Economy remains top focus for Iran's Rouhani, emboldened by polls

[DUBAI] President Hassan Rouhani and his allies in Iran's new parliament will set their sights on rebuilding the economy rather than risking the ire of hard-liners by advancing more liberal political and social change.

With economic recovery hinging on foreign investment, Rouhani's government is seeking to pass laws that would attract international oil companies and make doing business in Iran easier for foreigners. A focus on loosening political and civil liberties would risk a backlash from rivals who control powerful conservative institutions. It may also face resistance from Rouhani's boss: Supreme Leader Ali Khamenei.

"It's very important to remember that everything will be down to his relationship with the supreme leader," said Saeed Laylaz, an Iranian economist who was an adviser to former reformist President Mohammad Khatami. "Mr Rouhani's relationship with Mr Khamenei is a million times more important than the new shape of the parliament." After securing a landmark nuclear accord with world powers that lifted a raft of sanctions, Rouhani is now seeking to translate his diplomatic coup into benefits for Iranians before next year's presidential election, when he might seek a second term. Presenting a five-year development plan to the outgoing parliament in January, Rouhani said the government is targeting as much as US$50 billion in investment a year to boost growth and create jobs.

Key to this will be upgrading oil infrastructure and investing in exploration to boost output of oil and gas. To achieve that, the Oil Ministry has devised new contracts linking fees paid to international companies to oil-price movements. Some hard-line politicians have vowed to oppose the plan, saying it amounts to squandering national wealth.

"More attractive packages for foreign companies could cause some issues with constitutional interpretations which may then create challenges in parliament," said Ellie Geranmayeh, Middle East and North Africa policy fellow at the European Council on Foreign Relations in London.

Results published by local media showed that while none of Iran's main factions had an overwhelming majority, reformists and moderates were headed for their best showing in parliamentary elections in more than a decade, when allies of then-President Khatami held a majority in the 290-member Majlis. Hardliners who controlled institutions such as the judiciary reacted by closing down dozens of liberal publications and weakening the president's authority.

Khatami was succeeded by Mahmoud Ahmadinejad, a former mayor of Tehran whose reign was marred by hyperinflation and economic hardship as the Islamic Republic reeled under international sanctions targeting its nuclear program. So when preliminary results on Sunday showed Rouhani's allies in control of the capital's 30 seats, reformists wasted no time in celebrating.

"Dear citizens! Attention please, attention please, Tehran is now free!" read one message posted on social media. The reformist Aftab newspaper heralded "the soft breeze of victory" in a headline on its front page on Sunday.

"No one can resist the will of a majority and whomever is unwanted by the people must step aside," former President Ali Akbar Hashemi Rafsanjani, an ally of Rouhani and one of the early founders of the Islamic Republic, said on Twitter.

A list headed by Rouhani and Rafsanjani also took an early lead in a separate vote for the Assembly of Experts, a top clerical body tasked with selecting the supreme leader when the position becomes vacant. Renowned hardline clerics Mohammad Taghi Mesbah Yazdi and Mohammad Yazdi lost their seats, according to the initial vote count. Both have opposed reforms.

Together, Friday's two elections could play a significant role in shaping the country's direction, amid deep ideological differences over the wisdom of opening up to the international community.

For Rouhani, a key challenge will be balancing demands from reformists eager to push for more political and social freedom, and conservatives who share a deep distrust of the West and US regional allies such as Saudi Arabia.

"Figures such as the key leaders of the reformist bloc who have now been more empowered within the parliament could push Rouhani toward a reform agenda that's not necessarily the administration's priority," said Geranmayeh.

In a statement on Sunday, Khamenei hinted that parliamentary results shouldn't be interpreted as a mandate to ignore Iran's deep misgivings of world powers.

"Progress doesn't mean getting dissolved in the global arrogance," he said, a term that refers to the US Parliament "will have heavy responsibilities when it comes to this," he said.

Unlike with Khatami, Rouhani's ties with the supreme leader and the ruling establishment helped advance his number one priority - sealing the nuclear deal with the US and five other world powers over more than two years of talks. That remains key to the future of his presidency, said Laylaz.

Rouhani "has been successful in managing the relationship with Mr Khamenei. He did a lot of jobs that at first seemed impossible," he said in an interview. "Fortunately there is cooperation between them and without that cooperation the president couldn't do anything."

BLOOMBERG