Shahram Sharif/Creative Commons

Why now? Why after 30 years of clerical repression have the people of Iran suddenly rebelled? The short answer: In Iran as in the West, it's the economy, stupid.

Iran's central bank reports an inflation rate of 25%. The unemployment rate--already 10.5% when Mahmoud Ahmedinejad came to power--has reached 17%.

Endowed with vast resources of oil and gas, Iran ought to be a wealthy country. Yet, adjusted for inflation, the income of the average Iranian today is no higher than it was in 1975. Under the shah, the average Iranian was significantly richer than the average South Korean. Today, the average South Korean is three times richer.

Iran's top three exports other than oil and gas? Pistachio nuts, saffron and carpets. Iran imports 40% of its gasoline, because its own dilapidated refineries cannot keep pace with demand.

Almost three-quarters of the economy is owned by the state or by religious foundations. That creates ample opportunities for Iran's notorious corruption. Religious leaders and their families have helped themselves to farmlands that once belonged to the shah and other leaders of the previous regime. They take kickbacks on arms sales and steal oil money. Ayatalloh Akbar Hashemi Rafsanjani has become the country's richest--and most despised --man.

Economic stagnation and corruption helped bring Mahmoud Ahmadinejad to power. In 2005, Rafsanjani sought election as president. (He had previously held the office from 1989 to 1997.) Iran's supreme leader, Grand Ayatollah Ali Khameini, shrewdly recognized that a third Rafsanjani presidency would kill whatever little confidence Iranians still felt in the Islamic regime.

So Khameini sought an alternative: a person without much education, of simple tastes, conspicuously unwealthy. The buffoonish Ahmadinejad nicely fitted the bill.

One problem: Ahmadinejad quickly proved himself even more economically incompetent than his crooked predecessors. Iran has collected $272-billion in oil and gas revenues in the past four years--$100-billion more than it collected during the previous presidential administration of Mohammad Khatami.

Yet despite that windfall from record oil prices, economic conditions have sharply deteriorated under Ahmadinejad.

Ahmadinejad used the windfall in part to fund new free-spending social welfare programs. On his cross-Iran tours, he would personally distribute cash to newly married couples. This lavish spending accelerated Iran's inflationary problems. Ahmadinejad's nuclear bravado provoked international economic sanctions that cut into Iran's already scanty foreign investment.

The collapsing economy has exacerbated Iran's already horrific social problems. Iran is home to some two million narcotics users. Despite (or perhaps because of ) the regime's repressive sexual attitudes, prostitution flourishes: An estimated 85,000 prostitutes work in Tehran alone. Last year the head of Iran's anti-vice police force was arrested cavorting with six naked prostitutes in a Tehran brothel. It's generally estimated that Iran is home to 80,000 cases of HIV/AIDS--three-quarters of these cases traceable to intravenous drug use.

As Iranians grumbled, Ahmadinejad fought back on the only issue he had: corruption. Presenting himself as the one honest man in the Iranian elite, he revealed ever more shocking details of clerical corruption: This ayatollah's son-in-law had enriched himself out of the state-controlled sugar industry, the son of the former speaker of the parliament had become a billionaire out of kickbacks.

Such stories, once secretly gossiped about, were now being broadcast on national television. But instead of calming the economically hard-pressed public, the revelations only enraged the voters more. Trying to save himself, Ahmadinejad discredited the whole regime.

Since the death of the ayatollah Khomeini, the Iranian regime has allowed limited competition within the system--always on the understanding that all the competitors would respect the rules of the game. Now very suddenly the regime has lost control of the competition. Mahmoud Ahmadinejad has broken all the system's rules in order to keep the presidency; Hossein Moussavi is breaking the rules in order to gain it. As old taboos are smashed, the way has been opened for ordinary Iranians to break into the game--confronting the regime with a choice of surrendering to its people or using violence against them.

A great and ancient culture and civilization with an increasingly urbanized and sophisticated population, Iran has so much more to offer the world than terrorism and pistachio nuts. Whatever its outcome, this dramatic week has shown the world what Iran could be, if ever liberated from its corrupt, hypocritical and ravenously greedy Islamic theocracy.

David Frum is a resident fellow at AEI.