Government

The political system of Iran is based on the 1979 constitution that was drawn up following the revolution. The highest state authority is the Supreme Leader who is responsible for the supervision of the policies of the Islamic Republic. The Supreme Leader is also Commander-in-Chief of the armed forces, controls military intelligence and security operations. He is the only official that can declare war or peace and has the final say in all matters.

The Supreme Leader is also responsible for appointing the heads of the judiciary, state radio and television networks, commanders of the police and military forces and six of the 12 members of the Council of Guardians.

The President is elected for a four-year term and must be approved by the Council of Guardians to ensure allegiance to the principles of the Islamic revolution.

The President appoints and oversees the Council of Ministers, coordinates government decisions, and determines government policies to be placed before the legislature. The current president is Hassan Rouhani.

Last presidential election: 14 June 2013

Hassan Rouhani: 53 per cent

Mohammed Bagher Ghalibaf: 17 per cent

Saeed Jalili: 12 per cent

Mohsen Rezaee: 11 per cent

Ali Akbar Velayati: 6 per cent

Mohammed Gharazi: 1 per cent

Next presidential election: 2017

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Recent history and politics

The June 2013 presidential elections ended with the surprise victory of Hassan Rouhani, who promised to open dialogue with the West after strained diplomatic relations during Mahmoud Ahmadinejad’s eight years in power. Later in 2013, Rouhani managed to secure a historic breakthrough, reaching a deal with the P5+1 group of world powers that could become the cornerstone of a permanent solution to the standoff surrounding Iran’s nuclear programme.

Rouhani appears to have built a consensus among Iran’s political establishment, easing tensions between the three branches of government, allowing him to push through his agenda laid out before the election.

This freedom was enjoyed by neither of his two recent predecessors. During his second term, Ahmadinejad’s power was stunted by tensions with large sections of parliament, the Islamic Revolutionary Guard Corps (IRGC) and Supreme Leader Ayatollah Ali Khamenei. But the support of the Supreme Leader was instrumental to Rouhani’s ability to clinch the Geneva deal in November 2013.

Rouhani has been trying to diminish the influence of the IRGC in national politics since he took over as president. In a speech at the IRGC’s national assembly in September 2013, he said it should be “far from political currents” and “belong to the entire nation”. The IRGC, along with the hardline conservative sections of the Iranian parliament are potentially Rouhani’s biggest internal barriers in his attempt to reach a satisfactory outcome to the nuclear negotiations.

Economy

Iran’s economic landscape has long been dominated by the challenges posed by subsidies and sanctions. Iran annually spends  about a quarter of its state budget on subsidies, ranging from petrol, electricity and water, to foodstuffs.

The budget for the Iranian year starting in March 2014 has been set at $265bn, according to state media. Presenting his first budget in December 2013, Rouhani vowed to bring down inflation and boost growth and pointed to the economic mismanagement of his predecessor Ahmadinejad.

GDP had contracted by 6 per cent a year to December, according to the president, while inflation was running at 44 per cent when he took office in August. By December, inflation was reported to have dropped to 36 per cent.

Oil and gas exports have historically dominated government revenues, but these have dropped to less than half the level of 2011 since the US and EU introduced tighter sanctions against Iran’s energy sector.

Ali Tayyeb-Nia, Iran’s new minister of economic affairs and finance, stated in October that: “reducing dependency on oil revenue and transferring the executing role of government in delivering public and infrastructure projects to the private sector are among fundamental economic reforms incorporated in the country’s strategic plans”.

“To achieve this main goal, the role of government, as a main regulator, should be gradually revised through creation of mutual dialogue with non-governmental sectors and civil societies in order to set the ground for monetary and financial reforms,” he added.

The Washington-based IMF expects Iran’s real GDP to recover by 1.3 per cent in 2014 following declines of 1.9 per cent and 1.5 per cent in in 2012 and 2013 respectively.

Annual budget to 20 March 2014: $265bn

Sovereign ratings: Only Capital International has given the Islamic Republic a credit rating. It is B (October 2010).

Banking and financial markets

Iran’s central bank, Bank Markazi, issues currency and oversees all state and private banks. The government has been attempting to privatise the commercial banks since 2001 to encourage the development of a more competitive industry.

Iranian banks including Bank Markazi have been the target of US sanctions, which have prevented overseas companies from making transactions with Iranian banks. The central bank has also been prevented access to the Brussels-based Society for Worldwide Interbank Financial Telecommunication (Swift), which is used by the world’s major banks to make international transfer payments.

Iran’s main financial trading institution is the Tehran Stock Exchange, which houses 339 companies with a total market capitalisation of about $104bn. The exchange handles shares from private banks and industries along with government bonds and securities.

The Tehran stock exchange (TSE) reacted positively to the Geneva agreement in late 2013, recording a growth of 13.6 per cent in November alone.

Oil and gas

Iran is estimated to hold the world’s third biggest conventional oil reserves and second largest gas reserves. Iran has, until recent years, been Opec’s largest producer of crude along with Saudi Arabia.

At the start of 2012, Iran was the world’s third largest oil exporter, with about 2.5 million barrels a day (b/d) shipped largely to Asian customers. However, the International Energy Agency (IEA) estimates that exports had fallen as a result of toughened sanctions to about 850,000 b/d by November 2013, making it one of Opec’s smallest exporters.

When the US introduced sanctions against the purchase of Iranian crude in early 2012, it issued six-month waivers to several major importers, including China, India, Japan and South Korea. The waivers, which have been extended three times, were issued in exchange for the countries reducing their imports of Iranian crude to agreed levels.

Lack of investment has also prevented Iran from developing its oil and gas industry to its full potential. Several major projects, such as the development of the giant South Pars gas field, are lagging behind schedule.

Power

As of the end of 2013, Iran has 70,000 megawatts of installed electricity generation capacity based on over 400 power plant units. The country is estimated to represent about 17 per cent of the Middle East and North Africa region’s electricity capacity.

Iran’s power industry is largely based on gas-fired power plants, but over recent years started up operations at the Bushehr nuclear power plant in the south-west of the country.

Industry

Iran has sizeable industries in sectors such as petrochemicals, steel and automotive. The petrochemicals sector is a mainstay of Iran’s industry, accounting for more than half of the country’s industrial exports. The lifting of sanctions under the P5+1 agreement should enable Tehran to export an additional $1bn-worth of products over the envisaged six-month period, although state-owned National Petrochemicals Industries Company (NPIC) has continued to sell products to key buyers such as China in recent years.

Iran’s automotive sector is likely to feel the biggest impact from the Geneva deal and has also been the fastest to react. Within days of the 24 November announcement, an international automotive industry conference was held in Tehran, with high-level foreign representation.

Executives from French car giants Renault and Peugeot met with Iran’s industry minister, Mohammad Reza Nematzadeh, at the fair, with talks focusing on how to renew cooperation, launch new models and return to 2011’s production levels of cars assembled in Iran from imported “knock-down” kit.