The Pandemic Depression
The Global Economy Will Never Be the Same
For the first time since the demise of the Qajar dynasty in the early twentieth century, Iran is extending its political and military reach to what it considers its rightful sphere of influence: Mesopotamia and the areas of the eastern Mediterranean and Arabian Peninsula with sizeable Shiite communities.
Iraq has emerged from the 2003 U.S. invasion and years of sectarian war as a fragmented Shiite-led state and is on the verge of becoming an Iranian satellite. In Lebanon, Hezbollah, the Shiite armed movement that Iran has sponsored for more than three decades, has become the country’s strongest and best-organized force. Once an equal partner, Syria is now partly militarily dependent on Iran, which has sent Iranian fighters to support the regime of Syrian President Bashar al-Assad in his country’s brutal civil conflict. And in Yemen, Iran has extended its patronage to the members of an Islamic sect close to Shiism, the Houthis, who are engaged in a tribal and sectarian war against forces backed by Saudi Arabia. In all of these countries, Iran seeks to eventually entrench Shiite political systems modeled on its own.
The collapse of the old Arab order after decades of slow erosion, the U.S. invasion of Iraq, and the uprisings of the so-called Arab Spring have helped Iran pursue this vision. But so has Iran’s own history, which has endowed its leaders with a set of grievances—and perceived advantages—that they believe have primed their country to reclaim a position as a regional leader. Tehran’s current strategy of expansionism will ultimately undermine that goal, however, by fanning dangerous sectarian grievances and damaging the sociocultural prestige that has historically underwritten Iran’s regional position. A more sustainable path to a leading role in the Middle East is possible.
Iran has historically considered only Egypt—an ancient civilization with a prominent role in Islamic history—its political and cultural match among the Middle East’s Arab states. Egypt has been mostly missing from the Middle East’s strategic landscape for the past three decades, however, and its domestic problems mean that it will be tied up at home for years to come.
That has left the job of stepping up against Tehran’s expansionism to Saudi Arabia, the only other Arab state with the capacity to do so. But as the inheritors of an empire whose achievements were never matched by its neighbors in the Gulf, Iranian elites have never come to terms with the notion that their country should accept neighbors that they see as less distinguished as their political equals. The immense oil wealth that has accrued to the Gulf states over the last 50 years has exacerbated those feelings, because it has produced a dramatic difference in the lifestyles of the Gulf states’ small populations and the standard of living of Iran’s tens of millions of people. Since the 1970s, Iran has displayed both a haughty detachment and a kind of envy toward these countries, which it considers nouveaux-riches upstarts.
The past four decades have complicated that fraught relationship. Iran’s 1979 Islamic Revolution and its leaders’ ambitions to export its religious zeal to the Islamic world antagonized Gulf elites, who knew that their antiquated political systems were vulnerable to ideas that could inspire popular rebellion. Few ideas seemed more capable of doing so—especially in Shiite-majority Bahrain and Saudi Arabia’s Eastern Province—than the Iranian revolutionaries’ combination of Islamic legitimacy and popular representation.
After war between Iran and Saddam Hussein’s Iraq broke out in 1980, most of the Gulf states backed Baghdad, in some cases in an attempt to extinguish Tehran’s religious fervor and in others to try to balance against Iran’s military clout. Eight years later, Iran emerged from the stalemated conflict exhausted and bitter. Elites in Tehran believed that powerful foreign states, primarily the United States but also the rich Gulf countries, had conspired to deny them victory. In the years that followed, Tehran’s public account of the war would feature both a sense of superiority toward the Gulf and a powerful sense of victimhood—a defining trait of political Shiism over the last 12 centuries.
Yet for the 20 years that followed its war with Iraq, Iran did not have the chance to reclaim what its rulers saw as its rightful place in the region. Iran’s economy was in tatters. The Arab world, which the Gulf states came to dominate in the early 1990s, saw Iran as an enemy and worked to stem its influence, particularly in Shiite-majority areas. Internally, Tehran was consumed by a political struggle between conservatives and reformists. Over the last decade, however, that has changed, as the Middle East’s descent into chaos has given Iran the opportunity to damage the interests of Saudi Arabia and the Gulf states and to assert what it believes is its natural claim to regional dominance.
From Tehran’s viewpoint, Iran is the only country that is qualified to oversee the Middle East’s ongoing transformation. The Iranian political elite regard their system as religiously righteous and, relative to the neighboring monarchies, politically democratic. They believe their rule is sustainable, since it has survived war with Iraq, international sanctions, and major domestic demonstrations. They hold the conviction that Iran, like China, Russia, and the West, has a unique civilizational vision that its neighbors lack.
Iran’s rulers also believe that their regime possesses historic and cultural legitimacy. Since the sixteenth century, when the Safavid dynasty imposed Shiism as a state sect, political legitimacy in Iran has largely depended on the endorsement of the most revered Shiite religious authorities of the age. The 1979 Islamic Revolution restored the Islamic rule that shaped Iran’s politics and society for most of the last millennium. And so in the view of Iran’s elite, the rule of Islamic jurists over modern Iran corresponds to Iranian society’s heritage and identity, strengthening the elites’ confidence that their government justly represents the people.
Iran's expansionism has gradually transformed the country into a resented outsider.
Economically, too, the present seems to belong to Iran. The deal that Tehran concluded with six world powers to regulate its nuclear program has removed the foreign constraints that had stifled Iran’s growth for nearly a decade. It will allow Iran to tap into its diversified economy and the tens of millions of young, relatively well-educated people in its workforce—two advantages that its Gulf neighbors lack, as many of their economies depend on oil revenues and foreign laborers.
Elites in Iran and in the Gulf, however, believe that the implications of the nuclear deal extend far beyond Iran’s reintegration into the international economy. In their view, the pact reflected the West’s acknowledgment of Iran's status as a regional power—one with interests that the West must recognize even if it does not concede them.
Many observers in Iran and the Gulf attribute this apparent acknowledgment to what they see as the United States’ pivot away from the Middle East and toward Asia. As Washington drops its expensive interests in state-building and democracy promotion in the Middle East, this logic holds, it will begin to focus on a narrower set of regional problems—above all, militant Islamism and the possibility that state collapse could send a destabilizing wave of refugees toward Europe or Israel’s borderlands—and it will need local forces to help it deal with them. Iran is a candidate for such a role, at least when it comes to militant Islamism. Already, Iran and the United States have been collaborating in practice if not officially—for example, in western Iraq, where the two countries have worked to stem the advance of militant groups such as the Islamic State, or ISIS.
Iran’s military commanders recognize that their country’s theological project clashes with the United States’ worldview. They understand that Israel will regard Iran and its network of proxies as its main threat, at least for the next few years. And they have surely followed the rhetoric of U.S. President-elect Donald Trump, which has been far from friendly to their country. But Iranian leaders likely detect an opportunity in the Middle East nevertheless. Trump’s comments on Iran aside, the key objective of the new U.S. administration in the Middle East will probably be to diminish the risk posed by militant Islamism. Given Iran’s deep military presence in the areas surrounding ISIS and other such groups, the country’s value to the United States may hold.
Taken together, these factors suggest that Iran will continue its expansionism in the coming years. Iran’s elite appear to believe that their success will depend on three conditions. First, Iran must deter Israel from confronting its proxies in the eastern Mediterranean without empowering Hezbollah so much that Israel, feeling threatened, believes it must strike it first. This balancing act, if carried out successfully, would neutralize the key potential challenge to Iran’s presence in that region. Second, Iran must weaken Saudi Arabia, its only serious Arab opponent, to the extent that Riyadh can no longer oppose its regional expansion. And finally, Iraq, Lebanon, and Syria must remain fragmented along sectarian lines so that the secular Arab order that has historically challenged Iran’s dominance in the eastern Mediterranean will face colossal challenges whenever it manages to emerge from its current predicament.
Iran can manage the first condition, at least in the near term. With Iran’s backing, Hezbollah has significantly expanded its rocket stockpiles since its last war with Israel in 2006, and Israel’s leaders know that a conflict with the group would require submitting the Israeli public to casualties and costs it would probably not accept. As for weakening Saudi Arabia, Iran is engaging Riyadh in a war of attrition throughout the region, particularly in Yemen, to drain its resources. The Saudi leadership is aware of the risks of its involvement in these exacting conflicts, but the country remains mired in them nevertheless.
It is the third condition that is the most problematic, since keeping these countries divided will ultimately backfire. True, Tehran has managed to inject its partisans into the holes left by the weak Arab state system in Iraq, Syria, and Lebanon. The trouble is that by doing so, Iran has antagonized Sunni Muslims and stirred the fears of the region’s religious minorities, especially Maronite Christians and Druze, alienating many of the groups that have historically helped decide those countries’ politics. Tehran’s expansionism at the expense of the shattered Arab order has gradually transformed Iran into a resented Shiite outsider in a region that is socially and religiously fraught.
This role will be hazardous in the long term. It requires Iran to prop up proxies that will always remain at odds with their neighbors. It attracts problematic allies, such as Iraq's Shiite militias, which antagonize many Iraqi citizens and drain resources from Baghdad. And it denies Iran the position that has historically imbued it with its prestige: a status as a sociocultural luminary.
The promise of soft power might seem empty in contrast to the gains that Iran has already made in the Arab world through force. But militant sectarianism will eventually doom Iran’s reputation and regional presence. Sunni Islam will not always remain under the patronage of Saudi Wahhabis or suffer from the existence of powerful militant groups that falsely claim to represent it. And in the coming decades, parts of the Arab world will probably escape their current malaise. If that happens, Iran will benefit more from having positioned itself as a respected partner and cultural force than as an exploitative partisan.
A more sustainable path to a leading role in the Middle East is possible.
At home, too, Iran would gain from curtailing its adventurism. The lifting of the sanctions will stimulate growth, but it will not make Iran’s economy buoyant anytime soon. Iran’s infrastructure needs colossal investments, and youth unemployment remains a major problem. The more that the country expands, the more it will burden its burgeoning economy.
Perhaps more troubling for Iran’s own ruling establishment, Tehran’s foreign campaigns are undermining the legitimacy of its government by empowering military leaders at the expense of traditional religious authorities. Military elites have become powerful players in Iran’s domestic politics, and in recent years, they have even managed to back the rise of a number of favored scholars into the heights of Iran’s religious establishment. By assuming this new role, the military elite is tainting the foundations of the regime’s popular legitimacy: the primacy of the religious scholars whom the Shiite establishment deems the most qualified to lead the Islamic republic. The bulk of Iran’s youth—who have no direct experience of the Shah’s excesses, Khomeini’s charisma, or the war with Iraq—have a worldview that is miles away from that of the regime’s aging leaders; the more the rise of the military transforms the basis of the regime’s legitimacy, the more restless young people may become. Tehran should be especially concerned with maintaining their support.
Iranian leaders should also be wary of letting their expansion in the Middle East distract them from developments in the rest of Asia—from the rise of China and the simmering conflict in Nagorno-Karabakh to the tensions between India and Pakistan. The more those developments shape world affairs, the more Iran will be compelled to move its gaze from its western to its eastern neighborhood.
As the order that dominated the last 40 years of Middle Eastern politics crumbles, a new generation of Arabs is emerging: one with views that differ vastly from those of its predecessors. The most promising segments of the Arab world’s youth—a significant and growing minority—are exposed to the world, understand the predicaments they are in, and aspire to (and are working toward) new social contracts centered around economic opportunity, genuine political representation, and respect for their dignity. In grounding its influence in sectarianism and relying on armed proxies, Iran is responding to the old order’s collapse while failing to adjust to the system that is emerging amidst the ruins. It is pursuing an unsustainable goal through unsustainable means.
There is a more constructive way for Iran to engage with the forces represented by the Arab world’s younger generations. Tehran could attempt to transcend the sectarianism of the past decade, smoothing out the politics of the countries in which it has built up its influence. In Lebanon, Iran should back the efforts of President Michel Aoun to strengthen state institutions—a move that would not dilute Iran’s influence in the country, given Aoun’s closeness to Hezbollah. In Syria, Iran should resist the temptations that its military victories are generating and stop the relocations of Syrian Sunnis, especially near the border with Lebanon, that some of its allies have been carrying out for months. Buttressing Assad’s rule by dislocating the group that constitutes the majority of Syria’s population is extremely shortsighted. But it is in Iraq that Iran faces its most difficult test. Many in the Iranian leadership seem to believe that Iraq should remain within the growing Persian and Shiite sphere of influence. But this thinking flies in the face of the last two centuries of Iraqi history, during which the entire country, even its Shiite-majority areas, has been firmly rooted in the Arab world. Seduced by its recent successes and by the dominance of its allies in Iraq, Iran will entrench fierce anger against it if it continues to try to dominate the country—not only among wide segments of Iraq’s population but also among the millions of Arabs for whom Baghdad remains a major center of Arab culture, despite the destruction of the past fifteen years. Finally, Iran should use its diversified economy, technological advancement, and cultural influence to help Iraq, Lebanon, and Syria rebuild and confront the colossal developmental challenges they now face. In doing so, Iran could create major opportunities for its own economy.
None of those measures would be easy, and several countries would oppose them. But Iranian policymakers should remember that when today’s young Arabs take control of their governments in more hopeful times, they will remember how outside powers treated their countries in their moments of weakness. The best course would be for Iran to position itself as a trading hub, a cultural center, and a regional model, instead of as an opponent and threat. As the Arab world’s eternal neighbors, Iranian leaders ought to make decisions that will serve their country in the long term.