Iran is slightly more than three months away from the most crucial election since the Islamic revolution in 1979. The outcome will have immense implications for Iran's future political direction and, therefore, its relations with the West and the access of foreign companies.

Iranians will go to the polls in mid-February to choose new deputies for the Majlis, their parliament. Unlike many states in the region, Iran's parliament is more than a mere talking shop. It has real powers and provides an effective counterbalance to the government.The faction that controls the Majlis has a loud voice and a potent weapon in Iranian politics. That currently consists of conservative elements who are suspicious of economic reforms and closer ties with the West.

Reformers led by President Mohammad Khatami want to gain control and use the Majlis to enact their agenda of economic reforms, respect for the rule of law and better relations with the West.

Khatami's visit to Paris last week, the first by an Iranian head of state since the 1979 revolution, underscored the reformers' desire to woo the West. He addressed the general conference of the U.N. Educational, Scientific and Cultural Organization.

Until a few months ago, an election victory for Iran's reformers appeared all but certain. Khatami was elected with a huge majority after a contested ballot in 1997. Local elections in early 1999 confirmed his popularity.

In addition, he had overcome several attempts by conservative elements in the security forces and the judiciary to intimidate his supporters.

Khatami offered hope to Iran's young population (more than 50 percent of Iranians are under 20) who were tired of the restrictive nature of Iranian society and the lack of economic opportunity. Some of those supporters, students at Tehran University, took to the streets in July to support him and to protest the closure of a pro-Khatami newspaper.

The conservative-controlled police attacked and five days of rioting ensued. Khatami was forced to distance himself from the students and his bandwagon slowed.

Conservative elements had seized the initiative and were determined to capitalize on their position. Khatami has been on the defensive ever since, despite gaining the arrest of 98 police officers involved and a National Security Council report condemning the police action.

The conservatives have used their control of the Majlis to erect nearly insurmountable obstacles to reform candidates. A new election law effectively bans most of them from standing for election. In addition, the law increases the voting age from 16 to 17. This takes out of the electorate a significant proportion of Iranians who would be expected to vote for pro-Khatami candidates.

The new law is not a knockout blow for the reform camp, however, because implementation may be delayed until after the February vote.

The Guardian Council, under pressure from Supreme Leader Ayatollah Khamenei, to whom it reports, may also take a liberal interpretation of the new criteria for candidates. Khamenei, although conservative in outlook, has recently shown strong support for Khatami. Khamenei has suffered a credibility problem since his appointment in the late 1980s and would like to share some of Khatami's popularity.

Reform control of the Majlis would allow Khatami to enact some key pieces of legislation, such as a long-awaited new foreign investment law. This is needed to modernize Iran's investment environment, currently governed by law dating back to the 1950s, and attract significant levels of foreign investment.

Foreign companies are eager to take advantage of the enormous opportunities in Iran's oil and gas sector. Iran needs the money and the expertise such investment would bring.

Control of the Majlis would also swing the balance of power back in Khatami's favor. The Iranian political system is carefully balanced between the executive, legislature and the judiciary (including the security forces). Khatami would not only have two out of three, but Majlis control would allow him to direct spending to his priority areas rather than those of the conservative faction.

This would probably include a reduction in the budget of the security forces and an increase in spending on development projects.

Above all, victory for Khatami in February would pave the way for his re-election a year later and ensure that he could alter Iran's course forever.