Foreign and Defense Policy

The Revolutionary Guards’ Business Empire

On February 10, the Treasury Department designated Khatam al-Anbia Construction Headquarters (GHORB), the engineering arm of the Islamic Revolutionary Guards Corps (IRGC), and its commander General Rostam Qasemi as “proliferators of weapons of mass destruction (WMD) and their supporters.” The designation is based upon the U.S. government’s fundamental assumption that the IRGC is “assuming greater responsibility” for the Islamic Republic’s nuclear program, and aims at changing the behavior of the Guards in the nuclear issue.

The Islamic Republic’s answer was swift: On February 18, the radical Kayhan editorialized: “The United States does not even know what the Guard is, let alone how to sanction it,” and wrote sanctions would “increase the Guard’s popularity” in Iran. With Kayhan having prepared the public opinion, on February 21, Iranian President Mahmoud Ahmadinejad addressed GHORB commanders and executives and asked them to ready themselves for “entering high end oil and gas activities in order to satisfy domestic needs of the country.” Sure enough, on March 15, the Petroleum Ministry engaged GHORB, on a no-bid basis, as contractor in an $850 million pipeline project, and upon the April 19 news of Turkish companies leaving development of the third phase of the South Pars Oil and Gas Field, GHORB was granted that $7 billion project.

Ahmadinejad’s act of defiance communicates a clear message to friends and foes alike: The IRGC should stay the nuclear course since the Iranian state is ready to compensate the IRGC’s economic losses with funds from the foreign exchange reserve.

Ahmadinejad and the officers of the Guards probably also exploit the fact that American legislators have turned a blind eye to the credit and banking sector of the IRGC, which has hitherto enabled the Revolutionary Guards to purchase state enterprises and businesses privatized by the Ahmadinejad government.

Article 44 of the Constitution of the Islamic Republic defines the Iranian economy as a planned economy. But on May 22, 2005—approximately one month before Mahmoud Ahmadinejad’s June 24, 2005 election victory—Supreme Leader Ayatollah Ali Khamenei presented his new interpretation of Article 44, which in reality abrogated the Constitution, called for smaller government, and proposed a five-year plan to reduce public-sector intervention in the economy by 20 percent on an annual basis.

Ahmadinejad has been instrumental in realization of Khamenei’s privatization schemes. In a recent live television interview, Ahmadinejad boasted that the total sum of privatizations prior to 2005 was “30 trillion Rials, but during the ninth and tenth cabinets there has been more than 600 trillion Rials [ca. $60 billion] worth transfer [of ownership of state-owned companies and enterprises to the private sector], most of which has been through the [Tehran] Stock Exchange.” Ahmadinejad also boasted of the speed of privatizations in Iran as opposed to “[other] countries with state-run economies,” where this trend, according to Ahmadinejad, has taken 20 years.

In English, privatization means transfer of ownership of business and enterprise from the public sector to the private sector. Translated into modern Persian however, privatization means transfer of ownership of business and enterprises from a relatively transparent part of the public sector to other parts of the public sector closed to public scrutiny. One such example is the Revolutionary Guards’ involvement in the privatization process.

In its latest assault against Iran’s economy, the IRGC purchased 50 percent plus one of the shares of Iran Telecommunications from the government in the largest trade in the history of the Tehran Stock Exchange—about $8 billion. The trade, which was postponed on several occasions, went through after the genuine private-sector representative Pishgaman-e Kavir-e Yazd Cooperative was eliminated from the race due to security reasons only a few hours before the trade. The two remaining companies competing for seizure of Iran Telecommunications, Toseeh-ye Etemad-e Mobin Consortium and Mehr Eghtesad-e Iranian, are both owned by the IRGC and not obliged to open their books to the public.

Other credit and financial institutes of the IRGC and its subordinate Basij Force include Sarmayeh-Gozari-ye Mehr-e Eghtesad-e Iranian, Moassesseh-ye Mali/Eghtesadi-ye Mehr, Bonyad-e Ta’avon-e Basij, Bonyad-e Ta’avon-e Sepah, and Moassesseh-ye Mali/Eghtesadi-ye Ansar. These financial institutions are often depicted as non-interest or Islamic banking [Gharz al-Hassaneh], but according to Hamid Tehranfar, Financial Institutions Supervisory Board Director General at the Central Bank of the Islamic Republic, these institutions “engage in everything but providing non-interest loans!” The scope of activities of the IRGC’s parallel banking and credit sector is difficult to estimate, but as was the case with Iran Telecommunications, the IRGC handles seizure of public enterprises on the verge of “privatization” through its own banking and credit system. Other company shares purchased by financial institutions of the IRGC and the Basij include Iran Khodro car manufacturer, Middle East Tidewater shipping and handling company, and many other companies.

The civilian leadership of the Islamic Republic has allowed the IRGC to intervene in the Iranian economy as a means of bribing the Guards to support the regime. But as the IRGC gets increasingly involved in the economy, it also develops added incentives to intervene in the political process in defense of those economic interests. Separately, increasing wealth of the IRGC also makes it almost independent of the state budget and reduces the economic levers of the civilian leadership to control the IRGC. However, visible IRGC seizure of economic assets in the Iranian economy also make the Guards vulnerable to allegations of economic corruption inside Iran and also make the IRGC-owned enterprises visible targets for international sanctions regimes trying to change the Islamic Republic’s behavior on the nuclear issue. This of course requires awareness of those designing sanctions against the Islamic Republic about how the strength of the IRGC, specially the IRGC credit and banking sector, can be turned into a weakness.

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