Iran's Theocracy Faces Potential Transition to Military Rule Amidst Economic Crisis

Iran analysts are debating whether the Islamic Republic is on the verge of a historic transition — from a theocratic system to one in which the military holds real power.

The Iran war has dramatically accelerated the transformation of Iran's Islamic Revolutionary Guard Corps (IRGC) — a force originally established in 1979 to protect the Islamic revolution — from a military faction into a vast economic and political empire.

The IRGC, through affiliated companies, commands roughly half of Iran's oil wealth, according to estimates, as well as sprawling interests in construction, telecommunications, and export industries worth billions of dollars.

"Although, in the context of the state of emergency that has taken shape since the outbreak of the war on February 28, 2026, the country's strategic and operational command has officially been handed over to war headquarters and top generals," said Faraj Sarkohi, a Germany-based political analyst and author.

"This by no means signifies a transformation of the system into a pure military dictatorship," Sarkohi told DW. "This is because one of the main foundations of this rule remains the institution of Velayat-e Faqih, the official Islamic doctrine, and the clergy as the representative of that doctrine."

Following the killing of Supreme Leader Ali Khamenei in an Israeli attack on February 28, Iran's Assembly of Experts, reportedly under pressure from the Revolutionary Guard, appointed his son Mojtaba as the new supreme leader.

Analysts say the decision reflected a shift in power towards security institutions.

Damon Golriz, a researcher with The Hague Institute for Geopolitics, sees Mojtaba's appointment as a turning point in Iran's history.

"The appointment of Mojtaba Khamenei as supreme leader cements the reality that in the Islamic Republic political calculation and the balance of power — not religious legitimacy — have become the decisive factor," he said.

Mojtaba Khamenei is a 56-year-old cleric who has not held senior religious office or played a visible role in Iran's electoral politics.

"His appointment is based less on qualification and far more on his dense network of relationships and internal power structures," Golriz said. "He may sit in the leader's chair, but at the same time he is hollowing out the office from within. He is a leader in title, but in reality a purely decorative figure."

Mojtaba Khamenei's ties to the security establishment date back to the war years, when he joined the Revolutionary Guard in 1987 and served during the Iran-Iraq War in the Habib Ibn Mazahir Battalion under the IRGC's 27th Mohammad Rasoul Ollah Division.

This battalion became the birthplace of a network that, over the following decades, formed the hard core of the IRGC's intelligence and leadership elite.

This barracks-based network has, over the past two decades, functioned as an extended security arm of the Office of the Supreme Leader.

Golriz noted that since 2009, Mojtaba has played a direct role in coordinating commanders and mobilizing the Basij militia, a paramilitary group within the Revolutionary Guards that was deployed to suppress popular protests.

"He assumed direct leadership of the Basij organization during the suppression of the 2009 protests and relocated security meetings to the Office of the Supreme Leader, thereby establishing key institutional links with the centers that today constitute the overwhelmingly dominant actors of power," Golriz added.

Golriz said that while the official executive power rests with Iranian President Masoud Pezeshkian, "the real power lies in the hands of Mojtaba Khamenei and a network of a new generation of military and security figures."

"Beneath this clerical facade, the center of power has shifted from the theological faculties to the barracks. Mojtaba provides the ideological cover, while the Revolutionary Guard carries out the actual work of governing."

Against the backdrop of these geopolitical and internal upheavals, economic data paint an alarming picture of poverty in Iran — one that, even in the event of a shift in the form of rule from an absolute theocracy to a military junta, is likely to fuel massive public protests.

The International Monetary Fund estimated that the Iranian economy will shrink by around 6% in 2026, with 68.9% inflation.

This surge in inflation, combined with a sharply rising poverty line, has severely crushed the purchasing power of wage earners and the working class.

"The regime lost its intellectual and ideological hegemony years ago," Sarkohi said, pointing to the deep divide between the leadership and society. "The majority of society stands in complete contradiction to the state's culture and has largely broken away from it in its social and private life."

Golriz underscores this with stark figures.

"About 80% of Iranians feel a deep aversion to this system. With an average age of under 35, today's Iran is a post-revolutionary society — one that did not choose this political order and has spent much of the past decade on the streets fighting against it," said Golriz.

"The mass killings of peaceful demonstrators in January 2026 have definitively shattered what remained of the social contract between the regime and the population."

Sarkohi, the political analyst, said that "even state institutions are anticipating a renewed outbreak of spontaneous uprisings in Iran — unrest that could drive people back onto the streets with a single spark."

He added that the regime also faces "organized civil, labor and democratic movements, including teachers, workers, student groups and women."

Both analysts agree on one point: in its new military-religious form, the regime can no longer govern as it did in the past.

Sarkohi predicts that even in the event of a temporary agreement with the United States, it "…will be forced to make concessions and retreats in certain social areas, such as the mandatory headscarf (hijab), while continuing its political despotism in dealing with dissenters and opposition figures unabated."

Golriz outlines a longer-term scenario that is considered unlikely at present.

"The most desirable scenario would be a kind of civilizational reassessment: a genuine national dialogue with a perspective of reconciliation and compromise, so that Iran can evolve from a 'revolutionary utopia' into a normal country — one that is at peace both with its own population and with the world."

The expert, however, is acutely aware of the immense difficulty of this path.

"There is currently no broad-based, credible opposition capable of cohesively representing the will of the majority of society."

Golriz concludes that the Islamic Republic's old mode of governance — grounded in structural corruption, organized repression, and ideological coercion — is no longer effective.

The ayatollahs "will not disappear overnight, but their political will is gradually, yet inexorably, being consigned to the archives of history," he said.

This article was originally written in German.