IRGC established a wide network of companies that engage in illicit activities

This means curbing, or ideally removing all IRGC forces from Syria – an ambitious goal, and some say very unlikely. But Washington’s broader policy toward Iran – slapping as many sanctions on it as possible in order to bring the regime to its knees – could contradict the aim of weakening the IRGC itself.

For sanctions have historically been a friend of the guards. Sanctions enabled them to build vast business networks and take control of swathes of the economy, by keeping out any competition from the private sector and leaving Iran dependent on IRGC business for service provision. And it is the proceeds from their businesses that help to fund the IRGC’s military adventurism abroad.

The IRGC’s business privileges are deep-rooted in Iran’s recent history. After the 1979 Islamic Revolution, the new Supreme Leader Ayatollah Khomeini feared that elements of the national army were still loyal to the ousted Shah. He thus created a counterweight military force, whose role was to protect the clerical regime and the Islamic Republic’s theocratic project – hence the Revolutionary Guard. The IRGC’s role later became enshrined in Iran’s constitution, and the force answers only to the Supreme Leader.

The IRGC’s role soon went from that of Praetorian Guard to frontline defenders. After Saddam Hussein’s invasion of Iran in 1980, and the resulting Iran-Iraq war, the IRGC’s capabilities were vastly expanded. Khomeini granted the IRGC their own naval and air power units, and the guards were instrumental in pushing back Iraqi forces.

But it was the end of the Iran-Iraq war in the late 1980s that opened the way for the IRGC to start profiting from their skills outside of the military. Over the course of the war, and thanks to the new technologies they had acquired, the guards were a well-organised force with impressive engineering skills – and so were ideal servicemen for the country’s reconstruction. And the IRGC servicemen, and their commanders, were rewarded for their service with lucrative government contracts to do just that. Ali Alfoneh, an Iran analyst at the Arab Gulf States Institute in Washington, told Al Bawaba:

“The IRGC’s economic activities began after the end of the war with Iraq in 1988, under then president Akbar Hashemi Rafsanjani, who authorized the IRGC to employ jobless war veterans in mega infrastructure development projects such as dams, highways, bridges and the like, in the course of the 1990’s. The money the IRGC received from its engagement in these projects, was accumulated in the banks and credit institutes of the IRGC.”

In this period, the IRGC founded a company to conglomerate its many business ventures, the Khatam al-Anbia Construction Headquarters. At the time, the country had just been hit with the second of many sets of US sanctions that would be laid on the Islamic Republic. In 1984, Iran had been designated a state sponsor of terrorism, a designation which piled on a new wave of sanctions. This was on top of the assets freeze and the ban on Iranian imports to the US in 1979 after the hostage crisis at the American Embassy. Post-1984, private companies began pulling out of Iran under mounting sanctions pressure. Khatam al-Anbia flooded into the vacuum they left.

And so began something of a vicious cycle. As multiple rounds of sanctions beat down on the private sector and companies fled, the IRGC’s Khatam al-Anbia could take their empty places. Government encouraged the IRGC to increase their own military budget through their business activities, something they continue to do. This was hugely exacerbated by the populist President Mahmoud Ahmadinejad after he took power in 2005.

Ali Alfoneh continued:

“Historically, the international sanctions regime accelerated the IRGC’s seizure of control over vast parts of Iran’s economy. As large foreign companies left the Iranian market under the pressure from the international sanctions regime, the Khatam al-Anbia Construction filled the vacuum and used the accumulated funds in its banks and credit institutes to purchase state owned enterprises which were “privatized” under president Mahmoud Ahmadinejad. In other words, it was not just the international sanctions regime, which helped the IRGC seize control over Iran’s economy, but a combination of domestic politics in Iran, and the pressure from the sanctions regime.”

Under Ahmadinejad, the Khatam al-Anbia group won the majority of large state infrastructure contracts, worth billions of dollars, in oil and gas as well as in building projects. The company’s value today is hard to be certain of due to its secretive financing, but some economists put it at $100 billion. A mix of factors led to Khatam al-Anbia’s militaristic monopoly, but sanctions that gave it an uncontested space to thrive in.

The IRGC had other unfair advantages too. For a start, they wield incredible political influence. It is estimated that a third of Iranian MPs are former IRGC with ties to the company, which blunts the influence of any potential competitors. And the guards’ authority gives them room to take legal liberties that other domestic enterprises can’t.

Adnan Tatabai, the CEO of the German CARPO think-tank and an Iran analyst, told Al Bawaba:

“When international trade is basically banned and a country is isolated, those actors that are powerful enough in terms of infrastructure and wealth will manage to find ways to import goods through black markets or through intermediaries. In the case of Iran that has been the military entities and some state-owned companies. As they control seaports, airports and borders, they can open pathways for banned goods. These will then of course be much more expensive on the Iranian market and therefore a good revenue for income.”

That the IRGC’s conglomerate enjoys tremendously unfair competition, as well as the perks of political office, has not gone unnoticed by Iranians. Its businesses, most of which fall under the Khatam al-Anbia rubric, are thought to represent about a thirdof the national economy. And the fact that they are largely tax-exempt inspires understandable anger from citizens struggling to cope in a freefalling economy. The relatively moderate President Rouhani has several times attempted to curtail the IRGC’s economic yoke. The campaigns that won his two terms as president were based on championing the Obama-led nuclear deal (the JCPOA), under which Iran would limit uranium enrichment in exchange for sanctions relief.

The JCPOA saw a significant boost in foreign investment in Iran, although the growth that Rouhani had promised was slower than hoped, and failed to end the woes of the population. Rouhani saw the IRGC’s economic dominance as a serious barrier to further growth, and not without reason. The guards had loathed the idea of the nuclear deal, both on ideological terms and because of the dent that an energised private sector would make in their earnings. And they had previously been able to fight off similar criticisms. Ahmad Majidyar, the director of the Iran Observed Project at the Middle East Institute, told Al Bawaba:

“IRGC leaders often emphasize on “resistance economy” which means empowering domestic capacities and curtailing international companies’ role in the Iranian market.”

But with the onset of the nuclear deal, and with a poor track record of benefit to ordinary Iranians from the IRGC monopoly, the “resistance economy” line was losing its credibility. Now that the international community was not forcing Iran’s “resistance”, IRGC’s companies looked less like a lifeline for service provision, and more like a serious turn-off for investors. The corruption widespread in their business practice, alongside their penchant for sabotaging developments they didn’t like, left outsiders hesitant to put their money into the country – particularly given that it is difficult not to deal with Khatam al-Anbia in at least some respect when trading in Iran.

Rouhani had in the past had to play a tit-for-tat game with the IRGC companies – periodically awarding them contracts in exchange for a respite from the guards’ interference in politics. But he doubled down on his efforts to curb their companies in late 2017, making regular media statements about the need for free and fair competition. And to the surprise of many observers, he won the support of Supreme Leader Ayatollah Khamenei.

Khatam al-Anbia lost out a number of lucrative oil development contracts that it would have had no fear of receiving only a few months ago. And the Ayatollah’s support increased when a wave of protests at the deteriorating economy rocked Iran’s major cities at the beginning of 2018. Khamenei ordered the IRGC to either divest or sell much of their economic holdings in response to the popular outcry.

Whether this clampdown on Khatam al-Anabia could have paved the way for a major boost for foreign investment is uncertain. But that avenue was closed off when President Donald Trump pulled out of the JCPOA agreement a few months later, and reimposed a fresh raft of sanctions, some of which came into force last week. This has effectively eliminated the headway that Rouhani made. Adnan Tabatabai said:

“Rouhani had entered a lengthy bargaining process and was on the right path. The IRGC had agreed to withdraw from smaller projects and allow the private sector to grow and flourish. But the private sector will now be cut off from international trade rolling back the promising process the Rouhani government had started.”

Whilst the JCPOA’s European partners have vowed to honour the deal, they have been unable to prevent a number of major European companies pulling out of Iran after being forced to choose between access to Iranian or American markets. And once again, there will be holes in the country’s business sector that need to be filled, and few competitors to the IRCG’s businesses.

This is not to say that Khatam al-Anbia will escape the economic downturn entirely. But it will give them a chance to further tighten their hold on Iran’s commercial landscape. Ali Alfoneh continued:

“I suspect that the Iranian economy will suffer now that US sanctions are reimposed, and so will the IRGC’s economic interests. However, external pressure and lack of foreign competitors will most likely help the IRGC further consolidate its grip over Iran’s economy to the extent that it no longer is possible to distinguish between the interests of the Iranian state and those of the IRGC.”

Sanctions were not the only thing that empowered the hardline IRCG over the past few decades. But they have certainly given the militants a competition-free space in which to grow an enormous political and economic influence. Iran’s economy is in pain now, and there is no guarantee that the regime will be able to weather popular discontent. But there is equally no guarantee that it will fall. Tehran has other options to prop itself up.

China has invested vast sums of money in Iran, which is pivotal to its One Belt One Road infrastructure project. Beijing has announced that it will likely continue to import Iranian oil after Tehran’s oil exports fall under American sanctions again in November – which it can do so long as it has financial infrastructure that evades trading on the dollar. China might not ensure Iran thrives, but it may well help it to survive. And so long as the Iranian regime does survive, and perhaps long after, the IRGC will be looking to profit, and – if history repeats itself – to use those profits to fund its international operations. Ahmad Majidyar added:

“The IRGC has established a wide network of front companies from China to the Middle East and Europe that engage in licit and illicit activities to evade sanctions.”

Source » albawaba

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