Iran’s Revolutionary Guard, US Sanctions, Economic Thinking


In the wake of recent anti-government protests, Iran’s Supreme Leader Ayatollah Ali Khamenei appears to have put his weight behind President Hasan Rouhani’s repeated calls for reduced military and Revolutionary Guards involvement in the economy. Ayatollah Khamenei signaled his support by ordering the military and the Revolutionary Guards to start divesting from commercial holdings and businesses that are not related to their core tasks. The only exception is for construction projects considered essential by the government.
According to economic analysts, the order is a significant development. This applies all the more so as it addresses protesters’ grievances that were sparked in part by losses suffered by millions of Iranians as a result of the collapse of fraudulent financial institutions with links to the Revolutionary Guards and other public institutions. These financial entities lured investors with high interest rates that they could not pay.
They also noted that Supreme Leader Ayatollah Ali Khamenei’s order could also sweeten Iranian efforts to persuade Europe to put in place legal measures that would allow its companies to invest in the Islamic republic even if the United States imposes new sanctions and withdraws from the 2015 international agreement that curbed Iran’s nuclear program. Europe shares the concern about the role of the Revolutionary Guards in Syria, Yemen, Iraq and elsewhere in the Middle East.
A target of United States sanctions, the Revolutionary Guards reportedly are not opposed to a reduced stake that, according to analysts, accounts for as much as 30% of the Iranian economy. Like the Ethiopian Army conglomerate, METEC, Iran’s Revolutionary Guards operate, among others, a huge construction company with tens of thousands of employees that is involved in civil development, the oil industry and defense businesses. The Revolutionary Guards also build roads, operate ports, manage telecommunication networks and own business in sectors as far flung as finance and medical.
Esfandyar Batmanghelidj, an Iran analyst, commentator and business consultant stated that the “top brass have realized that running companies is actually not their competency. The poor management has been a drag on the economy and, as seen in the recent protests, a risk to internal security and to the prestige of the armed forces”.
In a world in which everything is interlinked, disinvestment by the Revolutionary Guards and military as well as other public institutions like the Social Security Organization, Iran’s largest pension fund, would involve steps toward privatization. That is difficult in a country that has problems to attract any foreign investment because of the threat of a re-imposition of United States sanctions that were conditionally lifted as part of the nuclear agreement.
Donald Trump, the United States President, has threatened not to renew United States sanctions relief in next May if Europe and the United States Congress failed to work towards an agreement with Iran on an addition to the nuclear accord. It was widely reported that President Trump wants to restrict Iranian missile testing and development, provide for expanded inspections of Iranian facilities and extend prohibitions on nuclear-weapons work. Iran insists that the accord cannot be renegotiated.
Europe has been pressing the Trump administration not to walk away from the accord. Iranian officials, for their part, have suggested that Tehran would adhere to the nuclear deal in case of a United States walkout provided that it served its interests.
European Middle East scholars argued that for Iran to see continued merit in the nuclear deal, it would have to believe that European companies would remain interested in investing in the Islamic Republic of Iran. That would require the European Union adopting legislation that would shield European companies from United States secondary sanctions that would target non-American entities invested in Iran.
Privatization of military and Revolutionary Guards-owned companies, given Iran’s undercapitalised financial markets and its small pool of viable domestic investors, would depend on foreign investors, who in turn are unlikely to risk being penalized by potential renewed secondary United States sanctions.
Iran expert Ellie Geranmayeh said “Europe should put in place a viable contingency plan if the United States continues backtracking on the deal and let Washington know it’s ready to use it. Europe will need to present a package together with China and Russia that can entice Iran to continue abiding by the core elements of the current nuclear agreement”.
According to Ellie Geranmayeh, in practice, European companies, if forced to choose between doing business with the United States or Iran, would undoubtedly opt to steer clear of the Islamic republic. As it stands, the EU is banking on the expectation that the Trump administration would ultimately opt to compromise in a bid to avoid a deterioration of trans-Atlantic relations. In the meantime, European investors, like their Russian and Chinese counterparts, are likely to take a wait-and-see attitude.
Ellie Geranmayeh further noted that, in turn, could put efforts to reduce the military and Revolutionary Guards’ economic stake in jeopardy. Iran would find itself caught between a proverbial rock which is lacking Iranian transparency, and a hard place which is weak domestic financial markets and a limited pool of investors. If that weren’t tough enough, Saudi Arabian efforts to counter Iran could further dampen foreign investor appetite.
Saudi Arabian media widely reported the fact that in a sign of the times, one South Korean Engineering and Construction company in which Saudi Arabia’s Public Investment Fund has a 38 percent stake, cancelled a $1.6 billion contract to build a steel mill in Iran because of objections by the company’s two Saudi board members.