Despite record-high oil revenues, its economy is frail and unable to create the jobs the country needs. Iran is fraught with social tensions and its politics are fractious and polarized. Its domestic problems will be important constraints to its international influence.

Iran's economy has been in the tank and shows no signs of imminent recovery -- this, despite a surge in oil prices that generate a flood of revenues for the government. [Oil provides some 80% of export earnings and around 40-50% of government revenue.] Inflation is running at around 14%, and official unemployment is 15% even though among its huge, young population it is far higher. Iran's economy is smaller than that of Egypt and Saudi Arabia and, like them, it does not create enough jobs for all the young workers that each year enter the labor force. Chronic unemployment is an important and growing problem. Combine this economic frailty with a youth bulge -- 70 percent of the population is under 30 --and the potential for internal instability becomes apparent.

Even without the political pressures created by the needs and expectations of this enormous group of young people, Iran's political situation is shaky. The regime needs to make progress in solving the country's economic and corruption problems. That was the electoral platform of President Ahmedinejad and the widespread popular perception in Iran is that he has the power and the money to deliver on his promises. Yet, the probability that he will be able to do so far enough to satisfy the high expectations of the population is almost nil. Iran lacks the institutions and the policies to achieve rapid progress on the social front and, more likely than not, the living standards of the poor will deteriorate even further given the economic policies now in place.

Additionally, various factions bitterly compete for the ear of the Supreme Leader and rival nations can exploit these divisions by adept diplomacy, as the nuclear talks are demonstrating. Moreover, Iran's neighbors will not roll over and allow it to acquire hegemonic status. If Shiite Iran goes nuclear, Sunni Saudi Arabia will likely respond by doing the same and Israel will not look kindly on the rise of such a hostile power. Naturally, the United States and Europe will not be passive spectators as Iran expands its influence in the region. A more powerful Iran seeking to gain regional preeminence will herald a more competitive -- not a more stable -- geopolitical environment in the Middle East.