The government has long sought to portray itself as a popular democracy, but that veneer is rapidly disappearing. The most recent evidence is the increasing number of prominent Iranians being arrested for openly supporting reform. These prisoners include some religious leaders. The government has, since it took over in the 1980s, been a religious dictatorship, but has always portrayed itself as a government supported by nearly all Iranians. That was never true, and has become less so over the years. In the 1980s, thousands of prominent Iranians were executed or driven into exile. All that was left were those who were true-believers, or at least those who were loyal, or just submissive. These days, there are a lot fewer true-believers, and the government is increasingly paranoid (often with good reason) about the loyalty (to the religious dictatorship) of most Iranians.
A major problem Iran has, at home and abroad, is a tendency to make promises that are not kept, and to cheat. While the West is fascinated, and sometimes terrified, by frequent Iranian press releases describing new weapons, very few of these weapons ever get mass produced, or even enter service. Unfortunately for most Iranians, the same pattern applies with government decisions in general. Thus, according to years of government press releases, Iran should be a paradise for its citizens, yet it is anything but. Corruption, shortages, unemployment and general incompetence are more the norm. Iran's diplomatic efforts suffer from the same bad habits, with most countries who have dealt with Iran, coming away with the perception that Iran cannot be trusted. This extends to foreign nations investing in Iran, where too many projects end badly. All this is catching up with Iran, whose government has fewer friends outside, and inside, the country.
In the last two months, reform groups have tried to organize large street demonstrations, but have only been able to bring out thousands, not tens or hundreds of thousands. The problem is that the government has been quite effective in using carrots (jobs, access to university, medical care) and sticks (increasing brutality against public demonstrators, and execution of protest leaders).
March 2, 2011: The U.S. openly accused Iran of using Hezbollah and Hamas to influence the outcome of the popular uprisings in Bahrain, Egypt and Yemen. Bahrain and Yemen have large Shia populations (a majority in Bahrain), which have long turned to Shia Iran as a source of support. But Egypt is a different case, with hardly any Shia at all. However, Egypt and Iran are rivals for cultural and religious leadership of the Islamic world. Iran has a disadvantage in that Egypt is Sunni (like over 80 percent of Moslems), while Iran is Shia (like about ten percent of Moslems.)
February 26, 2011: The government admitted that it was unloading nuclear fuel from the recently completed Bushehr power plant. It is believed that the Stuxnet computer worm has done some damage at Bushehr, but the Iranians say the move is being made for safety reasons, because of poor construction of the power plant.
February 25, 2011: The UN says it has received sufficient information, indicating that Iran is trying to develop nuclear weapons, to ramp up pressure on Iran to come clean about its nuclear weapons program, and halt it. Iran ignores this sort of thing. Iran may not be able to ignore UN accusations that Iran is trying to obtain uranium in Zimbabwe. Sanctions and international diplomatic pressure can shut down that adventure.
February 22, 2011: After numerous delays, two Iranian navy ships (a 33,000 ton supply vessel and a 1,500 ton frigate) passed through the Suez canal and went straight to the Syrian port of Latakia. The trip is, in part, to train navy officer trainees (cadets). The ships plan to return to move through the Suez Canal again, going home, in the first week of March.
February 21, 2011: A hacker group calling itself the Iranian Cyber Army (ICA), got into the website of the Voice of America radio network (which broadcasts to Iran, in the local language), and put up pro-Iranian government propaganda. The ICA is believed to consist of Iranian hackers who started out as a criminal gang (and still are, they openly trade in data stolen over the net), but are now participating in pro-Iranian hacks, perhaps to ingratiate themselves with the Iranian government. Many, if not most, ICA members are believed to be living outside Iran, but might need a new home real fast if the local cops come after them.