Shortly after Christmas, conservative opponents of the reformist Iranian president, Hassan Rouhani, organised a small demonstration in the city of Mashhad. The protests rapidly spiralled out of control, spreading across the country. No one should be surprised by this show of deep dissatisfaction and anger – a cocktail of poverty and unemployment mixes headily with the ability to be connected to the outside world thanks to satellite TV and social media.

For numerous external critics of the Islamic republic, these protests offered a glimpse at the possibility of regime change in Iran, and were gleefully received. The leader of the free world flexed his Twitter digits and obscure opposition groups raced to record YouTube messages.

On the streets in Iran, the anti-government chants of “death to high prices” escalated into anti-regime slogans such as “death to the mullahs”. While these made their way on to global news broadcasts, the more xenophobic chants of “we are Aryans, we won’t worship Arabs” got less airtime. Iranians are active social media users (20-30 million have smart phones) so not surprisingly images and video footage from the demonstrations and the associated riots filled the airways. As Ladane Nasseri, an Iranian journalist for France 24, tweeted, some of these have been very suspect. One might hesitate to emulate Michael Ignatieff and seek pearls of wisdom from questionable sources, such as Khaled bin Salman, 28, the Saudi ambassador in Washington. The muddied and bloodied waters are – at least as far as the US, Israel and Saudi Arabia are concerned – wriggling with potential geopolitical advantage.

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Among less partisan observers and my unscientific sample of friends and family, the dominant view is that the country is not near a precipice. Nor does anyone think that this revolt by marginalised and impoverished people mostly in provincial towns is directed from abroad – something both the opposition and the regime claim.

Certainly a serious rupture within the political landscape has occurred; a line has been crossed in the history of the 39-year-old republic. In Iran political struggle is always complicated by a struggle over cultural policy which remains key to social control. The state concerns itself with such frippery as tightness of jeans and exact coverage provided by head scarves.

Rouhani (a pragmatic and centrist reformist politician) inherited a basket case of an economy from his populist conservative predecessor, Mahmoud Ahmadinejad: a 40% inflation rate, a freefalling currency and exploding unemployment. The Iranian economy is dominated by corruption, favouritism and a lack of transparency verging on gangsterism. To his credit, by the end of his first term, Rouhani had reduced inflation to under 10% and had made peace with the world by signing the Joint Comprehensive Programme of Action, the nuclear deal. In his second term he has tried to tackle the structural problems in the economy, fixing the balance of payments and curtailing the gigantic public sector, which counts for more than 30% of the economy. On the cultural front, Rouhani had managed to reduce the incursions by the state into people’s private lives and dramatically reduce the number of executions for drugs trafficking.

Rouhani has tried to reduce or remove subsidies and had plans for people to sign up for benefits rather than receive them automatically. These measures directly affect about 30 million people, including the poorest in society, while his attempt at balancing the budget with a more rigorous taxation policy made obvious enemies, especially among businesses owned and operated by religious foundations.

The Islamic republic has transitioned from revolution to establishment, fought off Saddam Hussein and resisted intense US pressure

The budget, released on 16 December, united his conservative enemies. The foundations and other business institutions, which trace their roots to the first years of the revolution, are today fiefdoms of powerful religious and military figures. They cost the state millions: they pay no taxes and there is no proper accounting. Rouhani had the audacity to publish exactly how much they cost.

In 1978, the spark that led to the downfall of the Pahlavi regime didn’t seem significant either: a single article attacking the exiled Ayatollah Khomeini, then an obscure figure. However there are key differences between the political context of 1978 and our times. The shah was an old-school despot with a great deal in common with today’s Saudi royal family. He wasn’t just the leader of a one-party state – having ordered the abolition of all political parties, he acted as the chief ideologue and day-to-day ruler. He was the state, power personified. Today’s noisy and messy Iranian political scene bears no resemblance to the arctic silence that preceded the 1979 revolution.

Facebook Twitter Pinterest The current Islamic republic is used to daily street demonstrations and does not react with the same brutality as the Pahlavi regime in 1979. Photograph: AFP/Getty Images

Factions representing interest groups widely characterised as reformist and conservative, in fact contain factions within factions, with a multitude of sometimes overlapping and always competing groups. The often questioned and no doubt imperfect elections are nevertheless held with regularity and are energetically contested and are representative of the polity. The Islamic republic may seem fragile and divided from the outside yet it has successfully transitioned from revolution to establishment and fought off both Saddam Hussein and resisted intense US pressure for decades.

The very idea of street protest shocked the Pahlavi regime which reacted with brutality. The Islamic republic has been used to daily street demonstrations for decades. In recent times, especially after the suppression of the green movement in 2009, the state has been acquiring the latest crowd-control methods.

The less reported, but perhaps more significant conflict in Iran, is one that has pitted the president against conservatives, supported at least by some elements of the Islamic revolutionary guard. Those who initiated the original anti-government demonstrations are trying to absorb much of the energy it released, riding the tiger they barely control. A media arm of the revolutionary guard posted on Thursday an impassioned crowd-sourced set of genuine grievances on Aparat, the Iranian version of YouTube, as a direct dig at the government, while the BBC reported that leading reformist cabinet members’ social media accounts were also hacked by groups associated with the guards.

Whatever their wrangling, both political factions are acknowledging the grievances of the crowds even as they attack and curtail their methods. Both are trying to figure out how to leverage the demonstrations to further their cause. The reformist government’s ability to deliver on its economic plan depends on its capacity to offer more social freedom to its middle class base who hungers for it, while the conservatives’ claim to deliver their less well-off supporters freedom from hunger is not without merit. Iran is a country blessed with an embarrassment of riches: it should be able to deliver both bread and circuses. The survival of the republic depends on it.

Masoud Golsorkhi is the editor of Tank magazine