June 15 (Bloomberg) -- Iranian President Mahmoud Ahmadinejad vowed defiance against external “threats” as he defended his disputed re-election. He may have vanquished for now the internal challenges to his authority.

The president’s victory and its endorsement by Iran’s Supreme Leader, Ayatollah Ali Khamenei, sidelines those in the Islamic republic’s theocracy who favor easing tensions with the West, analysts say. While opponent Mir Houssein Mousavi says the vote was rigged and should be annulled, his complaints and protests by his supporters are unlikely so far to shake the regime, said the analysts.

The June 12 election results mean leaders who still adhere strictly to the principles of the 1979 Islamic Revolution have beaten a challenge to their power, said Geneive Abdo, an Iran analyst at the Century Foundation, a New York research group.

“There is a return to the past, a return to the days right after the revolution,” Abdo said. “A very small core of revolutionaries are running the state.”

Khamenei told Mousavi in a meeting yesterday that he had asked the Guardian Council, the election’s supervisory body, to examine allegations of what Mousavi called “obvious violations” in voting procedures, state television reported. Ahmadinejad, 52, took almost 63 percent of the vote, according to official results, with Mousavi winning around 34 percent.

Supporters Gather

Hundreds of thousands of Mousavi supporters attended a protest rally today at Tehran University even after it was banned by the Interior Ministry. Mousavi, a former prime minister, told the crowd there that he was ready to take part in any new elections, Agence France-Presse reported.

A pro-government militia fired at opposition protesters, killing at least one person, the Associated Press reported, citing one of its photographers. There was no immediate confirmation.

Ahmadinejad’s victory is a setback for President Barack Obama, who has offered dialogue with Iran in the hope of ending three decades of hostility and agreeing on ways to verify Iran’s nuclear program is peaceful. The U.S. and its allies say they suspect Iran is developing nuclear weapons; Iran says it instead is designed to generate electricity.

“Obama is committed to diplomacy,” said Cliff Kupchan, a senior analyst at New York-based Eurasia Group. “This election will make that effort more difficult.”

‘Real Doubt’

U.S. Vice President Joe Biden said yesterday “there is some real doubt” about the election results. Still, he said the Obama administration will proceed with the plan to engage with Iran. “The decision has been made to talk,” irrespective of the election’s outcome, Biden said on NBC’s “Meet the Press.”

“Ahmadinejad’s victory could pose an insurmountable challenge to the Obama administration’s engagement strategy,” said Karim Sadjadpour, an analyst from the Washington-based Carnegie Endowment for International Peace. “It will likely be a cold, hard-nosed dialogue.”

As long as protests don’t start spreading to multiple cities and security forces don’t kill demonstrators, the authorities should be able to contain the situation, said Ali Pedram, an Iran expert at Durham University in the U.K.

The president said the vote was fair and said Iran would not tolerate outside pressure. “Our nation is not afraid of threats,” he told a news conference in Tehran yesterday. “It will stand up to those who want to prevent its progress.”

Assembly of Experts

Mousavi had allied with former president Akbar Hashemi Rafsanjani, 75, one of Iran’s most powerful political figures and the head of the Assembly of Experts, charged with overseeing the supreme leader.

Iran is under three sets of United Nations sanctions over its refusal to halt uranium enrichment. The country increased uranium production during the past three months and continued to stonewall inspectors investigating whether it is concealing a weapons program, the UN’s nuclear agency said on June 5.

While key policy issues including Iran’s nuclear plans are ultimately decided by Khamenei, Mousavi, 67, had said he was open to talks with the U.S. and promised unspecified confidence- building measures to allay international concerns about the atomic program while continuing the nuclear effort.

The world’s fourth-largest oil producer, Iran is starved of investment to boost crude production by U.S. and UN sanctions.

In addition, Ahmadinejad will have to deal with an economy suffering from the decline in oil prices to about $70 a barrel from a July peak of $147. The president’s opponents accused him of squandering windfall oil gains on spending that helped boost support among low-income voters. They argued that government handouts and subsidies fueled inflation that reached 24 percent in January, and helped push unemployment to 10.5 percent.

Iran, holder of the second-largest oil reserves in the world after Saudi Arabia, needs oil prices of $85 to $90 to stop running budget deficits, the International Monetary Fund says.

“The economy will be a source of dissatisfaction. We might see public protest in the future because of economic problems such as inflation,” Pedram said.

To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net.

Last Updated: June 15, 2009 13:49 EDT