Iran deal: Tehran's conservatives aren't going anywhere

This Wednesday marks the first anniversary of the 1979 seizure of the US Embassy in Tehran since Iran's landmark nuclear deal in July with world powers, including China, Russia and the United States. Some three and a half decades after the US hostage crisis began, Tehran is reasserting itself significantly more forcefully on the international stage following years of international estrangement.

However, it remains unclear exactly what course the country will chart as it opens itself up more to the world, and the degree to which influential conservatives in Iran might thwart the greater engagement desired by the Rouhani government. Tehran's choices will have a major impact not just politically, but also economically, as it potentially transforms into what some assert is a nascent Middle Eastern superpower.

The latest sign of thawing in Iran's former diplomatic and economic isolation came last Friday when Foreign Minister Javad Zarif joined, for the first time, multi-country talks to try to bring resolution to the Syrian crisis. The change in US policy concerning Tehran's involvement in the discussions is a political dividend of the Summer's nuclear agreement. Although some powers, especially Saudi Arabia, resent Iran being given a seat at the table, it is increasingly acknowledged internationally that Tehran is key to any eventual political deal given its staunch support for the regime of President Bashar al-Assad.

In the economic sphere too, Iran has major forward potential. The IMF indicated last month that the economy could grow by 4 per cent to 5.5 per cent in 2016-17, in the context of international sanctions relief, if oil production is raised by up to 1 million barrels per day (bpd).

As sanctions begin to be rolled back in 2016, Tehran could receive a financial bonanza of around $100bn dollars in currently frozen assets. However, because the country has significant existing financial obligations and needs to strengthen financial reserves, the amount of useable liquid assets is estimated to be nearer a third or quarter of this amount.

This is still significant, but needs to be seen in the context of the massive $1 trillion estimates of Iran's infrastructure investment that is needed, much of which will require foreign investment. A good case in point here is development of the country's oil and gas fields (the fourth largest oil reserves in the world, and the biggest for natural gas), which is a key prize for international energy firms.

Goldman Sachs has estimated Iran could supply an extra 200,000-400,000 bpd in 2016 and Tehran will provide more details of new oil and gas schemes in a London conference in February. As the country reintegrates itself into the global petrochemicals market, its main export targets will be in Asia-Pacific, including China, India, Japan and South Korea.

As Iran flexes its political and economic muscles internationally, a key question is what this enhanced power will mean for its posture in the region and beyond.

While some perceive that the nuclear deal will result in much wider foreign policy change, this is unlikely to be the case—in the near term at least—given the competing views in Tehran between powerful conservative hardliners and the Rouhani government's centrist and reformist supporters.

The latter wants greater cooperation, including with Saudi Arabia, believing that more conciliatory policies will improve foreign investment, commercial links, and diplomatic ties. They argue that this will, in turn, secure greater international support for Iran's positions on peace initiatives in Syria, Yemen, and Lebanon.

However, conservatives in Tehran are digging their heels in against any fundamental changes in foreign policy principles which have been broadly consistent since 1979. This includes broad opposition to the Middle Eastern policies of Israel, the United States and Saudi Arabia, and also Iranian financial and military support for various militant forces in the region, including Lebanon's Hezbollah, Yemen's Huthi rebels, and Shia militias in Iraq.

In the interplay between these factions in Tehran, July's nuclear deal has boosted prospects of reformists and centrists in February's parliamentary elections, and significantly improved Rouhani's chances of re-election in 2017 too. However, for now at least, conservatives have the upper hand with regard to Iran's regional policy in the Middle East, with Supreme Leader Ali Khamenei and the predominantly hard-line military and security bureaucracy, acting as a brake on change.

With regard to Syria, for instance, hardliners are critical of the Rouhani government's new involvement in multi-party talks, as Khamenei made clear on Sunday when he called them a "dangerous initiative". This circumscribes Rouhani's room for manoeuvre, despite concerns from a growing number of moderates and reformists in Tehran of the increasing diplomatic, financial and military costs of supporting the Assad regime, and how long these can be maintained.

In Iraq, a key emphasis for Iranian conservatives is supporting the continuation of a unified, but dependent, country. This includes support for Iraqi militias in the fight against Islamic State.

Meanwhile, emphasis will be placed by Rouhani on supporting Baghdad through enhanced economic and political ties. One key initiative being pushed here is a major new free trade zone on the Southwestern border with Iraq (near to the oil-rich Iraqi province of Basra) reminiscent of Jebel Ali, the successful UAE hub.

Taken overall, Iran's re-emergence as a significant regional power, both economically and politically, is not likely to result any time soon in a fundamental shift in its post-1979 foreign policy posture. Despite the fact that Rouhani's position has been strengthened by July's nuclear deal, conservative hardliners will continue to hold sway on Tehran's regional policy for the foreseeable future.