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Although it may come as somewhat of a surprise, Iran performs a large number of gender reassignment surgeries. According to BBC News, Iran performs the second most number of such procedures in the world. The government even regularly subsidizes such surgeries, which can be very expensive. Considering Iran is a conservative Muslim country with scarce tolerance for any behavior outside hetero-normative bounds?
Since the 1980s, religious leaders in Iran have come to somewhat embrace gender reassignment. There are various reports that sometime after the Iranian Revolution, Ayatollah Khomeini met with a transgender woman. The meeting left an impact on Iran's supreme leader and he issued a fatwa (religious ruling), stating that "If somebody wants to undergo a sex change because he feels trapped inside someone else's body, he has the right to get rid of this body and transform into the other sex."
However, this is not to say that Iran supports a progressive environment when it comes to sexual orientation and gender identity. Reports indicate that the state subsidizes these procedures as a way of "diagnosing" and "treating" homo sexuality. It's viewed as a way to restore hetero-normative gender roles. Those who identify as trans but do not want to undergo surgery are left with few options. Iran's LGBT population continues to face violence and discrimination.
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Unlikely Sex Change Capitals of the World: Trinidad, United States, and Tehran, Iran, as Twin Yardsticks of Homonormative Liberalism (northeastern.edu)
"In the turbulent first decade of the twentieth-first century, Trinidad, Colorado, a predominantly Catholic town with a population hovering around 9,000, came to share its long-standing title as 'the Sex Change Capital of the World'[...]"
Trans[ition] in Iran (worldpolicy.org)
"When Shadi Amin was growing up in pre-revolutionary Iran, she began experiencing sexual feelings toward other girls."
Iran's 'diagnosed transsexuals' (news.bbc.co.uk)
"Homosexual relationships are banned in Iran, but the country allows sex change operations and hundreds of men have elected for surgery to change their lives."