Iran hardliners take election lead as moderates stymied

TEHERAN (BLOOMBERG) - Iranian hardliners headed for victory in parliamentary elections, sweeping Teheran and other cities in a repudiation of President Hassan Rouhani's engagement with outside powers.

The vote was widely predicted to hand control of the legislature to conservatives empowered by the country's revived, economically damaging standoff with the US. Preliminary results showed that hard-liners won a majority of the 290 seats, according to a tally compiled by the semi-official Mehr news agency.

Estimated turnout was about 42 per cent, the Fars news agency reported, which would be the lowest in the Islamic republic's history.

Hardliners and conservatives won all 30 seats in Teheran, the largest and most influential constituency, Fars said on Saturday after polls closed at midnight. They also dominated in Esfahan, Khuzestan, Mazandaran and several other provinces, Mehr reported.

Participation was held back by the powerful Guardian Council's disqualification of hundreds of moderates and reformists, Mr Rouhani's loss of political credibility as the US reimposed sanctions and a reported surge in coronavirus cases in Iran this week.

Turnout in the 2016 election, which was dominated by reformers and moderates who supported Mr Rouhani and the nuclear deal with global powers, was almost 62 per cent. Several polling stations in both affluent and working-class neighbourhoods of Teheran, the capital, were largely empty last Friday.

Given the vacuum among moderate candidates, conservative factions loyal to Supreme Leader Ayatollah Ali Khamenei and generally opposed to engaging with the West were widely expected to prevail. Ayatollah Khamenei, on his official news portal, praised the "shining of the Iranian nation in the big test of the elections", while accusing "foreign propaganda apparatus" of invoking coronavirus "to dissuade people from taking part in the elections."

Recent military exchanges, including the killing of General Qassem Soleimani by a US strike, and highly-charged rhetoric that has punctuated the confrontation with Washington, have also energised Ayatollah Khamenei's base.

For Mr Mohammad, a 29-year-old voting in Teheran, a shift in the balance of power will not make much difference. "They're all cut from the same cloth," he said of the country's politicians, withholding his last name due to the sensitivities of talking to the foreign media in Iran. "I don't really think there's much to set them apart."

If arch conservatives emerge victorious they'll control most branches of the state for the first time since the end of Mr Mahmoud Ahmadinejad's presidency in 2013.

Mr Rouhani, who delivered on his promise to end Iran's long-running nuclear standoff with global powers but was unable to build a new era of prosperity when faced with US President Donald Trump's economic offensive, will be largely sidelined.

In a timely reminder of how hardliners can influence economic policy, the Paris-based Financial Action Task Force announced on Friday that Iran's banking system will be returned to its so-called black list of countries after failing to ratify legislation required to bring the sector in line with its counter-terrorism financing and anti-money-laundering standards.

Hardliners, currently a minority in Iran's Parliament, have for several years fiercely opposed and effectively stalled the pro-FATF legislation that Mr Rouhani promoted and struggled to ratify, and which would have effectively seen Iran adopt the United Nations' Palermo Convention against organised crime.

Some 7,200 candidates vied for seats on Friday. About 75 current lawmakers were barred from running again by the powerful Guardian Council, tipping the field heavily in favour of conservatives wedded to the theocratic ideals of Iran's 1979 Islamic revolution.

Friday's election also had significant potential consequences for the Iranian economy and the wider Middle East region, including any hope Iran will renegotiate its landmark 2015 nuclear settlement from which the Trump administration withdrew in 2018.

"The crux of this vote is whether it will indicate the outcome for the next presidential elections, which will be more significant," said Ms Ellie Geranmayeh, senior policy fellow at the European Council on Foreign Relations.

"If the Mr Rouhani opposition does take over Parliament, they will see this as ammunition that galvanises them, and they won't want him to have any foreign policy success in his last year," she said.

Some prominent conservative politicians are using the election to stage a comeback and a potential springboard to compete in the 2021 presidential poll, when Rouhani will be ineligible to stand for a third term.

They include the former mayor of Teheran, Mr Mohammad-Bagher Ghalibaf, who is also a former general with the powerful Islamic Revolutionary Guard Corps. Firebrand cleric Hamid Rasaei, who campaigned against the nuclear deal as it was being negotiated, is also hoping to re-enter Parliament.

Amid concerns of a low turnout, the commander of Iran's IRGC on Thursday urged citizens to vote in a show of show defiance to the US. "Every vote by the people is a slap in the face of an enemy," the semi-official Tasnim news reported the commander as saying.

If the new chamber does decisively swing in favour of conservatives, Mr Rouhani may struggle to ratify any key legislation during his final year in office, including efforts to bring Iran's banks within international anti-terrorism financing standards. Ongoing attempts to impeach some key ministers, including Oil Minister Bijan Namdar Zanganeh, are also likely to escalate.

Mr Rouhani's credibility was already battered by the failure of the nuclear deal to deliver the economic relief he'd promised after a decade of international sanctions.

From the get-go, foreign businesses were afraid to sign deals, fearful of running afoul of remaining US sanctions. Any lingering hopes evaporated after the US quit the accord and began imposing fresh sanctions, which have since clobbered the economy. The International Monetary Fund estimates Iran's economy shrank by 9.5 per cent last year.

Conservatives want Iran to abandon Mr Rouhani's push to open up to Western investment and trade, and focus instead on increasing self-reliance. While oil exports, down 80 per cent, show no sign of recovering, construction, steel production and exports for cash to immediate neighbours are doing well.

A crisis budget released in December boosts handouts for the poor and defence spending, though it's based on ambitious growth and oil export assumptions.