It doesn't fit the brief but some draft TL I wrote featured the founding of the Peoples' Republic of Persia with the major POD being that communism didn't succeed in taking control of China, thus the USSR shifted its funding westwards.
But for these conditions...
Okay: the Sino-Soviet split is considerably worsened, to the point where during the Soviet Invasion of Afghanistan China sends troops into Afghanistan to fight against the Russians. China's policy as to whether it will support Afghanistan's Marxist government or the Muhajideen insurgents is left deliberately ambiguous, China says that it is "protecting the sovereignty of our Afghan friends".
At first the Afghans view the Chinese as another horde of invading atheists, but through words and actions the Chinese convince them otherwise over the following years.
China assists Afghanistan's Marxist leaders in escaping to neighbouring Pakistan and Iran - in doing this the war starts to spill into those countries. Pakistan, while already being militarily involved can handle the border raids, but neutral Iran has trouble maintaining its security, especially in the light of the devastating purges to its military following the Islamic Revolution, and the preoccupation with the Iraqi invasion in the west (which is much more successful in TTL). And so, in 1982, China begins talks with Iran with the aim of forming a military co-operation pact, this is hammered out and signed in Shengzhou the following year. The treaty of obliges Iran to allow socialist parties to compete for election... Iran hesitantly agrees as it fears for its future survival if it does not. Upon ratification military aid begins flooding into Iran, military-industrial links and Chinese-influenced purges begin to Maoicise the Iranian top brass before too long.
By 1987, Soviet discontent towards the Afghan War is rising, public protests by veterans begin to plague major cities, and they are getting harder to suppress. In reaction to this, Soviet propagandists begin turning the tables of hate toward the old Soviet enemy, the Chinese. Although by this point the Chinese are a mostly logistical force based in the south of Afghanistan, the USSR brands them as the insidious puppet masters. Meanwhile, in Iran, Saddam has secured Khuzestan and much of the Shatt al-Arab, and incursions are still common along the Afghan border. However, the Iranian Army is coming along nicely.
1988, Leonid Brezhnev dies and is replaced with an anti-China, pro-military hawk. More and more is invested in the war. Later in the year anti-war protests are brutally suppressed in Leningrad. The Chinese reaction has also got more hawkish, the PLA upgrades its actions in Afghanistan from logistical to flat-out offencive against the Soviet forces. Chinese forces, together with their allies, begin a game of cat-and-mouse by chasing the Russians further and further into the fringes of Afghanistan, Soviet forces act with desperation by levelling entire villages.
1990, the Cold War is running extra strong as America witnesses its two adversaries struggling for Asian supremacy. China's military presence has once again been downgraded to a skeleton occupation force. Russia seems to be in a state of open dissent against the war policy, and, when the Soviet leader is deposed in September, a policy of disengagement is begun. However, before this comes into effect the Sino-Iranian forces begin a renewed campaign of aggression. With the end of the war in sight Iran has grown more daring in its military adventures in Afghanistan, including a renewed campaign against the Muhajideen, whom even China are now less eager to protect - while they made good allies at the start of the war they now prove to be more of an annoyance, and many Muhajideen begin to be assassinated.
In 1991, the Soviet Union, now more concerned with anti-Moscow movements growing in Eastern Europe announces an immediate withdrawal from Afghanisatn, however, they continue to fund Saddam's war against Iran. Immediately after Russia withdraws from Afghanistan, the USA offers to mediate for a lasting peace, calling particularly for an immidiate withdrawal of Chinese and Iranian troops. China and Iran respond that they are merely peacekeepers - they are however much more than that, several thousand Afghan Talebanis and foreign Muhajideen have disappeared in Afganistan over the past decade.
At this point it is important to note the success of the Iranian army... as it is now the only organ of the Iranian state to be particularly successful. The Persian Peoples' Party (the Chinese-backed Iranian socialist party), who since they first contested elections had won around 40-50% of the Majlis, deadlock Iran's legislature, no harsh Islamic laws... or indeed, many laws of any kind, have been passed while the PPP has been actively preventing them. The Ayatollah has been resorting to stretching his own constitution to effectively include rule by decree just so his country could continue running. Half of the Iranian public blame this on China, the other half on the Ayatollah... but the military, in many peoples' eyes, can do no wrong.
1992. Iran hosts the Esfahan Accords, a conference to discuss what the future of Afghanistan should be, in attendence are the Islamic Republic of Iran, the Emirate of Afghanistan, the Peoples' Republic of China and the United States of America (but not the USSR). At the accords it is agreed that China should withdraw from Afghanistan immediately (which China more or less agrees with, with the Russians gone, and the only real group capable of running Afganistan surviving a gang of Maoist puppets, they feel their work is done), Iran is allowed to continue to occupy the Afghan-Iranian borderlands for the purpose of security. The Islamist government of Afghanistan is established as the sole legitimate government... but its hold is weak and threatened by Maoist revolutionaries.
With Afghanistan taken care of, Iranian attentions turn again towards Saddam, whose air strikes against Iranian targets have increased in ferocity and frequency. The Islamic government treads a cautious path in regard to Saddam, prefering to rely on the international community, in March 1993, an Iraqi airstrike against Shiraz rattles the Iranian military into action. That evening they march into the Supreme Ruler's palace, have him imprisoned and over the next week nullify his constitution and introduce a new one. The Peoples Republic of Persia is founded. Its first act is to remove all non-socialist parties from the Majlis and declare a bold offensive against Iraq.
A tactic of Blitzkrieg, much more severe than that Saddam used in 1980, was hugely successful. Collumn upon collumn of Iranian armoured infantry stormed Iraq. By May, Basra has been levelled and Baghdad has fallen, with every building related to the Ba'athist regime demolished. Saddam is betrayed by a confident and handed to the Iranians, who have him put before a show trial and executed. As the dust settles, Iran redraws its borders across Iraq to include the holy city of an-Najaf and the mountainous Kurdish north, whose support for Iran during the war had been noted.
In 1995, the USSR finally collapsed due partly to pro-Persian attitudes growing in the Central Asian SSRs. The Peoples' Republic of Persia, the Democratic Republic of Afghanistan, the Republic of Azerbaijan (which is engaged in the process of uniting with Iran proper), and the Soviet Socialist Republic of Tajikstan sign the Treaty of Socialist Friendship in this year. However, the ideologies of these states are not antagonistic and favour economic liberalisation and peaceful coexistance with the West.
A Western/Saudi-backed Republic of Iraq is established post-Saddam, it is another Sunni dictatorship, but its leader is not an expansionist.