February 22, 2025: Ayatollah Ali Khamenei, the 85 year old ruler of Iran has lost much in the past 18 months. The Israelis destroyed Hezbollah in Syria and Lebanon and Hamas in Gaza. Iran has also lost influence inside Iraq. This is mainly because Iran is ruled by a religious dictatorship that condones aggressive interference in neighboring countries. Iraq has long been the main recipient of this meddling. Iran has long sought more economic and political influence in Iraq.

This is made easier by Iraq’s internal problems from corruption. Historically what is now known as Iraq was seen as the most corrupt region in the Middle East, if not the world. Despite that, a growing number of formerly pro-Iran Iraqis have changed their minds. The current Iranian government has been an economic, diplomatic and military disaster for Iran. Few Iraqis want to emulate Iran and this now includes Iraqi members of pro-Iran militias. To encourage and maintain these pro-Iran attitudes, the Iranians supplied militiamen with weapons and regular cash payments.

Growing economic problems inside Iran have reduced the money needed to keep those Iraqi militiamen loyal, so they aren’t. Iraqis were also put off by the brutality Iran used to suppress the hijab protests that began two years ago and only began to diminish a year later. The corruption by the clerics who run, or just support, the government has grown as the economic problems most Iranians must endure have increased.

The clergy are more blatant with their corrupt practices. This is made possible by putting clergy in charge of many economic activities and charitable organizations. Clergy now often do their stealing openly and without apology. The religious dictatorship still has the support of its Islamic Revolutionary Guard Corps or IRGC. Khamenei is the senior cleric on the Guardians Council that is the final authority in the government. Twelve senior clerics on the council have ruled Iran since the 1980s. Tenure on the council is for life. Iran is also a democracy, but the Guardians Council decides who can, or cannot, run for office.

The elected officials run the government and pass laws that regulate the government and economy. The IRGC was created to protect the Guardians Council from internal and external threats. In the last few years the council has regularly met with IRGC commanders to discuss accusations of mismanagement in the government, the poor state of the economy and growing shortages of cash for the IRGC to operate and support foreign operations. The IRGC saw corruption as the main reason for the poor state of the economy and growing discontent among Iranians.

These meetings led to calls for a national referendum on whether to maintain the Islamic Republic and the Guardians Council dictatorship. An alternative solution would be the Guardians Council agreeing to adopt a new constitution that would satisfy enough Iranians to avoid a civil war. Many Iranian leaders believe that an uprising is possible if the religious dictatorship does nothing or tries to suppress this movement with violence. That kind of suppression is not as convincing as in the past and members of the religious establishment and some IRGC leaders openly express concern that an uprising was possible and whoever wins, Iran loses.

So far, a majority of the Guardians Council opposes any concessions. IRGC leaders are less eager to oppose any concessions. Many IRGC leaders are closer to the protests and have a better sense of how angry Iranians are and how far most Iranians are willing to go. The IRGC is not large enough to take on most Iranians and many individual IRGC men are not willing to slaughter a lot of fellow Iranians to keep corrupt religious and IRGC leaders in power. The senior IRGC commanders are more belligerent in their support of whatever the Guardians Council wants and threaten those who openly oppose the Guardians Council with violent retribution.

The Iranian economic situation keeps getting worse. While the government admits to an inflation rate of about 50 percent, most Iranians consider that unrealistic because many Iranians keep track of prices and know that many food items have doubled in price over the last two years. The real inflation rate is closer to 60 percent and rising. Most Iranians no longer trust the government when it comes to improving the economy. That means many Iranians seek to obtain dollars for their savings and major purposes. The dollar is far more stable than the Iranian rial. The declining value of the rial and increase in prices is a major factor in the growing poverty rate. At the start of 2022 more than half the population was visibly living below the poverty line, even though the official poverty rate was about 40 percent. A year later the poverty rate is over 50 percent and that will get worse in 2024 and 2025. Another visible sign of economic distress is the decline in value for the local currency versus the dollar and the subsequent overall inflation.

The situation has gotten a lot worse in the last few years. For example, in 2019 it cost 120,000 rials to buy a dollar. That led to a new currency, the toman, which meant the exchange rate was 12 toman to the dollar. The toman was what some Iranian currency was called for a long time, until 1925. The revival of the toman was necessary because people needed too many rials to purchase basic goods. Many Iranians still use the term. The exchange rate has recently gotten a lot worse. In 2020 you needed 26 tomans to buy a dollar while in 2025 you needed 44 tomans.

Despite strenuous efforts the government cannot reduce that rate and keep it low. The government spent a lot of dollars trying to reduce the exchange and seemed to succeed in November, but the Americans increased restrictions on dollars headed for Iran and the Iranian efforts could not handle that. Twelve years ago, a dollar could be had for three tomans. The current foreign exchange crisis is largely due to exporters of non-oil goods keeping about half the money they receive in banks outside the country. That was in response to government efforts to enforce a fixed exchange rate that made life worse for businesses and consumers. Avoiding that is a good business decision because that money is safer from government corruption if it is kept in foreign banks. Many Iranians with jobs prefer to keep their savings in dollars, even if that is illegal and local banks cannot be used. Because of their corruption and economic incompetence, the religious dictatorship feels more threatened by their subjects than by any external threat.

The mullahs’ problems dramatically increased in December when years of their neglect and corruption in Iran’s oil and gas industry brought about a collapse in natural gas production so severe that its president had to officially admit the problem on national television. Worse, the solution he chose was to close down much of Iran’s industry so the population could use the freed-up natural gas from that for home heating and lighting in winter.

The situation in Iraq is more difficult for Iran because the obvious targets are American troops still in Iraq and foreigners in general. Iraqis appreciate the American presence because it is mainly about going after Islamic terrorists and Iran-sponsored violence. There are still some American soldiers in southeast Syria where they continue to eliminate local Islamic terrorists. The U.S. troops usually do this by calling in American airstrikes. Another important development is that Iraq is undergoing reconstruction. There are no economic sanctions on Iraq and the oil revenue is being spent on projects inside the country. This provides jobs and other benefits for Iraqis. Iranian-sponsored violence is not appreciated.

Overstretched Iran is also involved in the Ukraine War. Iran has supplied Russia with more and more military equipment, weapons and munitions for use in Ukraine. These sales have included Iranian-made Mohajer-6 drones. Since 2021 Iran has been offering Mohajer-6 to potential export customers seeking a reasonably priced armed drone. Mohajer-6 is similar to older Israeli Heron drones but is equipped to carry four small laser-guided missiles or smart GPS guided bombs. The Mohajer line of drones first appeared in the 1990s and were crude by comparison with Western, especially Israeli and American, drones. Iran could not find foreign customers willing to buy these early models but they were accepted and used by foreigners that received Iranian weapons to be used against Israel or other enemies of Iran. Mohajer-6 was different and Iran sought to present this drone as a cheaper alternative to Chinese armed-drones.

Iran also continues to deplete its artillery ammunition inventory in order to supply Russia. These shipments have included 14,000 152mm shells for D20 towed howitzers, 10,000 high-explosive shells for T-72 tank guns as well as replacement barrels for the T-72 tank and the 122mm D30 towed howitzers. These guns and ammunition are sold to Russia, and not at a discount. Russia needs more artillery and shells for its big guns. Iran is one of the few foreign suppliers available to Russia.