This study examines the processes of continuity and change in modern Iran,covering the period before and after the 1979 revolution, analysing the changing character of Shia Islam historically to explain Shia thinkers' perception of and response to the modern world. In making this assessment, elements of the history of Shia Islam are examined. This is to illustrate its relationship with modernity, not as a historical treatment of Islam. In explaining its relationship to modernity, this study\ud identifies the nature of the development of the Iranian political economy - from pre-capitalism to modern capitalism - as having taken an uneven form. This unevenness is largely a consequence of the incorporation of the old mode of production into modern capitalism. The key area in this process has been the modern oil industry and its relation to the state - which emerged as a rentier state (a state which receives a huge amount of income without the need to impose high taxation), and continues to play a vital role in Iran's political economy.\ud \ud The uneven development is reflected in social and cultural areas, where there has not been uniformity in the integration to the world economy; rather the\ud adaptation to new developments has been uneven. Shia Islam as an ideology has not been immune from this process: the original ideas and beliefs may be presented anew but the core survives, in the Koran, Hadith (sayings of Prophet) and traditions. Religious leaders have had to concern themselves with the transformation occurring within the community, whether at local or global level. The role of Shia thinkers becomes vital in explaining major transformation in their perceptions, promoting an\ud understanding of modern institutions such as the nation, state and constitution. The establishment of the Islamic Republic in 1979 showed elements of both continuity and discontinuity in the perception of Shia thinkers and these are examined, in particular, concerning the role of the state and the oil industry. This continued to play a vital role after the revolution, as the state still had to obey the dictates of the world market, for the export of its oil and import, not only of necessary raw materials and capital goods for the operation of the nationalised industries, but also to provide the supply of arms required to fight its war with Iraq. Forced by these economic and political constraints, Shia thinkers' perceptions relating to modernisation continues to present itself in diverse forms.\ud \u
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