Known as Persia until 1935, Iran became an Islamic republic in 1979 after the ruling monarchy was overthrown and Shah Mohammad Reza PAHLAVI was forced into exile. Conservative clerical forces established a theocratic system of government with ultimate political authority vested in a learned religious scholar referred to commonly as the Supreme Leader who, according to the constitution, is accountable only to the Assembly of Experts. US-Iranian 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 and 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, UN, and EU economic sanctions and export controls because of its continued involvement in terrorism and its nuclear weapons ambitions. Following the election of reformer Hojjat ol-Eslam Mohammad KHATAMI as president in 1997 and similarly a reformer Majles (parliament) in 2000, a campaign to foster political reform in response to popular dissatisfaction was initiated. The movement floundered as conservative politicians, through the control of unelected institutions, prevented reform measures from being enacted and increased repressive measures. Starting with nationwide municipal elections in 2003 and continuing through Majles elections in 2004, conservatives reestablished control over Iran's elected government institutions, which culminated with the August 2005 inauguration of hardliner Mahmud AHMADI-NEJAD as president. The UN Security Council has passed a number of resolutions (1696 in July 2006, 1737 in December 2006, 1747 in March 2007, 1803 in March 2008, and 1835 in September 2008) calling for Iran to suspend its uranium enrichment and reprocessing activities and comply with its IAEA obligations and responsibilities. Resolutions 1737, 1477, and 1803 subject a number of Iranian individuals and entities involved in Iran's nuclear and ballistic missile programs to sanctions. Additionally, several Iranian entities are subject to US sanctions under Executive Order 13382 designations for proliferation activities and EO 13224 designations for support of terrorism.
chief of state: Supreme Leader 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
note: also considered part of the Executive branch of government are three oversight bodies: 1) Assembly of Experts (Majles-Khebregan), a popularly elected body charged with determining the succession of the Supreme Leader, reviewing his performance, and deposing him if deemed necessary; 2) Expediency Council or the Council for the Discernment of Expediency (Majma-e-Tashkise-Maslahat-e-Nezam) exerts supervisory authority over the executive, judicial, and legislative branches and resolves legislative issues on which the Majles and the Council of Guardians disagree and since 1989 has been used to advise national religious leaders on matters of national policy; in 2005 the Council's powers were expanded to act as a supervisory body for the government; 3) Council of Guardians of the Constitution or Council of Guardians or Guardians Council (Shora-ye Negaban-e Qanun-e Assassi) determines whether proposed legislation is both constitutional and faithful to Islamic law, vets candidates for suitability, and supervises national elections
elections: Supreme Leader is appointed for life by the Assembly of Experts; president is elected by popular vote for a four-year term (eligible for a second term and third nonconsecutive term); last held 17 June 2005 with a two-candidate runoff on 24 June 2005 (next presidential election slated for 12 June 2009)
election results: Mahmud AHMADI-NEJAD elected president; percent of vote - Mahmud AHMADI-NEJAD 62%, Ali Akbar Hashemi-RAFSANJANI 36%
Iran's economy is marked by an inefficient state sector, reliance on the oil sector, which provides the majority of government revenues, and statist policies, which create major distortions throughout the system. Most economic activity is controlled by the state. Private sector activity is typically limited to small-scale workshops, farming, and services. Price controls, subsidies, and other rigidities weigh down the economy, undermining the potential for private-sector-led growth. Significant informal market activity flourishes. Corruption and shortages of goods are widespread. President Mahmud AHMADI-NEJAD has proposed reforms to Iran's system of price controls and subsidies, particularly on food and energy. However, previous government-led efforts at reform - such as fuel rationing in July 2007 and the imposition of the Value-Added Tax (VAT) in October 2008 - were met with stiff resistance and violent protests. High oil prices in recent years allowed Iran to greatly increase its export earnings and amass over $70 billion in foreign exchange reserves. But with oil prices currently below $40 per barrel, the Iranian government is facing difficulties. Tehran has formulated a 2009 budget that anticipates lower oil prices. The government has drawn down the country's Oil Stabilization Fund, and may be dipping into foreign exchange reserves. Iran continues to suffer from double-digit unemployment and inflation - inflation climbed to 26% as of June 2008. Underemployment among Iran's educated youth has convinced many to seek jobs overseas, resulting in a significant "brain drain." .