The war in Iran, and the illegal attacks on the leadership of the religious and military regime from both Israel and the United States, indicate a desire, inter alia, to change the political system from outside. Yet the road to a meaningful change lies elsewhere for the sole macroeconomic postwar reconstruction misses the point. The beginning of the ceasefire, even temporary, encourages to think about the day after the war in terms of economic governance, institutional resilience and constitutional architecture for the Islamic Republic. At the same time, the growing weakness of the international order established since 1945 and the emergence of authoritarian China as an economy with phenomenal growth and extensive surveillance capabilities demonstrate that even the dominant Western system and its liberal and conservative economic and political doctrines are not the only viable way to organize nations and their economies. What about Iran?

Iran’s Islamic Republic has been conditionally integrated into the global economic system since 1979, primarily as a result of its relatively poor political relations with its Near Eastern neighbors, as well as its relations with the United States and the European Union. This stands in stark contrast to the previous situation before 1979: Iran and the now much debated straits of Hormuz were one of the main trading routes between Europe, the Arab World and India. Iran’s closeness to Russia after the latter’s conquest of Central Asia, and China, and its placement within networks considered revisionist of the current geopolitical order, have prevented the establishment of a successful development model. Such a situation contributes to the crisis within Iran today and helps define the nature of any potential reforms that may emerge after the war.

Dual structure

Any reform scenario for Iran that limits itself to macroeconomic stabilization or postwar reconstruction misses the core of the problem. The crisis of the Islamic Republic is not just the consequence of sanctions, military pressure, or diplomatic isolation, but the outcome of a political economy that has institutionalized duality as a principle of government. Iran is governed simultaneously by elected and unelected institutions, by parliamentary representation and clerical tutelage, by formal ministries and informal power centers. This dual structure has not only weakened state capacity, but it has also prevented the emergence of a productive economy. Any serious reform in subsidies, taxation, finance, foreign investment, labor markets or industrial competition threatens not only vested economic interests, but also the ideological core of the regime itself. Iran has therefore developed a system of selective adaptation rather than full-scale transformation, a system of resilience without prosperity. This is the result of a long-term development, too (longue durée).

The first imperative of reform is therefore a shift in economic policy in the direction of fiscal and distributive restructuring. Iran cannot generate a viable path of growth if it continues to rely on generalized subsidies, politically mediated credit and a weak tax system. Energy subsidies in particular have functioned not as an instrument of social justice, but as a mechanism of political postponement, masking inefficiencies and buying temporary social peace at the cost of investment, competitiveness, and fiscal coherence. At the same time, abrupt subsidy elimination would reproduce social conflict. What is needed is not radical liberalization, American style reforms, but a gradual sequenced transition toward a social market economy or a market socialism model, in which the provision of subsidies is accompanied by strategic compensation schemes, banking reform and industrial opening. In the absence of such sequencing, reform will appear as elite redistribution at the expense of the middle class.

Bonyads

Within this context, the reform of the bonyads is also crucial. Bonyad is the Persian equivalent to the all present (in Islamic countries) system of pious foundations, called vaqf or (in the Maghreb) habs. The Shahs of Iran utilized this Islamic institution (with Byzantine origins) as a counterbalance against wealthy Iranian landowners, a strategy that has been also used by German Emperors. The intricate web of claims surrounding a bonyad (usually an institution like a mosque or madrasa) has been a central topic of debate for Islamic jurists since their earliest texts. As a result, the vaqf and bonyad systems form a foundational structure that characterizes large components of both the historical Ottoman and Iranian economies. It involves the exemption of land tenure from regular taxation and property inheritance. As Cizakci has shown, this system permeates all Near Eastern Economies since their foundation. No serious transformation of the Iranian economy can take place with such a large part of economic activity remaining embedded in institutions of political privilege and weak accountability. The bonyads emerged first during the Safawid dynasty in Iran (16. – 18. century) as a tool of the Shah to make formerly Sunni Iran predominantly Shii and as a counterpart to the zamindar, traditional competitors with the monarch in economic power. With 1979, they developed into revolutionary instruments of redistribution, moral authority, and social welfare. However, over time they became central pillars of a para-state extractive regime, where ideological proximity has been translated into economic advantage. Their exceptional status has distorted competition, undermined transparency, and blocked the formation of a functional economic system in Iran. To leave them untouched would mean to preserve precisely the type of institutional fragmentation that has rendered the Islamic Republic economically inefficient and politically unaccountable. Their reform should not necessarily begin with abolition (as in Turkey), because that would ignore their embeddedness in the social fabric of the republic, but with outsider privatization and the maintenance of an ownership and control minimum by the government. Their assets, budgets, and corporate structures should be subject to parliamentary auditing, competition rules, and disclosure requirements. Without the transformation of the bonyads from opaque ideological conglomerates into accountable economic institutions, the Iranian economy will remain trapped between state centralization and para-state privilege. This weakness of the Central government was already the background for the demise of the Safawid dynasty, whose study is crucial for understanding modern Iran.

Parliament

Yet economic reform alone cannot succeed if the constitutional hierarchy of the system remains intact. The deeper problem of the Islamic Republic is that the parliament has never been the central space of state sovereignty. After 1905, the constitutional revolution (enqelab e mashrute), the elected chamber (majles) exists, but today it does not govern on equal terms with the religious establishment. It legislates under supervision, represents under limitation, and deliberates within boundaries established by unelected institutions. This hierarchy between clerical tutelage and parliamentary representation has prevented not only democratic consolidation, but also coherent state capacity, because no elected government can fully commit to reform when the main decisions are not taken within its premises. This permanent quarrel continues the antagonism during the Pahlawi dynasty (e. g. Mosaddeq). It should be noted that Reza Shah, the founder of the last dynasty, was elected by the parliament (and Mosaddeq voted against him). A truly representative system would therefore require a constitutional order, where the parliament becomes the primary site of lawmaking and executive accountability. At the same time, the religious establishment should be repositioned into a consultative, moral, or symbolic function rather than a superior constitutional authority.

A referendum

This is why a referendum on the Islamic Republic itself becomes essential. Such a referendum should be understood as a constituent act that addresses the foundational question of sovereignty in Iran. Does the country wish to remain organized as an Islamic Republic in the present sense, that is, as a polity where republican institutions operate under clerical supremacy? Or does it seek a new constitutional settlement in which religion remains socially and historically central, but no longer monopolizes the state and its institutions? Only such a referendum can break the cycle in which every reform is blocked by the unresolved contradiction between popular representation and religious guardianship. At the same time, the referendum could also work as a global economic signal toward domestic business groups, the diaspora, and foreign investors. A constitutional referendum would, therefore, function not only as a democratic mechanism of legitimation, but also as a precondition of economic credibility. It would correct the older referendum after the 1979 revolution.

The external reorientation of Iran must follow from this domestic restructuring. The Islamic Republic has survived through geopolitical balancing, sanctions evasion, and selective integration into Russian and Chinese economic networks. Nevertheless, this is not a long-run development strategy that can be implemented without repression. A postwar Iran cannot indefinitely organize its economy around discretionary oil rents, shadow financial channels and protected monopolies. What is required is a plural and strategic reintegration into the world economy, in which access to Western capital, technology, and finance is combined with diversified trade relations and a domestically anchored developmental strategy.

Towards stabilization

The future of Iran depends not on a simple change of leadership, but on the dismantling of the political-economic core that has defined the Islamic Republic since 1979. The reform of the bonyads, the constitutional subordination of clerical hierarchy to representative government, and the organization of a referendum on the republic itself are crucial conditions of stabilization. Only then can reconstruction move beyond survival mode and take the form of a new developmental compass. To underscore these processes is also a task for Academia – while in Germany many chairs on Iranian studies have been abolished or are nowadays busy but with grammatical questions.