Iran: the end of a regime that only force still holds up

After decades of apparent stability, the Ayatollahs’ regime is facing unprecedented military and geopolitical pressure. The attack on Iran’s nuclear facilities has created an uncertain situation in the the Middle East, the impact of which extends far beyond the military sphere. The closure of the Strait of Hormuz, through which a significant proportion of the world’s oil and gas passes, makes this conflict a direct threat to the global economy. The duration of this blockade will determine whether we are facing a temporary energy crisis or a shock capable of disrupting markets and global growth.

10 March 2026 Reading time: 6 minutes 5 seconds

For the past few days, we have been experiencing a turbulent situation following the Israeli-US attack on Iran. It is an attack that many people have failed to understand, given that we were being led to believe there had been hypothetical progress in the Geneva talks. Let’s start there. These supposed advances were subject to ‘red lines’ for the regime, which the Iranian Supreme Leader had publicly stated. The most important of these was its opposition to the US demand that Iran abandon the development of its nuclear energy programme. But that ‘red line’ drawn by the Ayatollahs’ government was, in itself, a red line for the Americans.

We do not know how effective the American attack on the uranium enrichment facilities had been, but it had already been confirmed that Iran had resumed the programme.

“It is rare to find that the red line in a negotiation is the same for both parties, albeit in opposite directions”

Iran had the weapon; all it lacked was sufficient fuel. Once the fuel had been secured, the geopolitical landscape of the world’s most unstable region was set to be turned completely on its head. Not only for the Israelis, but also for those ‘friendly’ Arab countries in the region, for whom Iran is a worse enemy than Israel. From that point on, everything was decided.

To understand the checks and balances of power in Iran, we must go back some 40 years and understand, albeit briefly, what the Ayatollahs are. In the Shia world, the title of Ayatollah is attained when a cleric is recognised by other scholars and by religious seminaries as a mujtahid. Today, there is an unknown number of such clerics, but the figure is estimated to be between 200 and 400.

“The best way to ensure that your neighbours support you in a conflict does not seem to be to attack their territory with missiles”

Above this rank is a higher one, that of Grand Ayatollah, which is attained when an Ayatollah is recognised as a source of emulation, or marja’. There are barely 10–20 such figures. And the one with the most followers, due to his influence, is Ali al-Sistani, based in the principal holy site of the Shia world, Najaf – a city which is not in Iran, but in Iraq.

We must go back to the time when Khomeini was living in exile in Paris. Drawing on his status as Grand Ayatollah and an eminent jurist, Khomeini brought about a constitutional and doctrinal change, which was implemented as soon as he returned to Iran. This involved the incorporation into the Iranian Constitution of the principle of the ‘Rule of the Islamic Jurist’. This principle stipulates that government must be exercised by an Islamic jurist who is an expert in religious law.

Until then, a cleric could exert social influence but could never hold office. And this is where an important feature comes into play: that supreme leader was required to be a Grand Ayatollah.

It is stipulated that the body responsible for electing and supervising the Supreme Leader would be an assembly known as the Assembly of Experts, composed of clerics. It has 88 members, who are technically elected by the people. However, there is a caveat: in order to stand for election, candidates must first be vetted by the Council of Guardians, comprising six clerics and six jurists. The former are appointed by the Supreme Leader, whilst the latter are appointed by the head of the judiciary, who is in turn appointed by the Supreme Leader.

That said, all 88 of those clerics were to be regarded as mujtahids. Anyone reading this will get the impression of a dictatorship masquerading as a supposed democracy.

Then came Khomeini’s death, so a successor had to be chosen. And that is where the then Ayatollah Khamenei came into the picture. The problem was that the constitutional provision imposed by Khomeini required the Supreme Leader to be a marja’, and Khamenei was not.

And this is where the power struggles common to all dictatorships come into play. Khamenei might not have been a marja’, but he was already a highly influential figure within the Revolutionary Guards, who had assumed the role of the regime’s principal military and political force. Added to this was a strong alliance with his potential rival, Akbar Hashemi Rafsanjani. In other words, he came to power not by complying with what was laid down in religious rules, but through his power manoeuvring. Anyone with an interest in modern history will find striking similarities with the communist dictatorship of the former USSR.

“It seems difficult to overthrow a dictatorship, where the supreme leader’s successor is one of his sons, by means of air strikes alone”

Over the past 37 years, Khamenei has ruled the country with an iron fist. Just as every single one of the communist dictators of the USSR did. He controlled all the country’s governing bodies. This is why it comes as no surprise that his successor is one of his six sons, Mojtaba Khamenei. Mojtaba is a cleric, but he does not even hold the rank of mujtahid, let alone that of marja’. He holds a lower rank – that of a cleric with advanced studies in Islamic jurisprudence (hojatoleslam) – but he is, admittedly, very well connected within the Revolutionary Guard. It used to smell of dictatorship; now it smells of a hereditary dictatorship.

This is very important for understanding what we are about to look at, namely the impossibility of any peaceful change – or even change brought about from within – in the Ayatollahs’ regime, because the person in power is no longer an Ayatollah.

Let us temporarily set aside this issue – to which we shall return later – and try to analyse the conflict and how it might develop. The Iranian government has developed, at the expense of its people’s poverty, a powerful military industry. This military industry is estimated to have had an arsenal of between 2,500 and 3,000 ballistic missiles. This is complemented by a powerful R&D sector specialising in drones. These kamikaze drones – the Shahed 136, which have become widely known in the Russia–Ukraine war due to their use by Russian troops – have a unit cost of around 50,000 USD each, rising to approximately 80,000 USD for the upgraded versions.

“With no air force, no missiles due to a lack of launchers, and only a handful of your drones left, all you can do is hope there are no desertions amongst your troops”

On the contrary, his troops are far from being predominantly elite forces. The vast majority belong to the Revolutionary Guard, which is more focused on internal repression than on the defence of the country. These are poorly trained troops with decentralised command structures and obsolete personal weaponry. His real strike force is an independent branch of the Guard, known as the Quds Force. However, this force is very limited, numbering around 15,000 members.

In this scenario, the Americans and the Israelis, supported by the Mossad’s extraordinary intelligence capabilities – which, amongst other things, have been controlling Tehran’s traffic CCTV system for the past 20 years – are managing to ‘weaken’ Iran’s defences by destroying its anti-aircraft batteries, its command centres, its communications network and its arms and munitions factories. Mossad intelligence enabled the country’s strategic decision-making chain to be decapitated in a single attack.

Its air force, already obsolete in its own right (many aircraft date from before the Revolution, such as the F-14s), is now completely inoperational. Once the air defence system has been ‘weakened’ – which will take a week at most – a clear path will have been created for fighter jets to enter, allowing not only the F-35s or F-22s to enter, but also the most destructive aircraft in existence, the AC-130 gunships, which will ultimately destroy all defences.

“The global trading community is keeping a close eye on the US clearing of missile launchers in the areas within the range of missiles fired from the Strait of Hormuz”

And now we come to the most complicated part of the conflict. Will this bring about the fall of the regime? The answer is very simple: no. To go back to the beginning, the regime is a dictatorship on which 50 per cent of the population depends in one way or another, however poorly they may live. The repressive apparatus remains intact, and an unarmed civilian population is powerless to do anything against it.

So what is going to happen? It is said that it will be the Kurds, once armed by the Americans, who will act as the shock troops. But the Kurds are not a regular army, so their effectiveness in combat against a military force – however poorly equipped it may be – numbering between 500,000 and 600,000 troops is questionable. Not even all the air support in the world will enable 8,000 Kurdish fighters to take over the country without the assistance of American ground troops.

So, what’s going to happen? Well, to be honest, I’ve no idea. Could this lead to the conflict dragging on? Well, once again, my answer is the same: I’ve no idea.

So, are we heading for a global crisis? Well, on this point I do have an idea. And the answer is no, we are not heading for an economic crisis, and I’m going to explain why.

The energy crisis we have begun to experience is a direct consequence of the military blockade of the Strait of Hormuz by Iranian troops. This strait, which connects the Persian Gulf with the Gulf of Oman, is barely 38 km wide, but the navigable channel through it is much narrower.

Right now, missile batteries are guarding that pass. Batteries which, in less than two or three weeks, will be completely destroyed, and against which the Houthis in Yemen – armed by the Iranians – stand no chance. Especially not after the devastation the Israelis are inflicting on them.

“As is often the case at the outset of any conflict involving energy resources, the initial reactions in fuel prices factor in effects that subsequently fail to materialise”

The 5th Fleet is in the area and should have cleared it of mines and speedboats in less than 15 days. This would allow safe navigation through the strait. The only nation that could help the Iranians and thus prevent this from happening would be China. But China is the main party affected by the closure of the strait, as it is the main destination for the crude oil and gas that passes through it. The closure of the strait has blocked 20 per cent of the gas and crude oil that circulates around the world. But of that 20 per cent, 70 per cent is destined for Asia. The Chinese may be many things, but they are certainly not fools.

The other reason why this conflict could affect us Westerners in the medium and long term would be if Arab nations were to become involved in the conflict. That is not going to happen. Firstly, because the Persians are Shia, and the Arabs – the vast majority of whom are Sunni – are their bitter enemies. They are all Muslims, but that is all. And to top it all off, Iran is attacking them, and for all intents and purposes it makes no difference whether it is their interests or those of the Americans that are at stake, as long as it is on their own soil

And finally, let’s look at the impact on our economy and whether this could lead to imported inflation, forcing a rise in interest rates and plunging us into another crisis.

Last Monday, Sydney kicked off the week with WTI crude trading at nearly 113 USD a barrel. A day later, the price stands at US$86 – the same level it was at on Friday before the New York close. However, there is also a very effective indicator for analysing market sentiment: the exchange rate between the Canadian dollar (CAD) and the Swiss franc (CHF).

The franc is a safe-haven currency. In other words, it is a currency that prices in fear and uncertainty. But uncertainty is a feeling. The price per barrel, however, is a reality. The price is an immediate reaction; uncertainty is a future concern. If you analyse the relationship between this currency pair, you realise that the price per barrel is carrying less and less weight, whilst uncertainty is carrying more and more; this should mean that, little by little, the shortage is disappearing and, consequently, uncertainty will also gradually disappear.