Khamenei’s ruling unlikely to loosen IRGC's grip on Iran's economy

On January 20, Iran’s defense minister said that Supreme Leader Ali Khamenei has ordered the country’s powerful Islamic Revolution Guards Corps (IRGC) to curtail its growing business empire and divest its commercial assets that are not relevant to its domain of work. The announcement has raised the hope that the regime may have finally decided to loosen the IRGC’s grip on the economy. But if past is prelude, Khamenei’s decree (if he has really issued one) would prove to be more a symbolic gesture to placate anger at home and pressure from abroad than a genuine effort to lessen the IRGC’s role in the economy, curb corruption and empower the private sector as a the key engine for economic growth. Despite similar statements by President Hassan Rouhani and other senior Iranian officials, the IRGC has only expanded its economic activities in Iran as well as in neighboring countries in the last year.  

Khamenei’s decree

In an interview with government-run Iran daily on Saturday, Brigadier General Amir Hatami said the Supreme Leader has tasked the General Staff of the Armed Forces to ensure that the IRGC and Artesh (Iran’s regular army) transfer their economic entities and commercial assets that are “not related to their mission.” The defense minister further noted that Rouhani also wants the country’s armed forces to divest business holdings in the next two months, but cautioned: “The metrics for our success depend on market conditions as well as the feasibility of transferring [those assets].”  

It is not the first time Iranian leaders raise this issue. Rouhani has on many occasions criticized the IRGC’s increasing role in the economy, but he has not confronted the Guards on the issue – although he once claimed that Khamenei “completely agrees” with him on the need to limit the IRGC’s role in the economy. Last year, Iranian Army’s deputy commander, Ahmadreza Pourdastan, also stated that the General Staff of the Armed Forces intend to “dissolve some of the parallel institutions” to enhance the oversight of the armed forces’ involvement in the economy. But the IRGC has only received more government projects since then.

IRGC unfazed

While the offices of the Supreme Leader and the IRGC did not comment on Hatami’s remarks, a senior IRGC commander downplayed them, arguing that all IRGC economic activities are within the legal framework and “relevant” to their mission. “Sepah [IRGC] has never embarked on economic activity and most of its [economic] activities have been through construction work in accordance with the constitution. According to the law, the armed forces in peacetime need to help the government. Based on this, since the end of the [1980s Iran-Iraq] war, Sepah has executed construction work that other companies were unable to deliver,” said Brigadier General Esmail Kowsari, the deputy commander of IRGC’s Sarallah Unit, which is responsible for security in Tehran. “The construction activity of Sepah [IRGC] is based on Ayatollah Khamenei’s permission,” he stressed.

IRGC’s growing economic empire

Founded by the Islamic Republic’s founder Grand Ayatollah Ruhollah Khomeini after the 1979 revolution to safeguard the regime from internal and external threats, the IRGC has not only evolved into Iran’s most powerful military force but also dominates the country’s key economic sectors, such as energy, construction, telecommunication, media, mining, electronics, automobile, banking, and more. Last year, IRGC’s Chief Commander Major General Mohammad Ali Jafari announced that his forces are now also involved in Iran’s agricultural industry. While IRGC leaders argue that their economic activities are aimed at helping the country’s policy of “resistance economy” and helping the poor, the elite force in reality spends most of its revenues on military expenditures at home and abroad.  

IRGC-affiliated companies, particularly Khatam al-Anbia – IRGC’s main engineering and construction firm – benefited greatly from the privatization program of former President Mahmoud Ahmadinejad. In 2006, Khatam al-Anbia secured deals worth at least $7 billion in the oil, gas, transportation and other sectors. In October 2007, the U.S. Department of Treasury designated Khatam al-Anbia and several other IRGC companies under EO 13382 as part of a plan to counter Iran’s bid for nuclear capabilities and support for terrorism. And in February, 2010, the Treasury took further action against Khatam al-Anbia by designating the company’s commander, General Rostam Ghassemi, and its subsidiary companies. Last year, Rouhani said that “part of the economy was in the control of a government without a gun, and we gave it to a government with a gun – this is not economy and privatization.”

It is worth noting that Khatam al-Anbia is not merely a construction firm. The IRGC conglomerate has significant political and economic power in Iran and funds IRGC’s operations abroad. The organization and its front companies also implement projects in regional countries, particularly in conflict zones such as Syria and Iraq. In late November, Jafari revealed that the Guards, rather than the Iranian private sector or other state-run companies, will spearhead Syria’s reconstruction efforts, Tasnim News Agency reported. “Based on meetings held in the government, it was decided that this mission [participation in Syria’s rebuilding] should be assigned to Sepah because of the security situation in Syria,” the IRGC chief commander said at a gathering in Tehran. “Of course it is up to the Syrian government to decide to what extent Iran should participate in in the reconstruction [of Syria]. But the initial work for this mission is underway,” he added.

Despite Rouhani’s rhetoric, IRGC’s economic role in Iran has also increased. Last April, the commander of Khatam al-Anbia said it would finish ten major projects in the new Iranian year, which began on March 21. According to General Ebadollah Abdollahi, the ten mega-projects the completion of four phases of Iran’s South Pars gas field, completion of the Persian Gulf Star gas condensate refinery, construction of gas and natural gas liquid (NGL) factories, a project to control surface runoff, construction of a freeway south of Tehran, building a high-speed railroad connecting Tehran to Isfahan, development of the southeastern port of Shahid Beheshti, and construction of two steel factories in the cities of Mianeh and Baft. In 2016, Abdollahi had announced that $25 billion in investment funds had been allocated to the ten mega-projects, and he had asked for $6 billion more to complete the projects. During his January 20 interveiw, Hatami alluded that Khatam al-Anbia’s economic activities may not be affected.

Moreover, the Basij Organization, a paramilitary force under IRGC control, has also entered the economic field recently by purchasing shares in major construction, mining, energy and pharmaceutical companies.

Therefore, the latest messaging from Tehran is aimed at placating both domestic and international concerns. On the one hand, by promising to curtail the IRGC economic role, the regime in Tehran would like to defuse the anger of ordinary Iranians who recently took to the streets in big numbers to protest against corruption and mismanagement of the government. IRGC’s policies at home and costly involvement in regional conflicts were among key issues raised by the protesters. Furthermore, Tehran also expects additional US sanctions – or even the reinstatement of nuclear sanctions if the Trump administration terminates the nuclear deal. Thus, it is taking preemptive measures to minimize the impact of US sanctions that are increasingly targeting the IRGC and its affiliation institutions. But no real and significant transfer of IRGC investment holdings to the private sector is likely to happen – at least anytime soon.