February 28, 2018

Iran: The IRGC Is Being Deprived of Economic Instruments

Vadym Volokhov

The Supreme Leader of the Islamic Republic of Iran Ayatollah Ali Khamenei as early as January 20, 2018 ordered Commander-in-Chief of the Islamic Revolutionary Guard Corps (IRGC) Major General Mohammad Ali Jafari to “weaken the influence” on the IRI's economy and to give up financial and commercial assets. What does it mean? This means that the IRGC and the Ministry of Defense, regular military units and groups “must get out of business that is not directly related to their official activities”. In other words, to transfer all the objects of economic activity to private business.

This order is believed to be one of President of Iran Hassan Rouhani's steps aimed at liberalizing the investment climate, improving Iran's economy and removing social tensions that arose during mass protests in December 2017 and early January 2018. It is known that the IRGC controls almost a third of the Iranian economy, which allows it to accumulate huge amounts of money for the war in Syria, to provide “Hezbollah” with many millions of dollars and to conduct special operations abroad.

The Islamic Revolutionary Guard Corps (Sepah or Pasdaran/Guardians) — the military branch of the executive power of the Islamic Republic of Iran. In accordance with Article 150 of the IRI Constitution, the IRGC exists in parallel with the Armed Forces of Iran and is responsible for protecting the Islamic Revolution and its achievements. The functions and responsibilities of the Corps with respect to other types of Armed Forces are regulated by a separate law with a special emphasis on fraternal cooperation and interaction between the IRGC and the regular Armed Forces of Iran.

Commander-in-Chief of the IRGC Major General Mohammad Ali Jafari

The Official Seal of Islamic Revolutionary Guard Corps (IRGC)
Commander-in-Chief of the IRGC Major General Mohammad Ali Jafari The Official Seal of Islamic Revolutionary Guard Corps (IRGC)

The Corps has approximately 125 thousand personnel, land, air and naval forces. Naval forces are responsible for monitoring the situation in the Gulf. The Corps also controls Basij militia (a paramilitary organization with 90 thousand members). The IRGC also runs the Sepah News Agency. In September 2007, Mohammad Ali Jafari was appointed Commander-in-Chief of the Corps, replacing Yahya Rahim Safavi in this post.

Due to its activities in the economic, industrial and research spheres, the IRGC is currently a “business empire” within the state. After the end of the Iranian-Iraqi war, Iran's economy began to recover rapidly and the Corps, which had great human potential, began to build its “state within the state”. Now the Corps dominates in many areas: energy, oil and gas, automotive, telecommunications, construction, media, electronics and mining, it has its own banks, controls the financial sector. All of the IRGC's official assets are managed from the “Khatam al-Anbia” Construction Headquarters, headed by Brigadier General Ebadollah Abdollahi. But this is just, so to speak, the tip of the iceberg. According to the available data, about 5 thousand firms and companies have been created and are working according to a common plan, and are managed by both current employees and veterans of the IRGC. Almost 250 thousand workers and employees work for these firms.

“Khatam al-Anbia” Construction Headquarters’ logo

Brigadier General Ebadollah Abdollahi
Logo of the “Khatam al-Anbia” Brigadier General Ebadollah Abdollahi

According to Commissioner of Planning and Budget of the Iranian Majlis Gholam Reza Tadzhgardun, “Khatam al-Anbia” undertakes projects throughout the country which local firms cannot carry out and which are worth “at least 2 trillion rials (about 53 million US dollars)”. Thus, in September 2009, the Iranian government sold 51.8 % of the shares of Iran's Telecommunication Company to the “Mobin Trust Consortium” (“Etemad-e-Mobin”), which is part of the IRGC, worth 7.8 billion US dollars. This was the largest deal on the Tehran Stock Exchange in the history.

According to unofficial estimates, the total volume of assets controlled by the IRGC is about 100 billion US dollars, including “Sadra Iran Maritime Industrial Company”, construction company “Shahid Rajaee Professional Group”, “Sepanir Oil and Gas Engineering”, “Ansar Bank”, etc.

The IRGC also controls the “Mostazafan” Foundation of Islamic Revolution, which includes 11 holdings, 160 affiliated companies with the staff of about 40 thousand people.

President of Iran Hassan Rouhani
President of Iran Hassan Rouhani

Taking into account the IRGC's special status in the state, the pressure on the Corps began only after the President of Iran H. Rouhani had discussed the current situation in the Iranian economy in general and in the IRGC — in particular, with the Supreme Leader of the Islamic Republic of Iran, Ayatollah A. Khamenei. In particular, the President has stated that Iran's economy is almost deadlock due to the very high level of corruption and the IRGC's huge influence on its condition and development. It is believed that A. Khamenei resorted to partial restriction of the Corps' economic activity “to clean up the good name of the IRGC and to save it from corruption”. As of the end of February 2018, the media in Iran are silent about the IRGC's reaction to such actions of the President.

It is clear that it will be rather difficult to find those who are willing to buy firms that were created and controlled for more than 20 years by military organizations, especially the IRGC.

Currently, in Iran, certain business circles are widely discussing the issue of how the Supreme Leader's order will be implemented. There are two main questions:

1. How will go the sale-purchase of assets?

2. What military organizations should sell their firms?

It is believed that to resolve the first issue, a “road map” will be developed for selling the assets of firms and companies belonging to military organizations. Analysts argue that if this process goes as planned, then it will be able to significantly reduce the risk of sanctions for international investors planning to enter Iranian business, there will be more transparency in ownership and a much lower risk of sanctions against target companies. Besides, there is hope that the military organizations themselves will become more accountable and will not be able to spend public resources uncontrolled.

As for the second issue, there are certain difficulties. Currently, there are several types of owners:

  • military organizations;
  • cooperatives related to military organizations;
  • social insurance funds;
  • investment companies.

The largest object among the cooperatives is “Bonyad-e Ta'avon-e Sepaah”, created by the IRGC and still belonging to it. The cooperative owns the shares of the largest company in Iran's telecommunication market — “Mobin Telecom”. From a legal point of view, “Bonyad-e Taavon-e Sepaah” may not sell its assets because it is not a military organization. The same can apply to other assets and shares belonging to the Iranian Army and the Ministry of Interior, because they belong to private individuals, not organizations.

Among the objects of the third category (social insurance funds), for example, there is the “SATA” company, which belongs to pensioners and members of all military organizations of Iran, which is fully controlled by the IRI’s Ministry of Defense. The range of activities of this company is very wide and its traces can be found in many branches of the economy. The “SATA Group” includes the investment subsidiary company “Shastan”, which also works “to improve financial abilities for its members and retirees”.

It is safe to say that “SATA” will be categorically against selling its assets, as it is a pension fund of the country's Armed Forces. Besides, in Iran, there are different types of funds that work in the “gray zone” and belong to individual citizens.

We have already mentioned the “Khatam al-Anbia” military organization, which belongs to the IRGC. The matter is that it is a key player in the construction of pipelines in Iran, and the question arises: what will happen to the industry if “Khatam al-Anbia” quits this business? Who would dare to buy a company, the work of which is based on military resources: financial, technical and labor? What will happen to the thousands of workers who build pipelines all over Iran? The same questions can be asked about many mining and construction units of different military organizations.

Some Iranian financial analysts believe that there are two ways to sell assets of the above-mentioned company:

1. To transfer assets to cooperatives or “SATA Group” network companies.

2. To sell assets to the state or to religious organizations, which are numerous in Iran.

But the reality is that a private business is unlikely to buy these assets, and as long as they belong to state or semi-public institutions, they will continue to destroy Iran's private business.