Iran is surrounded by turbulent neighbors, with republics of the former Soviet Union to the north, Afghanistan and Pakistan to the east, and Iraq and Turkey to the west. The south faces the Persian Gulf and the Gulf of Oman. Since 1979, when a revolution led by Ayatollah Khomeini deposed the shah, Iran has become the world's largest theocracy and the leading center for militant Shi'a Islam. Iran's active support for Islamic fundamentalist movements has led to strained relations with central Asian, Middle Eastern, and north African states, as well as the USA and western Europe.

The population comprises several ethnic groups. The people of the north and center – about half of all Iranians – speak Farsi (Persian), while about a quarter speak related languages, including Kurdish in the west and Baluchi in the southeast. Another quarter of the population speaks Turkic languages, primarily the Azaris and the Turkmen in the northwest. Smaller groups, such as the Circassians and Georgians, are found in the northern provinces.

Until the 16th century, much of Iran followed the Sunni interpretation of Islam, but since then the Shi'a sect has been dominant. Religious minorities, accounting for just 1% of the population, include followers of the Bahai faith, who suffer discrimination, Zoroastrians, Christians, and Jews. The regime has a remarkably liberal attitude to refugees of the Muslim faith. Nearly three million Afghan refugees were received during the height of the Afghan civil war, although many have since returned. In Khorosan province in the east, refugees account for nearly a quarter of the population; near the Turkish border they constitute half the total population. Many are young, resulting in intense competition with Iranians for jobs and consequent ethnic tensions.

One of the main consequences of the 1979 Islamic revolution was to reverse the policy of female emancipation. The revolution restricted the public role of women and enforced a strict dress code, obliging women to wear the ankle-length hijab and keep their heads covered with a scarf. More liberal attitudes have gradually emerged, and reform of the divorce laws has been proposed, under which it would become possible for proceedings to be initiated by the wife.

Strengths

OPEC's second-biggest oil producer; soaring world oil prices in 2000. Potential for related industries and increased production of traditional exports: carpets, pistachio nuts, and caviar.

Weaknesses

Theocratic authorities restrict contact with West and access to technology. High unemployment and inflation. Excessive foreign debts.

Profile

With few industries other than oil, US sanctions and fluctuations in oil prices made foreign earnings volatile; higher prices in 2000 held out the prospect of being able to invest in diversification.

Iran is a theocracy. Tension exists between the conservative mullahs and the reformist government.

Profile

Iran's religious revolution of 1979 was fueled by popular outrage at the corruption, repression, and inequalities of the shah's regime. Since the time of Ayatollah Khomeini, successive Iranian governments have maintained that the clergy have a religious duty to establish a just social system. Accordingly, the legislature, the executive, and the judiciary may, in theory, be overruled by the religious leadership; former president Hashemi Rafsanjani's moderate policies were questioned by radical clergymen advocating "permanent revolution." However, the mullahs' failure to address Iran's economic problems has eroded their political standing. Reformists were encouraged by the election of President Mohammad Khatami in 1997, but the clergy remains powerful. Huge student demonstrations in 1999 and 2000 in favor of reform were offset by crackdowns on reformist politicians and newspapers. The mullahs, so far unbowed by reformist election victories, have continued to confront the modernizers.

Main Political Issue

Mosque versus secular state

A power struggle between the clergy and the secular state has arisen from the ill-defined division of power between the two. The conservative faction in parliament lost its overall majority in 1996 and has been steadily displaced by reformist politicians, who in 2000 made sweeping gains in parliamentary elections. In 2001 reformist president Khatami was reelected, this time with an overwhelming 77% of the vote.

Khatami is committed to modernizing the economy, but is strongly opposed by the mullahs, for whom adherence to religious values is more important than material welfare. Student proreform protests were heavily suppressed by hard-liners, who remain a force, despite the 2000 elections, through the powerful Council of Guardians.

Following the 1979 revolution, Iran assumed international significance as the voice of militant Shi'a Islam. Iran is accused of backing terrorist activity by Muslim extremists and fostering unrest throughout the Middle East and central Asia.

Under President Khatami, Iran has tried to convey a less confrontational image. Improved relations with Saudi Arabia, troubled since Iran's seizure of the islands of Abu Musa and the Tumbs in 1970, resulted in the signing of a pact in 2001. Ties with the West have also improved, although relations with the USA remain tense and suffered a sharp setback in early 2002 after US President George W. Bush cast Iran (with Iraq and North Korea) as part of an international "axis of evil.".

Iran's main security preoccupation is with Iraq, which allows mujahideen guerrillas to mount attacks on Iran from its territory.

Iran has more than 500,000 men under arms, including the 125,000-strong Revolutionary Guard Corps (Pasdaran Inqilab), and is regarded by neighboring states as a serious military threat. The testing of medium-range cruise and ballistic missiles in 1998 heightened concern over Iran's possible military objectives.

Before the 1979 revolution Iran was part of a pro-Western alliance structure. The long war with Iraq in the 1980s diminished the military power of the revolutionary regime. A new defense agreement with Russia allowing for the sale of arms to Iran was reached in 2000.

Iran has substantial oil reserves. It also has metal, coal, and salt deposits, but these are relatively undeveloped. The agricultural sector is an important part of Iran's economy. Principal crops are wheat, barley, rice, sugar beet, tobacco, and pistachio nuts.

Iran was once an opium exporter, but its cultivation and use have since been banned. The vodka industry has also been closed down. Enough wool is produced to supply the carpet weaving industry. Iran has insufficient livestock to supply the domestic meat market and has to import large quantities. The Caspian Sea fisheries are controlled by the state, which sells caviar for export.

War damage to southern Iran, especially at Bandar Khomeini, the tanker terminal at Kharg Island, and the refinery at Abadan, has caused significant environmental damage. Environmental issues are not of concern to the religious leadership.

Adequate roads link main towns, but rural areas are less well served. Most freight travels by rail. A ferry runs from Bandar-e Abbas to the UAE.

Although an adequate system of primary health care exists in the cities, conditions in rural areas are basic. The major problem facing the nation's health is the fast-growing population. Under Khomeini, having children became a political and religious duty, but the high birthrate has now forced the introduction of birth control programs, and sterilization and contraception are now officially promoted. Growing drug addiction has resulted in rehabilitation programs and antidrug propaganda. AIDS is spreading, and was recognized as epidemic in 2001.

Most of the population is literate. Primary education, which lasts for five years from the age of six, is free, as are universities, but a small fee is charged for secondary education. Most schools are single-sex. There are 36 universities. Students are strong supporters of liberalization and the reformist agenda of President Khatami.

Revolutionary guards enforce order. More than 100 offenses carry the death sentence. Executions, of both men and women, are common for political "crimes." Iran is accused by Western governments of supporting international terrorism by Muslim extremists abroad. In 2000 the government finally admitted that narcotics addiction, prostitution, and the violent abuse of women were rife.

After the 1979 revolution, living standards in Iran declined markedly. A shortage of foreign exchange has stifled imports of consumer goods. Rationing, brought in during the war with Iraq, is still partly in force, and smuggling from the Arab Gulf states is rife. Unemployment is high, and few Iranians are able to gain access to modern technology such as telephones. Official figures for income per capita do not relate to conditions on the ground. In reality, oil wealth fails to reach the economically deprived. Private businesses have gradually emerged in Iran since the launch in 1994 of the country's first private savings and loans associations.

Iran's historical heritage, mosques, and bazaars formerly attracted sizable numbers of tourists. This flow was cut off by the 1979 revolution, which deterred visitors, especially from the West. In the 1990s, however, there was a rise in the number of business people visiting Iran. Procedures at Tehran's Mehrabad airport have been simplified and the capital's hotels refurbished. In late 1998 President Khatami's more liberal regime welcomed a delegation of US tourists, despite opposition from conservative groups.

Persia was ruled by the shahs as an absolute monarchy until 1906, when the first constitution was approved. The Pahlavis took power in 1925 and changed the country's name to Iran in 1935.

• 1957 SAVAK, shah's secret police, established to control opposition.
• 1964 Ayatollah Khomeini is exiled to Iraq for criticizing secular state.
• 1971 Shah celebrates 2500th anniversary of Persian monarchy.
• 1975 Agreement with Iraq over Shatt al 'Arab waterway.
• 1977 Khomeini's son dies. Anti-shah demonstrations during mourning.
• 1978 Riots and strikes. Khomeini settles in Paris.
• 1979 Shah goes into exile. Ayatollah Khomeini returns from exile and declares an Islamic republic. Students seize 63 hostages at US embassy in Tehran.
• 1980 Shah dies in exile. Start of eight-year Iran–Iraq war.
• 1981 US hostages released. Hojatoleslam Ali Khamenei elected president.
• 1985 Khamenei reelected.
• 1987 Around 275 Iranian pilgrims killed in riots in Mecca.
• 1988 USS Vincennes shoots down Iranian airliner; 290 killed. End of Iran–Iraq war.
• 1989 Khomeini issues fatwa condemning Salman Rushdie to death for blasphemy. Khomeini dies. President Ali Khamenei appointed Supreme Religious Leader. Hashemi Rafsanjani elected president.
• 1990 Earthquake in northern Iran kills 45,000 people.
• 1992 Majlis elections.
• 1993 Rafsanjani reelected president.
• 1995 Imposition of US sanctions.
• 1996 Majlis elections. Society for Combatant Clergy loses ground to more liberal Servants of Iran's Construction.
• 1997 Earthquake south of Mashhad kills 1500 people. Mohammad Khatami elected president.
• 1998 Khatami government dissociates itself from fatwa against Salman Rushdie.
• 1999 First nationwide local elections since 1979. President Khatami visits Italy: first Iranian leader to be welcomed by a Western government since 1979.
• 2000 Sweeping election victory for reformists. Crackdown on reformist newspapers.
• 2001 Khatami reelected, winning 77% of vote.