Tehran cracking down on IRGC’s business networks

Some economists estimate that the IRGC’s network of companies could be valued at $100 billion
Sunday 28/01/2018
Leviathan. Iranian President Hassan Rohani (C) attends the inauguration of a newly built extension of the port of Chabahar in south-eastern Iran, last December. (AP)
Leviathan. Iranian President Hassan Rohani (C) attends the inauguration of a newly built extension of the port of Chabahar in south-eastern Iran, last December. (AP)

The crackdown on the sprawling business empire of Iran’s Islamic Revolutionary Guard Corps (IRGC) began more than a year ago but, until recently, remained discreet to avoid undermining the guards, one of the most powerful arms of the Islamic Republic’s regime.

It started when Iranian President Hassan Rohani, a pragmatist, told Supreme Leader Ayatollah Ali Khamenei about the vast wealth individuals affiliated with the IRGC had accumulated across many sectors of the economy, such as oil and gas, including through the construction of oil tankers (Sadra, or Iran Marine Industrial Company), telecommunications (Etemad-e-Mobin bought a majority share in Iran’s state telecommunications company for $7.8 billion in 2009), health, agriculture and petrochemicals.

Some economists estimate that the IRGC’s network of companies could be valued at $100 billion, which would account for as much as one-third of the Iranian economy.

The IRGC’s involvement in the economy can be traced to the end of the Iran-Iraq war in the 1980s when commanders were rewarded with contracts to build roads, dams and bridges to help reconstruct the country.

The IRGC’s business interests rapidly spread during the presidency of Mahmoud Ahmadinejad (2005-13), a populist hardliner, when the corps was awarded state projects in such key strategic sectors as oil, gas and telecom.

The telecom company became a cash cow to fund the IRGC and its allies even as the rule of Ahmadinejad was tarnished by widespread allegations of corruption. International sanctions were tightened during his presidency, which afforded those linked to the centres of power in the regime opportunities to use their networks to get involved in murky sanctions-busting deals, including selling crude.

Rohani had been convinced well before his re-election last year of the need to bring the IRGC under the general umbrella of the economy and give it projects only under certain competitive conditions.

The level of unaccountability and power of the IRGC’s business interests was “eating up the economy,” one observer said. In a telling comment, a prominent businessman quipped that “Rohani wanted the guards to be a strong military body and a powerful anti-terrorism force in the Middle East but not to import cosmetics.”

Last August, Rohani increased the official budget for the IRGC’s ballistic missile programme and overseas military campaigns to placate the corps and counter the argument that it needed businesses to fund its operations in Syria and Iraq.

Having the restructuring overseen by Major-General Mohammad Bagheri, chairman of the Armed Forces General Staff, who is responsible for the IRGC and the conventional military, was intended to show the process is being carried out by a bipartisan institution.

Khamenei’s backing is essential because if the IRGC’s business interests are not rolled back today, they will take full control after the leader’s death.

Khamenei appears to have put his weight behind Rohani’s repeated calls for reduced military and IRGC involvement in the economy after the recent anti-government protests. He ordered the IRGC to divest from commercial holdings and businesses not related to their core tasks, except for construction projects considered essential by the government.

The move helps address the protesters’ grievances that were sparked in part by losses suffered by many Iranians because of the collapse of fraudulent financial institutions with links to IRGC and other public institutions. Many financial institutions lured investors with high interest rates they could not pay.

The big question is whether Khamenei’s order will sweeten Iranian efforts to persuade Europe to put into place legal measures that would allow EU companies to invest in the Islamic Republic even if the United States imposes new sanctions and withdraws from the 2015 agreement meant to curb Iran’s nuclear programme.

European signatories to that agreement, notably France, Germany and the United Kingdom, share many US concerns about the role of the IRGC in Syria, Iraq and elsewhere in the Middle East and the fact that it runs the country’s ballistic missile programme. So far it has insisted that the agreement should be maintained. Senior commanders are, some observers said, aware that their poor management has been a drag on the economy.

For Iran to see continued merit in the deal, it would have to believe that European companies would remain interested in investing in the Islamic Republic, which would require the European Union adopting legislation shielding European companies from US secondary sanctions that would target non-American entities in Iran.

Will Europe attempt to secure from the United States exceptions to the potential sanctions modelled on the US penalties imposed on Russia that provide relief from enforcement for European companies?

This would be modelled on the blocking regulation adopted by the European Union in 1996 that thwarted US President Bill Clinton’s attempt to force Europe and others to abide by US sanctions on Libya, Iran and Cuba. The regulation made it illegal for European companies to abide by US sanctions, gave them legal cover to refuse payment of US fines and opened the door to the EU penalising US companies in retaliation.

The next few months will tell whether Europe dares confront US President Donald Trump if he does not renew US sanctions relief in May. The fundamental question is whether Europe will dare have a policy at odds with that of the United States if it considers that its vital security and economic interests are not best served by a hard-line but

wayward president.

Some economists estimate that the IRGC’s network of companies could be valued at $100 billion, which would account for as much as one-third of the Iranian economy.
 

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