Conservatives say Rouhani has bet too heavily on US and other foreign investment in the nation. He wants to attract in $140bn from abroad to improve Iran's infrastructure, but achieved just $13bn last year

By: Andrew Hammond

Iran’s presidential candidates are making final preparations for today’s landmark poll, which could have huge implications for the country and world beyond. At the centre of the contest are differing views over incumbent President Hassan Rouhani’s signature accomplishment: the 2015 nuclear accord, and his wider advocacy of economic and political engagement with Western powers.

Rouhani is widely seen as a modest favourite for re-election, not least as all Iranian presidents have won a second term since 1981, but this is by no means assured. He is most likely to prevail if he can win big, securing more than 50 per cent of the vote on Friday and therefore emerging as the victor in the first ballot, just as he did in 2013. However, if a second round run-off is required between the two strongest performing candidates, more conservative opponents of the president could join forces to try to oust him from office.

This election is important not just because it will determine the country’s future path, but also because the victor, and his allies in the Assembly of Experts, will also have a significant voice over who becomes the next supreme leader if Ayatollah Ali Khameini, 77, who took power in 1989, dies in office during the next presidential term.

Though Rouhani’s vision for greater engagement with the West is under scrutiny, his fate may rest more heavily on the matter of public perceptions of the Iranian economy, which is the second largest in the Middle East. Despite the lifting of international sanctions since the nuclear deal with the permanent members of the UN Security Council, many Iranians still don’t feel as big an improvement in their living standards as they hoped from Rouhani’s reforms.

Under the terms of the nuclear deal, Iran secured phased relief from international sanctions. This is very important for the country, which is the seat of the world’s fourth largest oil reserves and the second biggest natural gas stockpile. Sanctions approximately halved the country’s oil exports to just over 1 million barrels per day after 2012, crippling the economy.

Sure, the Iranian economy grew at nearly 9 per cent in the last quarter of 2016 and growth is estimated at around 5 per cent in 2017, while inflation has dropped to single digits. Yet key industrial sectors are in recession, including the construction industry. And some of the positive economic dividends emanating from the lifting of sanctions have been overshadowed by a hit in oil prices, which have fallen from more than $100 a barrel to below $50.

A further drag on the economy is Iranian military and financial support for Syria and Hezbollah in Lebanon. Tehran’s support for the Damascus regime alone is estimated at billions of dollars every year.

Criticism has also been levelled at Rouhani for high unemployment which rose to 12.4 per cent last year. His more Conservative challengers, including the cleric Ebrahim Raisi and Tehran Mayor Mohammad Baqer Ghalibaf, have promised, if elected, to create five to six million jobs in their first term, which is unrealistic but attractive to voters. Both have also said that they also want a more “inward looking” economy, focused on national production and narrowing gaps between the rich and poor. Raisi, for instance, says he would triple monthly cash handouts to poorer citizens.

Conservatives say Rouhani has bet too heavily on US and wider foreign investment. He wants to attract some $140bn from abroad to modernise oil and gas, transportation and telecoms. Last year, the Iranian Chamber of Commerce estimated the country attracted just $13bn in foreign investment. This is a major uplift from the $3bn recorded in 2015, but it is nowhere near what was hoped.

With the election of Donald Trump as US President, there are also greater risks surrounding the future of the nuclear agreement, which Barack Obama said in 2015 offered the West and Tehran the best opportunity “in decades” to build bilateral relations. While the new US administration recently certified that Iran had complied with the deal so far, it has already put Tehran “on notice” after Iran’s recent ballistic missile tests. It has also imposed new sanctions and launched a full review of the nuclear deal.

Washington may not, ultimately, withdraw from the agreement. But it could still undermine the accord by pressurising Western countries not to do business in Iran, or by creating uncertainty around sanctions waivers. (This would, however, be opposed by at least some other parties to the deal, such as France.) Growing animosity from the Trump team would, however, also complicate Rouhani’s vision for greater global engagement and closer ties with the West and potentially greater cooperation with key Middle Eastern states including Saudi Arabia.

Conservatives inside Tehran are digging their heels in against any fundamental changes in foreign policy principles which have been generally consistent since 1979. This includes broad opposition to the Middle Eastern policies of Israel, the United States and Saudi Arabia, and also Iranian support for various militant forces in the region including Hezbollah.

The alternative pathway favoured by some conservatives includes closer economic and diplomatic ties with Russia at the expense of greater interdependence with the West.

That’s why this weekend’s election could set Iran’s agenda, not just for four years, but the next decade and beyond. While a Rouhani victory is anticipated, a conservative win is possible and could dramatically reshape the country’s domestic politics, economy and international relations.