Iran is by far the country hit hardest by Covid-19 in the Middle East and North Africa region. Official figures acknowledge 628,000 confirmed cases and more than 35,000 deaths as of early November in a country of some 80 million; unofficial estimates are much higher. Dozens of high-ranking clerics and politicians have succumbed to the virus, and the case curve has yet to flatten.

What’s more, the pandemic’s timing could hardly have been worse. It has darkened Iran’s already dim economic outlook and increasingly threatens the political legitimacy of the country’s elected government.

Too Little, Too Late

As in the United States, Iranian authorities initially attempted to downplay Covid-19, with President Hassan Rouhani dismissing it as a “foreign plot” to lower turnout in parliamentary elections. In late February, the deputy health minister appeared — feverish and coughing — on national TV in an attempt to quell fears of an outbreak. By early March, Supreme Leader Ali Khamenei was attempting to shift the blame by painting the outbreak as a biological attack by the United States.

Even after rising case numbers and deaths did force the Rouhani government to act, public health restrictions and guidance remained ambiguous. (Sound familiar?) Health authorities implemented just a two-week partial lockdown before moving to “smart social distancing.” The strategy allowed most economic activity to resume, particularly in areas of the country with relatively few cases. However, large social and religious gatherings remained banned, setting up a battle between Rouhani’s civilian government and the powerful clerical establishment headed by Khamenei.

Where the Clerics Fit In

From the start, the spread of Covid-19 in Iran was closely tied to religious practices. The initial outbreak was centered in the holy city of Qom, where several senior clerics fell victim. From Qom, the pandemic spread throughout the country and widened its reach to the whole region, facilitated by the movement of Shia pilgrims between Iran, Iraq and some of the Gulf Arab states.

Government attempts to slow the virus’s spread were undermined by the clerics, who resisted restrictions that infringed on religious practices. The Fatima Masoumeh Shrine in Qom defied the health ministry order closing places of worship, with its custodians arguing that the site had curative properties. More likely, it served as a center for super-spreaders. Such resistance has continued to resonate widely among Iran’s conservatives who are disinclined to trust the Rouhani government.

Finally caving to religious pressure, the government has allowed mosques to be open legally since a supposedly temporary roll-back of restrictions for Eid al-Fitr on May 24. In sharp contrast to Saudi Arabia, which reduced this year’s haj from an expected 2.5 million international pilgrims to a maximum of 10,000 young and healthy Saudi residents, Iran placed no restrictions on attendees to its late August Muharram ceremonies. As Saeed Haddadian, a chanter for Ayatollah Khamenei, put it, “Even if we die, we will hold this year's Muharram ceremonies splendidly.”

It’s the Economy, Too

Not only religious but also economic constraints continue to hamper the government’s capacity to contain the pandemic. Iran’s economy suffers from chronic unemployment, negative growth and widening income disparities stemming from U.S. sanctions, local mismanagement and corruption. As a result, the economy contracted by 5.4 percent in 2018 and 7.6 percent in 2019. The IMF projects a further decline of 6.0 percent for 2020.

By the spring of 2020, the pandemic’s disruptive effects had already reduced average monthly urban salaries to 36 million rials (roughly about $850 in terms of purchasing power) and average rural incomes to barely half that — true poverty by Iranians’ reckoning. Meanwhile, falling tax revenues together with falling oil prices and decreasing oil exports have limited the government’s ability to buffer hard times.

Funding for cash transfers to vulnerable families and for unemployment benefits amounts to just 0.6 percent of GDP. The value of subsidized (but generally not interest-free) loans to Covid-19–impacted households and businesses comes to around 4.4 percent of GDP, while business tax extensions have been limited to three months.

Clutching at straws, Rouhani’s government has attempted to use the pandemic to undermine the U.S. sanctions, which it calls “medical terrorism.” In its first request since the 1979 Revolution, an increasingly desperate Iran asked the IMF to defy the U.S. and grant emergency humanitarian assistance — a move the U.S. easily parried.

Changing Political Dynamics

The too little, too late pandemic response layered on the ongoing economic crisis has damaged Rouhani’s already strained relations with the Islamic Revolutionary Guard Corps (IRGC), an independent player in Iran’s version of the Game of Thrones. From the start, the IRGC’s generals demanded a stricter lockdown, with the conservative force accusing Rouhani's moderate cabinet of indecision and mismanagement. The government and IRGC subsequently established a joint pandemic headquarters to avoid policy clashes over the response, but it has mostly had the effect of moving disagreements out of the public eye.

Meanwhile, IRGC forces have stepped in to fill the vacuum left by the government’s anemic response. The IRGC has mobilized its Basij volunteer militia to conduct Covid surveys, assess symptoms and procure basic necessities for those in need. Their efforts have been relatively effective, reportedly screening 24 million people. The IRGC has also set up checkpoints along the main roads to limit the spread of the virus.

This show of competence in a crisis has helped to rehabilitate the IRGC’s public image, which was seriously damaged by the accidental downing of a Ukrainian passenger jet in early 2020. The Covid-19 relief efforts have drawn attention to the IRGC’s organizational and logistical resources, which are increasingly considered a national asset.

What’s Next?

If, as has been predicted, an intense second wave of Covid-19 arrives in the fall, tensions could further mount between the civilian authorities and the more conservative religious groups and their IRGC allies. Ad hoc community aid groups could be used to exploit social and political grievances and to foment the violent demonstrations seen in the past, which the weakened government would have difficulty suppressing. In a worst-case scenario, the government could face a direct challenge from the IRGC leading to a declaration of emergency rule.

As a last resort, the government is placing its hopes for public support (or at least tolerance) on the securities markets (sound familiar?). Despite Iran’s dismal economic performance and bleak prospects, the Tehran Stock Exchange has become the world’s best performing index over the past year, fueled by Iranian investors’ efforts to protect their assets from inflation, which shows signs of slipping out of control as the government resorts to monetary stimulus to keep the economy above water.

In August, President Rouhani launched a high-profile “economic opening” plan that centers on the pre-sale of oil on the Tehran exchange, creating a financial asset that is relatively protected against inflation. The hope is to emulate the success of a similar fund that trades shares in banks and insurance firms. Reportedly, 600,000 barrels/day of oil will be made available on the bourse (priced in rials converted at near free-market rates from the international dollar price).

In the short run, Iran’s citizen investors may be able to somewhat offset the effects of U.S. sanctions on the country’s oil income (down to just 6 percent of the pre-sanction budget target), while boosting state revenue and mopping up some excess liquidity. In the medium term, however, it seems unsustainable.

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It’s tempting to dismiss Iran’s current troubles as chickens coming home to roost. Or, going further, to wish them ill, as Iran is a major source of dislocation in the region. But not only would that be inhumane — tens of millions of ordinary people are suffering — but also shortsighted. A badly wounded, politically unstable Iran that retains the capacity to develop nuclear weapons and build accurate long-range missiles is a deep threat.

Yet short of returning to the nuclear pact that slowed Iran’s weapons development in return for lighter economic sanctions, it is hard to conjure a happy ending to this story.