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LONDON (Reuters) - President Mahmoud Ahmadinejad's management of Iran's economy has been a "disaster" and sanctions are making matters worse, a report said on Monday, but Tehran is still unlikely to compromise on its nuclear program.
Iran is due to hold a second round of talks with six major powers over its disputed nuclear activities in Istanbul on January 21-22 following U.N., U.S., and EU sanctions imposed last year that target oil and gas sectors vital to the Iranian economy.
But Ahmadinejad and Supreme Leader Ayatollah Ali Khamenei, the most powerful figure in Iran, are unlikely to be swayed, wrote Jonathan Paris in a report for the Legatum Institute, a London-based think-tank backed by the Legatum investment group.
"The reality is that even if the economy is hurting, it has a very small place in the calculus of Khamenei and Ahmadinejad. Unless the severity of the sanctions dramatically escalates, it is unlikely that Iranian leaders will see the sanctions as a domestic threat to their survival in power," he said.
"Enormous pressure is required to lead them to compromise on the nuclear program."
If Iran can survive the current wave of sanctions, imposed after eight years of wrangling over Tehran's nuclear ambitions, Iranian leaders may calculate the international community will not be able to maintain enough unity to keep up the measures.
"If sanctions fail to induce a compromise, then it seems that the only remaining measure is to convince Iran's leadership that there is a credible threat of a U.S. attack," said Paris.
Western states believe Iran's drive to enrich uranium is a cover for a secret program to either make nuclear weapons, or at least achieve a capability to do so.
Iran's refusal to comply with previous United Nations Security Council resolutions to allow full inspections of its nuclear sites convinced Russia and China to also back the UN sanctions last June. The United States and the EU added their own additional measures targeting finance and the energy sector.
Iran says its nuclear program is solely to provide fuel for a network of 20 power plants it plans to build so it can export more of its bountiful oil and gas reserves.
Sanctions add to the burden of economic mismanagement that fueled price rises in essential commodities even before the latest round of worldwide food inflation that has sparked protests elsewhere, and even revolution in Tunisia.
"Economic stewardship under President Ahmadinejad has been a disaster for all but a few privileged groups," said the report.
One of the groups to have benefited though is Iran's military elite, the Revolutionary Guards, which has grown more powerful both politically and economically under Ahmadinejad.
It was the Iranian Revolutionary Guards Corps (IRGC) which put down the huge street protests that followed Ahmadinejad's re-election in June 2009.
"The IRGC controls the instruments of power, secures the streets and has become the edifice on which the survival of the clerics depends," the report said.
"It is hard to imagine the clerics ruling without the IRGC, but it is possible for the IRGC to survive without the clerics."
The Guards do benefit however from the Islamic legitimacy conferred by the clerics, Paris said, "otherwise, Iran would simply be another authoritarian regime ruled by a praetorian guard."
Resentment is growing inside Iran, the report said, against lack of investment in jobs at home by a government which nevertheless spends large sums to help Hezbollah in Lebanon, upgrade North Korean missiles and even develop a space program.
But the opposition Green Movement that mobilized the large protests in 2009 is now fractured and split between those who want reform and those who want regime change, Paris wrote.
Iran's political elite is also deeply divided, the report said, with competition among conservatives, ultra-conservatives, reformers, Ahmadinejad, the judiciary, the leader, parliament and clerics and others leading to "decision-making paralysis."
Even so, Iran's elite tends to unite when threatened, Paris said.
"The current leadership appears to be taking Iran into a cul-de-sac, refusing to compromise for fear of looking weak, and moving in the direction of political isolation and economic hopelessness," the report said.
"The leadership harbors ambitions to rival the U.S. as a superpower in the Gulf and beyond. Iran risks, instead, becoming a pariah state."
Editing by Myra MacDonald