah Ruholla Khomeini. Ahmadinejad hails from the Revolutionary Guards and other shock troops of the 1980 revolution. He is critical of the older generation for taking financial advantage of their proximity to power. But his anticorruption witch-hunts are making a shambles of government.

So will Ahmadinejad's emergence be the event that leads to the regime's demise? "The Islamic Republic's survival instincts are very good," says Siamak Namazi, an Iranian consultant who is now a public policy scholar at Washington's Woodrow Wilson International Center. Instead, Khamenei will take on a bigger role. He is already running the nuclear portfolio and trying to avoid a showdown with the U.S. and Europe while not giving up Iran's nuclear ambitions. He may succeed because neither Russia nor China want U.N. sanctions on Iran. Still, Iran looks to be squandering a golden chance. Instead of cashing in on a propitious moment, it is barely skirting new disasters.

By Stanley Reed in London, with Babak Pirouz in Tehran

EDITED BY Edited by Rose Brady