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Known as Persia until 1935, Iran became an Islamic republic in 1979 after the ruling monarchy was overthrown and the shah was forced into exile. Conservative clerical forces established a theocratic system of government with ultimate political authority nominally vested in a learned religious scholar. Iranian-US relations have been strained since a group of Iranian students seized the US Embassy in Tehran on 4 November 1979 and held it until 20 January 1981. During 1980-88, Iran fought a bloody, indecisive war with Iraq that eventually expanded into the Persian Gulf and led to clashes between US Navy and Iranian military forces between 1987-1988. Iran has been designated a state sponsor of terrorism for its activities in Lebanon and elsewhere in the world and remains subject to US economic sanctions and export controls because of its continued involvement. Following the elections of a reformist president and Majlis in the late 1990s, attempts to foster political reform in response to popular dissatisfaction floundered as conservative politicians prevented reform measures from being enacted, increased repressive measures, and made electoral gains against reformers. Parliamentary elections in 2004 and the August 2005 inauguration of a conservative stalwart as president, completed the reconsolidation of conservative power in Iran's government.
GOVERNMENT
chief of state: Supreme Leader Ayatollah Ali Hoseini-KHAMENEI (since 4 June 1989)
head of government: President Mahmud AHMADI-NEJAD (since 3 August 2005) First Vice President Parviz DAVUDI (since 11 September 2005)
cabinet: Council of Ministers selected by the president with legislative approval; the Supreme Leader has some control over appointments to the more sensitive ministries
elections: leader of the Islamic Revolution appointed for life by the Assembly of Experts; president elected by popular vote for a four-year term; election last held 17 June 2005 with a two-candidate runoff on 24 June 2005 (next to be held NA 2009)
election results: Mahmud AHMADI-NEJAD elected president; percent of vote - Mahmud AHMADI-NEJAD 62%, Ali Akbar Hashemi RAFSANJANI 36%; note - 2% of ballots spoiled
ECONOMY
Iran's economy is marked by a bloated, inefficient state sector, over reliance on the oil sector, and statist policies that create major distortions throughout. Most economic activity is controlled by the state. Private sector activity is typically small-scale - workshops, farming, and services. President KHATAMI has continued to follow the market reform plans of former President RAFSANJANI, with limited progress. Relatively high oil prices in recent years have enabled Iran to amass some $40 billion in foreign exchange reserves, but have not eased economic hardships such as high unemployment and inflation. The proportion of the economy devoted to the development of weapons of mass destruction remains a contentious issue with leading Western nations.
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