In 1985, the Iran-contra affair began with arms shipments to Iran in exchange for release an American hostage in Lebanon. The Reagan administration's National Security Council convinced itself that surreptitious dealing would strengthen the "moderates" in Tehran against the extremists.
Nine years later, Iran stands informally accused by Israeli and American officials of sponsoring new outbreaks of terrorism, notably bombings against Jewish targets in Argentina and Britain. Iranian influence in Hezbollah in Lebanon is still great.
The decree of the late Ayatollah Ruhollah Khomeini, calling for the assassination of the British author Salman Rushdie, was reiterated by his successor, Ayatollah Ali Khamenei. This punctured efforts of the supposedly moderate president, Hashemi Rafsanjani, for improving relations with the West. President Rafsanjani, who probably did try to bring a pragmatic flexibility to the revolutionary legacy, is openly ridiculed.
Economic reforms similar to those of post-Soviet Eastern Europe are in remission. The theocratic grip on the economy is growing. People are getting poorer and goods scarcer. The government gave in to bloody riots in the northern city of Qazvin, agreeing to include it in Tehran province as a way of keeping more tax money there.
That unrest was purely economic, but the June bombing of a mosque in Meshed, in the northeast, was probably a response of Sunni fundamentalists to repression by the Shiite regime. That undercuts the pretense of Iran to influence Sunni fundamentalists who are troubling regimes in North Africa from Algeria to Egypt.
Geopolitically, Iran will be a major regional power as long as it exists, depression notwithstanding. Its population dominates the Persian Gulf and its oil reserves are the leading alternative to Saudi Arabia's on world markets. But the hopes for realism in Tehran have receded rather than advanced. The mullahs are in charge and unchallenged. They consider the United States evil. Any U.S. policy that does not accept that premise is wild fantasy, now as much as nine years ago.