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Conservative clerical forces led by Ayatollah Ruhollah KHOMEINI established a theocratic system of government with ultimate political authority vested in a learned religious scholar referred to commonly as the Supreme Leader who, according to the constitution, is accountable only to the Assembly of Experts AOE - a popularly elected member body of clerics. US-Iranian relations became strained when a group of Iranian students seized the US Embassy in Tehran in November and held embassy personnel hostages until mid-January The US cut off diplomatic relations with Iran in April During the period , Iran fought a bloody, indecisive war with Iraq that eventually expanded into the Persian Gulf and led to clashes between US Navy and Iranian military forces.
Iran has been designated a state sponsor of terrorism for its activities in Lebanon and elsewhere in the world and remains subject to US, UN, and EU economic sanctions and export controls because of its continued involvement in terrorism and concerns over possible military dimensions of its nuclear program.
Following the election of reformer Hojjat ol-Eslam Mohammad KHATAMI as president in and a reformist Majles legislature in , a campaign to foster political reform in response to popular dissatisfaction was initiated. The movement floundered as conservative politicians, supported by the Supreme Leader, unelected institutions of authority like the Council of Guardians, and the security services reversed and blocked reform measures while increasing security repression. His controversial reelection in June sparked nationwide protests over allegations of electoral fraud, but the protests were quickly suppressed.
Deteriorating economic conditions due primarily to government mismanagement and international sanctions prompted at least two major economically based protests in July and October , but Iran's internal security situation remained stable. In June Iranians elected a centrist cleric Dr. He is a longtime senior member in the regime, but has made promises of reforming society and Iran's foreign policy.
Economic concerns once again led to nationwide protests in December and January but they were contained by Iran's security services. Iran's economy is marked by statist policies, inefficiencies, and reliance on oil and gas exports, but Iran also possesses significant agricultural, industrial, and service sectors.