With the Iranian elections approximately a month away, casual observers are all-too-quickly heralding the downfall of the Ayatollah and his economically "ruined" Islamic Republic. The combined optimism ushered in by the "Green Movement" and a poor understanding of the dynamic Iranian state have eclipsed their attention to reason and reality. Many overlook the capacity of the Iranian government to use what little oil money they are still able to generate to continue buying the loyalty of portions of the middle class and the Revolutionary Guard. Though Western sanctions have had a crippling effect on the Iranian state, they have not wholly eliminated Iran’s oil exports nor its ability to buy off the loyalty of its people. The Ayatollah’s economic maneuverability is being choked, but not asphyxiated...yet.
The Iranian government has equitably balanced their use of their oil revenues to produce both a visible “rentier effect” and “suppression effect.” This use of oil money has thus far proved effective at limiting the expression of public dissatisfaction and cries for regime change, especially since the eruption of the Green Movement in 2009.
Traditionally, the rentier effect is best defined as the use of oil revenue to circumvent the necessity for taxation or to provide free social services and funding to the population, essentially buying off popular loyalty and allowing authoritarian governments to operate freely. In Iran, taxation is not eliminated altogether, but income and sales tax rates are relatively low, hovering around 25 to 1.5 percent, respectively. Additionally, it is estimated that approximately 60 percent of all taxable sources of revenue are actually not collected on a regular basis in Iran. Certain levels of the military and the middle class are allowed to avoid paying taxes in exchange for their explicit political loyalty.
Beyond the issue of taxation and the “rentier effect,” however, lies the “suppression effect” that is best exemplified by the Iranian government’s recent campaign of privatization. Since the outbreak of popular protests in 2009, the Iranian privatization campaign has conservatively placed 60 percent of the entire Iranian economy in the hands of the Revolutionary Guard. In 2008, the Ayatollah announced a campaign of privatization that had initially been largely successful in terms of decreasing the breadth of the public sector. In light of the Green Movement, however, this privatization campaign was re-purposed, focusing instead on the transfer much of these formerly state-held businesses and agencies into the hands of the Revolutionary Guard. This has in effect bought off the loyalty of the para-military group and simultaneously given them a much larger stake in the maintenance of the status-quo. Should more protests break out following the 2013 presidential elections, the Revolutionary Guard's loyalty should ostensibly remain with the ruling conservative establishment. Any threat to their economic supremacy would therefore be violently expunged.
This system of bribery is unsustainable under the weight of increasing economic sanctions, however, and the Iranian government will soon need to make a decision to cut either its incredibly costly nuclear program or its capacity to buy off the influential sectors of the Iranian populous. It is unlikely that the Iranian economy will be at this imminent decision point by the beginning of the next elections, however. Regime change is certainly on the horizon, but not yet.