Iran became a theocratic republic governed by Islamic principles in 1979 following a popular revolution that overthrew the ruling monarchy of Shah Mohammad Reza Pahlavi. Pahlavi was forced into exile and previously exiled religious leader Ayatollah Ruhollah Khomeini returned from France and was established as Supreme Leader, with ultimate political authority, of the Republic on February 1, 1979.
However, the initial post-revolution years of the Republic were marked by political unrest, war and economic difficulties. The 444 day-seizure of the US Embassy in Tehran and its 52 occupants on November 4, 1979 by a group of students was the beginning of a strained relationship between the new Islamic state and the American superpower. In 1980, during the US-hostage crisis, Iraq invaded Iran in an apparent attempt to halt the spread of the Islamic Revolution to Iraq’s Shi’a, seize the heavily-Arab province of Khuzestan and gain control of the Shatt al-Arab, the waterway between the two countries. This led to eight years of bloody and indecisive war, eventually ending in July 1988 when the Islamic Republic of Iran at last agreed to the cease-fire implemented in UN Security Council Resolution 598.
Following Khomeini’s death on June 3, 1989, the Council of Experts selected outgoing President, Ali Khamenei, as the chosen successor. Following the end of the Iran-Iraq war, the Republic enjoyed a flourishing economy, boosted by an oil windfall. The government loosened state control of the economy to encourage economic development through an influx of foreign investment. But the economy stalled as the result of mismanagement; bureaucratic inefficiency, an unemployed, youthful population produced by the war years and political and ideological infighting.
A bloated and inefficient state sector, the result of the nationalization of key industries – including the petroleum, transportation, utilities and mining sectors – following the Revolution, has continued to plague the economy with unemployment, rural underdevelopment, failure to compete against foreign imports and a dependence on oil prices. The country continues to struggle with inflation and double digit unemployment, forcing much of its educated youth to seek employment abroad. Government attempts at economic reform, fuel rationing in July 2007 and the implementation of VAT in October 2008, have foundered against mass unpopularity.
Hard-line Tehran mayor Mahmoud Ahmadinejad was inaugurated in August 2005 after a disputed electoral victory. President Ahmadinejad has since won re-election in a controversial contest in June 2009 that has sparked national protests, eerily reminiscent of the 1979 uprising, over alleged election fraud.
In the international arena, ever since the birth of the Islamic Republic the country has not enjoyed comfortable relations with many of its neighbours including the US. In 1981, Iran backed a plot to overthrow the Bahrain Government; the 1983 bombing of Western embassies in Kuwait by Shi’a extremists was publicly lauded by Ayatollah Khomeini. Iran purportedly has strong links with the Lebanese terrorist organisation Hezbollah, who carried out the 1996 bombing of a US housing facility in Saudi Arabia, which killed 19 and wounded more than 500 other persons, including 240 US military personnel.
Since the conclusion of the Iran-Iraq war, the Republic has worked to modernize its military, which was one of the strongest in the region under the Shah. This has led to the development of ballistic missiles and nuclear programs. Iran remains subject to economic sanctions from the US, EU and UN for its nuclear program. Since 2002 the International Atomic Energy Agency (IAEA) has been working intently to uncover the true nature and intent of the Republic’s nuclear policy and the country continues to be the subject of numerous UN Security Council resolutions but Iran has yet to respond either positively or consistently with the concerns of the international community despite continuous efforts by the P5+1, also known as the EU 3+3 – consisting of China, France, Germany, Russia, the United States, and United Kingdom – to use a combination of economic incentives and pressures to encourage an engagement with the international community.