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The key geopolitical event over the last few days was, of course, the Iranian "election".  We had a number of astute clients ask for our take on the election late Friday.  Over the weekend we reached out to many of our Middle Eastern contacts, and the answer is nuanced at best.  There are two general interpretations.  The first is that this is a step forward for democracy and pro-Western sentiment in that the anti-establishment voices in Iran have spoken, and even if they have not been heard, the Ahmadinejad administration will have to heed them.  The second interpretation is more dire and suggests that Ahmadinejad has consolidated power and now has the mandate to more aggressively pursue his anti-Western policies, which could include the aggressive pursuit of nuclear weapons.

With 2/3's of the vote counted, the Islamic Republic News Agency reported that current Iranian President, Mahmoud Ahmadinejad, is purported to have earned 66% of the popular vote in the Iranian national election, while the runner up, Mir-Hossein Mousavi, received 33% of the popular vote.  Ahmadinejad represents the conservative movement in Iran, while Mousavi, a former Prime Minister, represents the reform movement.  The reform movement galvanized around Mousavi, particularly the youthful and democratic supporting component, in the days leading to the election.   Mousavi's base is made up of wealthy, urban and more educated Iranians, and he has promoted a free market economic approach with tight fiscal policy and privatization of industry.   Ahmadinejad, on the other hand, has a base that is comprised primarily of the rural poor and government employees (policeman, teachers, etc) with the objective of fighting poverty, a key part of his campaign platform (~25% of Iranian citizens live below the poverty line).

Immediately following the announced results, Mousavi issued a statement implying that the voting was rigged and that he would not, "Surrender to this charade."  We have a limited ability to determine how, or if, the results were fraudulent.  In the United States, and most western democracies, allegations of fraud tend to be localized in nature, such as Florida in 2000 and Ohio in 2004.  National allegations of fraud are typically more difficult to perpetrate because polls leading to the election, in aggregate, are typically a good leading indicator of sentiment and how the election will play out.  In countries such as Iran, polling is more of a political tool, and far from systematic.  In the roughly 15 polls in the two months prior to the election, Ahmadinejad was expected to win anywhere between 24 - 63% of the popular vote (ironically, he "won" more than any poll expected him to win), which is a spread so large that it suggests the polling is largely inaccurate.

Nate Silver, the well known poll analyzer from fivethirtyeight.com, had the following comment about fraud as it relates to the Iranian election:

"Although widespread allegations of fraud, manipulation, intimidation and other all too common elections tactics have been common, statistically detecting fraud or manipulation is a challenge. For example, while mathematicians have been evaluating vote returns for irregularities in normal situational random number distribution, determining what the "correct" results should be is very difficult.

However, given the absolutely bizarre figures that have been given for several provinces, given qualitative knowledge - for example, that Mahdi Karroubi earned almost negligible vote totals in his native Lorestan and neighboring Khuzestan, which he won in 2005 with 55.5% and 36.7% respectively - there is room for a much closer look." 

In effect, proving fraud is virtually impossible without knowing the accuracy of the data.  That said, there are major irregularities versus the 2005 election. The call out above relating to Lorestan would be comparable to George W. Bush getting no votes in Texas in 2004.  Given that Texas is his home state and he carried Texas by a wide margin in 2000, this is  virtually impossible.

Earlier today, Supreme Leader Ayatollah Ali Khamenei announced there would be an investigation into vote rigging claims.  This, of course, followed Sunday's announcement by Khamenei in which he urged the nation to support Ahmadinejad and characterized his election as a "divine assessment."  Ultimately, Khamenei rules Iran legally as dictated in the constitution of Iran.  The Supreme Leader appoints a Guardian Council, which is responsible for approving candidates for any election.  While the Supreme Leader may feign an investigation into vote rigging to appease protesters, the fact remains, he has ultimate spiritual and legal power in Iran and as such will determine who becomes President and what, if any, influence that President may have.  As Genieve Abdo wrote in the Christian Science Monitor this weekend:

"In his victory speech this past weekend, Ahmadinejad said his reelection marked a new future for Iran. But, in fact, by clarifying the supreme leader's power, it signals a future that looks much like Iran's darkest past."

While the popular upheaval in Iran is encouraging, we find it difficult to believe, as Abdo writes above, that much if anything will change in the Islamic Republic of Iran post this election.

Daryl G. Jones
Managing Director