Wrapped around Tehran's north, the mountains form a fortress-like barrier between the city and the Caspian Sea. And so it is with Iran itself, a nation squeezed in, first by a religious straitjacket that for 35 years has restricted the lives of its 77 million citizens, and second by the vice-like clamp of international sanctions aimed at disrupting its advancing nuclear program.

Enter 65-year-old Dr Hassan Rouhani, Iran's seemingly "reformist" new president, who wants to pull off what promises to be an economy-changing deal. In return for Iran agreeing to limit the level at which it enriches uranium (to widespread international scepticism, Iran continues to insist it is enriching uranium purely for peaceful purposes) and allowing its nuclear facilities to be subjected to rigorous international monitoring, Rouhani wants the US to lift economic sanctions. First imposed after the 1979 revolution, and greatly enhanced since 2010, these sanctions have crippled the flow of trade.

Rouhani - who easily won last year's presidential election - has many true believers and expectations are high. "Rouhani's opponents will become less powerful if he gets the economy going strongly; the political dynamic will change and they will become marginalised," says Dr Rocky Ansari, an economist and business consultant. Sitting at a gleaming boardroom table in his city office suite, Ansari is adamant that an economic boom would be sparked if sanctions were to end, allowing Rouhani to buy time in challenging the die-hards of the country's Islamic regime.

Across town at Tehran University, economics professor Mohammad Khoshchehreh is on the same riff. "The radicals will become less powerful and will have less room to dictate the terms of life for the people and the nation. If Washington would let the Iranian economy become stronger, all these other issues would be resolved automatically." Khoshchehreh wants to see Iran emulate China. "Iran could then make ideology significantly less important than the economy," he tells me.

A Tehran-based foreign diplomat explains the political terrain this way: "Parliament is becoming quite hard-line. MPs realise that if Rouhani pulls this off, many of them will lose their seats in the 2016 parliamentary elections. Rouhani has the backing of a coalition of moderates and reformists, which expects progress in opening up the civil and cultural spaces of Iranian society." Although a man like Rouhani is in every way a son of the regime - he was in exile in France with the father of the revolution, Ayatollah Khomeini - the diplomat insists the new president now wants a society more liberal than the Chinese model. "He would like a smaller state and greater freedoms," the diplomat says.

I'm left wondering if reformist economist and commentator Saeed Laylaz is being overly optimistic while we're having tea in his spacious living room. "Iran is entering a post-revolution chapter - we don't want this revolution to be our life for ever - we have to pass beyond this period," he says. "[Iranian Supreme Leader Ali] Khamenei and the rest of the regime know the old policies don't work any more."

Australians recently had an awkward moment observing the combined consequences of economic sanctions and Tehran's fiscal mismanagement when Reza Barati, a 23-year-old Iranian asylum seeker looking for a better life in Australia, was clubbed to death at Manus Island detention centre in February. When I speak with members of Barati's extended family in Tehran and, by phone, at their village home in provincial Ilam, in western Iran, they volunteer that many of the area's young men have opted for the people-smuggler's route to a better education, job and life - about a dozen of them were locked up at Manus Island when Barati, an architecture graduate, died.

The hustle and bustle in Tehran's streets and markets can be deceiving. The economy here is really suffering and, as a result, so is the average Iranian. "Show-trial" actions by the US Treasury, alleging sanctions-busting deals by some of the world's biggest banks, have proved highly effective. No culprit has proved too big a target: Britain's Barclays was hit with a $US176 million fine in 2010, the London-based HSBC for $US375 million in 2012, and the Dutch bank ING for a whopping $US619 million in the same year for a litany of sanction breaches around the world. And no offence has been too small. American insurer GEICO was zapped because it collected two car insurance payments from a banned Iranian, while the Association of Tennis Professionals was made to pay about $50,000 for making salary payments to an Iranian tennis umpire.

The American message has ricocheted around the world: do business with Iran and you won't be doing business in the US. More than 145 banks in 60 countries have been warned off and virtually the entire global shipping business sailed in the other direction. Countries like China continued to purchase Iranian oil - but on a barter basis, paying with Chinese-manufactured goods, which Iranians complain are of poor quality. By one account, tens of thousands of automotive workers have been laid off, caused partly because of a shortage of parts, and real unemployment is believed to be significantly higher than the officially acknowledged rate of 10.3 per cent. Drive around Tehran, and virtually every construction site appears to be at a standstill. Earnings from the export of oil and gas have more than halved. Government salaries, to teachers and municipal workers, can go unpaid for weeks at a time.

In a single week in 2012, sanctions-induced chaos caused the nation's currency, the rial, to plummet by 40 per cent. The official exchange rate of 12,260 rials to the US dollar became a joke against the black-market rate of a bit more than 30,000 rials. But since a deal was struck in Geneva late last year between Iran and six world powers, in which Iran won slight relief from sanctions as a "confidence builder" while talks continue on a possible long-term agreement, there is a near-giddy air of expectation in Tehran.

"Sanctions have peaked - the business community believes the worst is over," Rocky Ansari tells me. "The US is here in a big way already ... Pepsi, Coca-Cola, Procter & Gamble, Caterpillar, Hewlett-Packard, Apple - we don't have a relationship with them, but they have market dominance through companies in third countries that on-sell to us."

After decades of war and sanctions, pent-up demand in the Iranian economy is huge. "Airbus was here recently and Boeing is seeking a licence to supply airline parts, but we need 200 to 300 new aircraft," says Ansari. "The potential for auto makers is huge - the French, Japanese, Koreans and Chinese want some of that. We're one of the world's biggest food importers, too."

Others are less impressed with Rouhani, insisting he is an Islamist to the core. A Tehran analyst who doesn't want to be named maintains that Rouhani's negotiations with the West are merely designed to buy time for the regime - "to reduce tension on a temporary basis, say for a year or two, so that when we revert to isolation and confrontation, we have economic and political power, national unity and our domestic house in order.

"Think of it as a grace period - to avoid war, to avoid confrontation. Remember 16 years ago? That was [reformist president Mohammad] Khatami's time - it seemed like perestroika or glasnost. And they've been trying to walk in China's shoes since [former president Akbar Hashemi] Rafsanjani said if Deng Xiaoping can do a deal with the US that ignores human rights and the Saudis can do the same, why not Iran?"

This analyst laughs at the notion that Iran somehow might become an open society, even if the cost was regime change. "Any genuine easing of tension would be subversion; how do you forget all those 'Down with the USA' slogans? What happens to the psyche of the people after 35 years of indoctrination? If there is no enemy, no Great Satan, who are we?"

The toll of sanctions on the people of Iran is huge. Pollution, exacerbated by the sanctions, now puts Tehran among the habitual worst offenders - alongside Mexico City, Beijing, Bangkok - for dangerously bad air. The smog is exacerbated by an inferior home-brewed petrol, which Iran makes because the sanctions have blocked its regular imports of more refined petrol.

Things are more harrowing for cancer patients and the sufferers of other diseases that require imported drugs. Ahmad Ghavidel, head of the Iranian Haemo-philia Society, ends up yelling as he ticks off the factors contributing to a medical crisis for millions of Iranians. "Sanctions are such a brutal form of war," he rants. "[European Union foreign affairs chief] Catherine Ashton and Barack Obama would not be so proud of sanctions if they could see my patients - they don't have life expectancy, they don't have hope."

He says that one patient - a 15-year-old boy - has died because sanctions deprived him of lifesaving drugs, but thousands more have been disabled in one way or another for the want of medications that cannot be imported. While some foreign-produced drugs are smuggled into the country, they're not usually carried by refrigerated transport and some arrive up to eight months after their use-by date.

Curiously, when I ask to interview one of these medical victims of the sanctions - a cancer patient and his or her family - the regime's propaganda machine can't make a single person available. To provide such an example for the foreign media would be an admission of human frailty, a weakness in what the Iranians call their "resistance economy".

But there is room for Porsches, Maseratis and BMWs for a small group of super rich. At his luxury vehicle showroom in Tehran, car dealer Ishmail Mojahed rattles off a slew of statistics that seem a bit unbelievable. "You know Maserati made only 20 of its GranCabrio Fendi Limited Edition in 2012 - 16 or 17 of them are in Iran. Porsche made 46 of its Panamera 4S Middle East Limited Edition - 30 of them were imported to Iran. Ferrari can't sell here, but one of their cars is here and it's for sale - the asking price is $US2.6 million."

Mojahed says he attempts to sidestep the sanctions by buying new models in the Gulf and then shipping them to Iran. Recently he was getting better deals in Hungary and Turkey. "I sell anywhere between 30 and 100 cars a month," he says, explaining that some of his regular customers have several of a particular make of exclusive auto - "the only difference is the colour".

As Mojahed walks us through the showroom, a man who describes himself only as a retired government worker sinks into the driver's seat of a new Porsche, but then confesses he'll probably settle for a BMW. A father and son seem to be serious buyers - as the 29-year-old civil engineer son inhales the new car smell of a small green BMW sedan, his 53-year-old father, an industrial engineer, explains that it's a common gesture of love for an Iranian father to buy a car for his son.

At Golestan retail mall in well-heeled Shahrak Gharb, in Tehran's north-west, there's no shortage of classy labels: Versace, Gucci, Dior and Armani. And at the flashy Nayeb Saei Restaurant downtown, an establishment modelled on the Taj Mahal, tail-coated waiters flit between tables, coaxing and cajoling or bullying patrons to eat their pricey fare as fast as possible because the line of people waiting for tables stretches out into the street. The well-heeled customers are either regime cronies or the canny types who profit from the blossoming black market that's blossomed since the trade sanctions.

Elsewhere, at Tehran's Behesht-e Zahra war cemetery, thousands of grieving families pour in on Fridays to pay respect to the hundreds of thousands of Iranians who died in the 1980s Iraq-Iran War, and to those who more recently perished in the messy conflict in neighbouring Syria. The crowds create an on-foot version of Tehran's traffic gridlock as they wander, handing cakes and dates to other mourners and lightly tapping various headstones with the tips of their fingers - an Iranian tradition of informing the dead that they are not forgotten, we're told.

Standing in the cemetery next to the grave of his brother, retiree Behrouz Morddi embodies the mix of hope and scepticism with which his people view their new president. "I don't expect significant change - he just follows the same 20-year-plan of the previous governments," Morddi tells me. "Yes, Rouhani talks in a completely different way to Mahmoud Ahmadinejad [Iran's president from 2005 to 2013], but as our supreme leader [Ali Khamenei] tells us, 'We have to resist to go forward.' "

Nearby, a group of 20-something students spread carnations on the grave of a friend who died two months earlier while fighting near Damascus for the Syrian regime of Bashar al-Assad. They are familiar with the regime song sheet - the US wants to stop Iran reaching nuclear capability, but the nuclear question is merely a pretext for an ongoing struggle. "But our independence is not for sale," one of them says - and the others nod in agreement.

In ancient times, the zurkhaneh, or "house of strength", was used to forge elite Persian warriors. Today, it happens at local gyms in Iran. A spectacular mix of yoga, callisthenics, aerobics and weights, it is performed by men in fancy embroidered trousers trimmed in leather.

At the end of a session at Hozhabr Gym in south Tehran, three young followers chat about life under sanctions and the revolution. Describing himself as an emotional patriot, 23-year-old currency trader Seyyed Hashem Moustavi condemns the sanctions, which he says killed his mother two years ago. She had been on dialysis for 20 years but as sanctions tightened it became increasingly difficult to get the drugs she needed.

His student friend, Mohammad Reza Ghasemi, 23, estimates that 10 per cent of the people he knows are jobless - and as many as 40 per cent more are stuck in the only jobs they can find. Ghasemi declares his belief in the revolution but acknowledges its shortcomings. "We have a long way to go before we get to utopia," he says. A grey-haired old man interrupts, angrily warning the young men to "think of the nation" as they speak, but Ghasemi ploughs on. "When we figure out that the revolution can't deliver utopia, we'll put it away."

But when I drop in on pro-regime commentator Mehdi Fazaeli, he assures me that all is well with the revolution. "After 35 years of provocation, our enemies have not been successful," he says. Put to Fazaeli the suggestion that Rouhani is poised to take Iran into a post-revolutionary era and a faint smile of derision creases his face. "Some of those around Rouhani might support it, but this scenario belongs with our enemy and it will not be allowed to reach its goal," he says. "Even if a president was to cross red lines, we have the power and political structures that make it impossible for him to act. We are in a war of wills with the West and the side with the strongest will wins - we will win."

Fazaeli, it turns out, becomes something of a warm-up act for a candid account of just where the revolution stands - from a life-long friend of the supreme leader. The white-bearded Hamid-Reza Taraghi went to school and to jail with Ali Khamenei during the reign of Shah Mohammad Reza Pahlavi. At his office in a regime compound in the hills north of the capital, Taraghi happily punctures Rouhani's balloon by declaring that, so far, there are no tangible results from the new president's first seven months in office.

"We really hope he will be successful at home and abroad," Taraghi says, "but as the Supreme Leader has said several times, we rely on our local capacities -- not on negotiations with the West. Rouhani's initial reliance on negotiations with the West has been shown to be misplaced by only a slight easing of sanctions at the Geneva talks late last year."

Once our formal interview is over, Taraghi becomes much more candid over a coffee. "How did you all feel when Mahmoud Ahmadinejad's presidential term was up?" I ask. "Was there a collective wiping of the brow and declarations of 'Thank God he's gone!'?"

"Actually, it wasn't like that," replies Taraghi. "Ahmadinejad was a successful president with good achievements in terms of transport and the welfare of rural people - he provided insurance for 23 million of them. He built more than two million homes in eight years, the best housing figures since the revolution.

"Other [Iranian] governments have not achieved such figures and I doubt that Rouhani will ever achieve half of what Ahmadinejad achieved. He was such a hard worker and today's cabinet just doesn't compare with Ahmadinejad's."

If Ayatollah Khomeini's revolution has persisted in a near continuous cauldron of war and/or sanctions for more than 30 years, it's not unreasonable to assume that the regime's clerics know how to roll with the punches. But a sense that time is running out is a theme that permeates many of my interviews. Economist Saeed Laylaz worries about the incredible economic pressure on impoverished Iranians. He warns of a "Black Spring", a hint of the risks involved if the government moves to axe subsidies - when petrol was rationed and the price increased in 2007, mobs set fire to dozens of service stations.

The country's first woman publisher, Shahla Lahiji, reiterates the same point. "You can't imagine the gaps between the poor, the middle classes and the rich in this country," she says. "We have a population of 77 million, so there could be a sudden movement that cannot be controlled - an explosion by people without a plan, which is what we don't want.

"There is no benefit in a revolution - we've done that before and we know it doesn't work. Everything was destroyed, nothing was replaced and the bloodshed was unbelievable. Any change has to be step by step - we are not looking for a civil war."

Told that others see Rouhani's election as a window of opportunity for Iran, Lahiji grimaces. "There will not be a lot of change under him," she says.

What would it take then? Lahiji stabs the air with her finger. "Give us an opening just the size of my finger and we'll keep pushing until it's big enough for the people of Iran to pass through."

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