By Parisa Hafezi and Angus McDowall
DUBAI/LONDON, June 15 - Iran's theocratic rulers have seen off a U.S. military campaign but their real problems may be about to begin: managing the competing demands of hardliners buoyed by surviving the onslaught and those of an impoverished, angry people.
Iran's powerful hardliners are energized by a three-month confrontation they feel Iran has won. They want the leadership to take a tough stance in coming talks with the U.S. and prioritise rearming, confident
they can halt any internal dissent with force.
Ordinary Iranians, however, are desperate for any peace dividend or financial relief to be used in raising living standards and offering better prospects after a destructive war that has followed years of painful sanctions.
Both camps have high expectations, conflicting demands and little patience. Looming in the background is the spectre of renewed mass protests like the unrest authorities quashed in January by killing thousands of demonstrators.
POPULAR ANGER AT ECONOMIC CRISIS
"The moment the war ends, and as this interim deal is shaky, the actual problems for Iran's clerical establishment will start," said Hamidreza Azizi, a visiting fellow at the German Institute for International and Security Affairs in Berlin.
Four Iranian officials and one former official described to Reuters the pressures now facing the Islamic Republic as its population turns from war to survey the ruins of their economy.
Three of those officials said there was a public expectation that any financial relief the government has won from suspended sanctions or restoration of assets would be used to boost the economy and improve people's lives.
One of them, a senior official, who described Iranians as "weary of war and economic hardship", said funds would likely be directed toward reconstruction, liquidity injections for banks and broader economic support.
All four officials either openly acknowledged or alluded to the risks of renewed protests if the authorities failed to improve living standards. One described the deal to end the war as "a double-edged sword" given the heightened level of public expectation.
The former official, a reformist, said the risks were well understood at the highest levels of Iran's leadership and that this was one of the reasons Tehran had accepted the deal to reopen the Strait of Hormuz.
The memorandum to end the war, which Iran and the U.S. are to sign on Friday, is expected to include some financial relief for Iran with more to follow if the sides can conclude a wider deal later this summer.
Iran's economy faces very high inflation, a tumbling currency, widespread unemployment and, since the war began, massive damage to industry and infrastructure that will be very expensive to fix.
"From a domestic perspective, Iran now has a limited window to bring internal conditions under control. The United States has always focused on internal developments in Iran and continues to do so," said Saeed Laylaz, an Iranian economist and political analyst.
Gaining longer-term sanctions relief - allowing Iranian businesses renewed access to global markets and finance - would require a wider deal with the United States over Tehran's nuclear programme, still seen as a distant prospect.
HARDLINERS SEEK REWARD FOR WARTIME STANCE
Throughout the war Iranian authorities staved off dissent through stern warnings and draconian punishments and by deploying supporters to the streets in a series of almost ceaseless demonstrations and other events in support of the system.
After years of urging the establishment to take a harder line against the West, and to demonstrate Iranian power through actions like cutting off the Strait of Hormuz, hardliners feel vindicated and expect their efforts to be rewarded.
The hardline camp contains a range of factions including the Revolutionary Guards. But while the Guards are now ready to accept a deal to help the Islamic Republic survive, the so-called Paydari Front is not.
The front includes prominent parliament members, veteran politicians and influential figures in the media and can command a wide following among the people who have flooded the streets since the start of the war.
While they are not powerful enough to overturn state policy, they can cause difficulties for the ruling establishment.
Many of them are dismayed that Iran is accepting negotiations with the United States now rather than holding off for better terms, especially after the killing of Supreme Leader Ayatollah Ali Khamenei on the first day of the conflict.
"They’re making a deal with the enemy that martyred our leader, even though we had won the war. So what happened to avenging Imam Khamenei’s blood? What kind of Islamic government is this? And now on Friday they want to shake hands with the Imam’s killers," said Hossein, a member of the Basij volunteer militia that is run by the Revolutionary Guards, using a reverential title for Iran's late leader, and asking not to give his family name.
One of the four officials Reuters spoke to, while acknowledging the need to address public hardship, said the war showed Iran's military capabilities were the top priority. Rebuilding Iranian military might would "continue at full pace", the official said.
If the interim deal resulted in a rapid injection of funds to the economy, the government might be able to delay a reckoning with its people for now, said Azizi.
"The most immediate challenge for the leadership is how to convince their own hardline support base that this is actually a good deal. And that is because over the course of the war and during the ceasefire, they relied heavily on this hardcore minority," he added.
Adding to the difficulties the authorities face, the last round of major protests in 2022 to 2023 resulted in a de facto retreat on the issue of public dress codes for women. Since the mass demonstrations over the death in custody of Mahsa Amini, women have been able to go without the long-mandatory headscarves in public, a constant source of irritation to hardliners.
During the conflict the Revolutionary Guard became yet more powerful, helping to elevate their preferred candidate Mojtaba Khamenei in place of his dead father as supreme leader. Khamenei has still not been seen in public and the Guards remain ascendant, analysts say.
They may be as willing to crack down on ideological hardliners who reject a deal they help broker as on protesters challenging the Islamic system, said Alex Vatanka, a senior fellow at the Middle East Institute in Washington.
"I think they will go after anyone who challenges the consensus because domestic control now, post Ali Khamenei, is extremely important. They are going to have social freedoms, like women going around without hijab, but there will be no tolerance for political freedoms," he said.
(Reporting by Parisa Hafezi; Writing by Angus McDowall; Editing by Nia Williams)
