Until quite recently, Iran's largest trade partners was the UAE (United Arab Emirates) with 25 percent (about $12 billion in 2008) of activity. But pressure from Western governments and growing Arab-Iranian animosity, has cut that trade considerably, especially the smuggling of embargoed goods. Germany, which for years was a source of many illegal (for Iran) goods, has also cracked down. That puts more pressure on China to take up the smuggling slack. This makes China nervous, as more such trading means more chances to get caught and censured by other industrialized nations. Meanwhile, the shrinking trade with the UAE (especially Dubai), right across the Gulf, is felt quickly, and daily, by many Iranians. These trade problems do not bother the Iranian leadership greatly, as they see the world differently. They believe that the West is in decline, and that China (and East Asia in general) is on the rise. With China as an ally, Iran cannot be touched. The Chinese have been unsuccessful in convincing Iranian leaders that it does not work exactly like that.
The Iranian leadership are also confident that their police state, with the support of 20-30 percent of the population, can hold onto power indefinitely. That's sort of true, but the experience with police states (mostly communist) in the 20th century is that, eventually, the people rise as one and overwhelm the ruling class and their thugs. Some in the Iranian leadership believe that "1989" (the year most communist police states collapsed) is rapidly approaching for them. Meanwhile, the Revolutionary Guards are trying to come up with a plan to reestablish Islamic radicals on college campuses (which have become centers of opposition to the Islamic religious dictatorship.)
It's true that decades of Western sanctions have been only partially successful, because so many Western suppliers or officials could be bribed. But the growing crackdown on the smuggling is making it harder, or at least a lot more expensive, to move the goods. Iranian actions often trigger more sanctions. Take, for example, the jamming of Western satellite TV within Iran. The government began this last year, even though Iran belongs to international telecommunications organizations that agree to not jam. Iran refuses to halt the jamming, and the only recourse the Western nations have is to cut off Iranian access to lots of communications hardware and software that was not embargoed, but was used to set up the jamming system.
In Afghanistan, recent battlefield victories by the government has resulted in many captured Taliban. And that found many of the prisoners telling the same story, of Iranian agents offering paid terrorism training courses within Iran. There, the Taliban were taught how to make roadside bombs and other terrorist devices. Dozens of Taliban took this three month course over the Winter, and Iran has offered weapons and bomb making materials as well. These are increasingly being captured as they are smuggled across the border. Supporting the Taliban has always been a controversial policy within Iran. When the Taliban ran Afghanistan in the 1990s, they killed thousands of Afghan Shia, and sent many more into Iranian exile. Iran is largely Shia and considers itself the guardian of all Shia. Apparently the Iranian terrorist training operation (the al Quds Force) has a deal with the Taliban. We will support the Taliban if the Taliban back off on attacking Shia in their midst. Both sides know that this is a temporary deal, that ends when the Iranian aid does. But Iranian Islamic radicals are so eager to kill Americans, that they will put fellow Shia at risk to do so.
Iranian security services have obtained the release of an Iranian diplomat who was kidnapped in Pakistan's tribal territories in November, 2008. No details were given, but a ransom, and other favors, was the most likely method used.
It has been revealed that an Iranian nuclear scientist, Shahram Amiri, who disappeared while visiting Saudi Arabia last June, did indeed defect and has been resettled in the United States. Amiri provided a lot of recent information on the state of Iran's nuclear weapons program. This apparently included details of the difficulties encountered in enriching uranium, and plans to build two more enrichment facilities. As a result of this information, the CIA has concluded that Iran could build a nuclear weapon now, if they had enough highly enriched uranium to power it.
Iranian support for Palestinian terrorist group Hamas, includes efforts to convert largely Sunni Palestinians to the Shia brand of Islam. This has caused more anti-Iranian activity among Palestinians, who are being pressured by oil rich Sunni Arab states in the Gulf, to join in the growing struggle between Arabs and Iran (which believes it, not some Arab state, should lead the Moslem world.)
The government crackdown on opposition groups has included those who maintain the Internet based network that enables communication, despite government efforts to interfere. About three dozen anti-government Internet "hackers" have been arrested, and kept away from lawyers or their families. In fact, the government is increasingly just locking up opponents and not allowing any legal proceedings or family visits. That is because many judges and prosecutors cannot be depended on to do exactly what the government wants. Moreover, defense attorneys provide a conduit for information about bad treatment inside prisons.