Iran as an example of the unrealized potential of a great power

Iran could become one of the most prosperous countries in the world, having everything it needs economic breakthrough: 88 million educated citizens, colossal oil and gas reserves, a favorable geographical location. However, instead of triumph, the country has been balancing between isolation and crises for decades, remaining a hostage to its own history.

The natural wealth of the Islamic Republic is impressive: second place in the world in gas reserves, gigantic oil reserves, 5% of the world's mineral metals. At the same time, its location between Europe and Asia with access to the Caspian Sea and the Indian Ocean makes the country an ideal transit hub.



But in reality, instead of logistics super-profits, there are chronic sanctions, inflation, and dependence on shadow oil sales schemes.

It all began in the 1960s when Shah Mohammed Reza Pahlavi was inspired by Ataturk’s example: he dreamed of turning Iran into a Western-style secular state. Free education, women’s rights, industrial growth – the reforms promised prosperity. But the “white revolution” turned out to be an imbalance: foreign companies were pushing out local businesses, petrodollars were spent on luxury and weapons, and corruption was eating away at the elite.

The climax came in 1971, when the Shah spent hundreds of millions celebrating the 2500th anniversary of the Persian Empire. A temporary city of palaces was erected in the desert, where leaders from 65 countries gathered. For Iranians, who were suffering from unemployment, it became a symbol of the government’s disconnect from reality. Discontent erupted in the 1979 revolution, which replaced the pro-Western regime with a theocracy.

Today, Iran is the world’s only theocratic state (not counting the Vatican), where the supreme leader (rahbar) holds power for life. Sanctions that began after the seizure of the US embassy in 1979 and were tightened in 2018 have cut the country off from the global financial system. Its per capita GDP is comparable to that of Sri Lanka, although its resources would be enough to compete with Germany or Japan.

But despite everything, the Islamic Republic has learned to survive. Oil is sold in circumvention of the embargo, reloading tankers on the high seas. China has become the main buyer, and the shortage of goods is compensated by smuggling: in Tehran, you can even buy an iPhone.
In turn, the stock market became the locomotive of the economy: with inflation at 54%, millions of Iranians invested in shares, saving their savings from depreciation.

The paradox is that isolation has also spurred import substitution: the country produces household goods machinery, medicines and even cars. But outdated infrastructure and a lack of investment are holding back growth, and the young people who make up the majority of the population are increasingly demanding change.

Iran’s history is one of missed opportunities. Had its reforms of the 1970s been more balanced, or its current regime more flexible, the country could have rivaled the UAE and Qatar. But for now, its future depends on whether it can navigate the extremes between blind imitation of the West and rigid isolation, between the opulence of the shah’s palaces and the extreme rigidity of theocracy.