Trump victory likely to empower Iran's hardliners, worry investors

November 9, 2016 9:23 AM EST

U.S. President-elect Donald Trump speaks at his election night rally in Manhattan, New York, U.S., November 9, 2016. REUTERS/Carlo Allegri


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By Parisa Hafezi

ANKARA (Reuters) - Donald Trump's victory in the U.S. presidential election is likely to empower hardliners in Iran who are pushing for global isolation and discourage already wary foreign investors.

Republican Trump said during the election campaign that he would abandon the nuclear deal reached between Tehran and six world powers in 2015 that curbed Iran's nuclear program in return for the removal of international sanctions.

His tough stance, in contrast to President Barack Obama's offer of an olive branch to Tehran, could serve the interests of hardliners in Iran.

"If Trump adopts hostile policies towards Iran, this will empower hardliners in Iran," a senior Iranian official told Reuters on condition of anonymity because of the political sensitivity of his comments.

A second senior Iranian official said: "Trump's victory will unite Iran's hardliners and their supporters ... It means more political pressure at home and an aggressive regional policy."

During the election campaign, Trump described Iran as the world's largest state sponsor of terrorism and dismissed the nuclear accord as "one of the worst deals I've ever seen negotiated."

But Trump he has frequently made contradictory statements so foreign governments are unsure how much of his rhetoric will be translated into U.S. policy.

Iranian Foreign Minister Javad Zarif urged him to stay committed to the Iran deal. President Hassan Rouhani said the election result would not effect Iran's policies and the nuclear accord could not be dismissed by one government.

But hardliners loyal to Iran's most powerful authority, Supreme Leader Ayatollah Ali Khamenei -- the Revolutionary Guards (IRGC), powerful clerics and influential politicians -- had signaled their support for Trump in the past few weeks.

They are wary of any detente with the West which could imperil the Islamic Revolution, and hold influential positions in the judiciary, security forces and intelligence services.

CONCERNS ABOUT THE ECONOMY

Khamenei, whose hostility toward Washington is the glue that holds together Iran's faction-ridden leadership, has ruled out normalization of ties with the United States, which the hardliners refer to as the Great Satan.

The nuclear deal heightened hardliners' anger over the rise to power of pragmatist Rouhani, elected president in 2013 on a pledge to improve foreign relations and revive the economy.

Tension eased when Khamenei approved the deal, fearing economic hardship might cause the collapse of the establishment.

"Many Iranians and the government see the nuclear deal as the only way to get Iran out of economic isolation," said the first Iranian official. "I don't think Trump will tear up the nuclear deal."

Rouhani's failure to improve the economy despite the lifting of most sanctions in January has opened him to criticism from hardline rivals and powerful clerics.

Some Western companies had been hoping Democrat Hillary Clinton would defeat Trump in the election because of concern over the fate of the nuclear deal.

"Now with Trump's victory, even the European companies will be reluctant to invest in Iran ... in the best-case scenario they will adopt the policy of wait and see," said a senior Economy Ministry official.

The official said this would "harm the credibility of Rouhani and his economic plans."

Iran, which has a population of 80 million, was the biggest economy to rejoin the global trading and financial system since the Soviet Union broke up in 1991.

But many foreign investors are put off by obstacles to doing business in Iran such as the poor state of banks that were long outside the international financial system, the state's big role in the economy and a lack of clarity about the legal system.

Europe's largest banks have been reluctant to finance deals because they fear they could run incur financial penalties by violating U.S. sanctions that remain in force.

"With Trump's victory, major and even medium-size foreign companies, banks and other investors will be more cautious ... to invest in Iran," said Tehran-based businessman Reza Sardari.

"This will harm the economy just when we were hoping to attract foreign investors."

REVOLUTIONARY GUARDS COULD BENEFIT

Khamenei has shown he is anxious about the continuing economic difficulties and has blamed them on the government.

With Trump in the White House, the situation is likely to play into the hands of the elite Revolutionary Guards and an overseas arm, the Qods force, an Iranian security official said.

When the EU and U.S. sanctions were imposed in 2012, the Guards became involved in a wide range of industries, including energy, tourism, auto production, telecommunications and construction.

"With Trump's victory, Iran needs the Guards ... they will gain more economic and political power," the official said.

The Revolutionary Guards first secured an economic foothold after the Iran-Iraq war of the 1980s when Iran's clerical rulers allowed them to invest in leading Iranian industries. Their economic influence grew after former guardsman Mahmoud Ahmadinejad was elected president in 2005.

Tehran could turn to the Guards for help with the economy if Western companies decide to stay away from Iran, even though foreign investors might see that as a further risk because some Guards' members and front companies are under U.S. sanctions.

"The Guards and the Qods Force are Iran's key assets in the region," said the security official. "No matter who is America's president, we will continue to support our regional allies."

Iran, the dominant Shi'ite Muslim power, supports Syrian President Bashar al-Assad and has dispatched teams to Syria to gather intelligence and train Syrian forces. As a rival of Sunni Saudi Arabia, Iran has fought decades of sectarian proxy wars in Syria, Lebanon, Iraq and Yemen.

PRESIDENTIAL ELECTION LOOMS

But the regional policies adopted by Iran's clerical rulers could be constrained by the country's economic problems.

"The Iranian leadership's first priority is to improve the economy," said Tehran-based analyst Saeed Leylaz.

"For a short while, there will be political nuances because of Trump's election ... but then the Iranian leadership has to focus on its own problems. They will try to avoid any confrontation."

Some insiders say Trump's election might motivate Iranians worried by the rise of hardliners to vote for Rouhani in the presidential election scheduled for May.

Others say he faces a struggle to maintain popularity if the economy does not improve soon.

"If there is no economic upswing before Iran's presidential elections, Rouhani will be accused by his hardline rivals of giving away too much on the nuclear issue and failing on the economy," said a moderate former Iranian official.

"This will make him a very weak president even if he gets re-elected."

(Editing by Timothy Heritage)



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