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Iran paramilitaries have chokehold on economy

Paradoxically, reinstatement of US sanctions benefits IRGC and associated conglomerates like Khatam Al Anbiya

Image Credit: Meghdad Madadi
Khatam Al Anbiya Construction Headquarter is an engineering firm controlled by the persia Revolutionary Guard Corps (IRGC).
Gulf News

Dubai: Tensions between Washington and Tehran have escalated dramatically since President Donald Trump withdrew from the nuclear deal with Iran in May and imposed stringent sanctions on its economy. Iran has also suffered a major decline in its currency this year — in part due to the US moves — with the rial losing more than half its value against the dollar since April.

This has brought the focus back on the dire state of Iran’s economy. But who really controls it? To answer this question, it is necessary to understand the power structure in the Islamic Republic.

Centres of power in Iran

Iran is a theocratic state. And within this set-up, there’s the elected parliament; the executive represented by the president; and the powerful judiciary. All of these are overseen by the Supreme Leader who is himself, at least in theory, overseen by the Assembly of Experts, who elected him in the first place.

Then there are competing interests both in the legislative branch (parliament on the one hand, and the Guardian Council, which oversees the parliament, on the other), and also in the armed forces (between the Artesh, which is Iran’s regular army, and the Islamic Revolutionary Guard Corps).

Economic power of paramilitary organisations

These divisions spill into the financial sphere too, with the IRGC, for instance, spreading its tentacles into every aspect of Iran’s economy.

A case in point is the Khatam Al Anbiya, an extraordinarily powerful conglomerate that has often been seen as the economic arm of the IRGC.

Some have even referred to it as an armed business enterprise. It is a giant holding company with control of at least 800 firms both in Iran and abroad, and it is the recipient of billions of dollars worth of government contracts, often without a tender system.

However, some experts caution against seeing the Khatam Al Anbiya exclusively as the financial wing of the IRGC.

reg_180814 Marc Martinez mugshotIn an interview with Gulf News, Marc Martinez, (pictured) a UAE-based country risk analyst, said, “That would be an oversimplification. Khatam Al Anbiya is Iran’s backbone. It is the company that replaced the foreign and/or private companies that decided to leave or were pushed from Iran following the 1979 revolution. Its role has been crucial in Iran’s survival and reconstruction; not because it was the best company, but because it was the only company.”

Khatam Al Anbiya says it directly employs around 40,000 Iranians, and 200,000 indirectly. But unofficial estimates range from one million to 1.5 million.

Martinez said the organisation is one of Iran’s largest conglomerates, but the IRGC is mainly financed by the national budget.

“The IRGC continues to receive significantly more than the Artesh [Iran’s regular army], despite the government’s attempt to reign in the IRGC. Their [stake in] a myriad of other smaller companies is highly dependent on the economic situation and cannot be understood as a means to finance their operations. Corruption and illegal taxation on trade, for example, are much more efficient, but most of this pocket money only enriches individuals, not the IRGC.”

The amount of control the IRGC exercises over the economy, either directly or through organisations like the Khatam Al Anbiya, is impossible to estimate. “The numbers given by some experts, ranging from one-third to two-thirds have to be taken with a grain of salt. Foreign companies seeking to discover who their ultimate Iranian client or partner is often find a Pasdaran [Revolutionary Guard]. Does it mean the Guards control the Iranian economy per se? Maybe not, there are a lot of other actors involved: The government itself, the bonyads [foundations run by the religious establishment], and private investors. But it certainly means IRGC is one of the most important economic actors,” said Martinez.

Crackdown on corruption

Last year, President Hassan Rouhani, as part of his attempts to crack down on corruption, seemed to have singled out companies operated by, or closely linked to, the IRGC, such as the Khatam Al Anbiya. “What I sought is that in the economy, we must have free competition,” Rouhani told mediapersons in New York, during his visit to the UN General Assembly in 2017. “No institution can use its authority to derive a benefit. We must be open and fair, and there can be no exclusivity in any one sector. All the sectors must be productive. We are pushing and promoting a more open atmosphere for businesses, with open and fair competition and no exclusive sectors.”

Rouhani could simply not have taken the action he did without the support of the Supreme Leader Ali Khamenei. But Martinez believes Khamenei had no choice but to cave in. “The pressure was too strong, and he had to hit some IRGC commanders as an example, [to show that] he will not tolerate corruption and self-enrichment. Rouhani’s action was more meaningful. He understood the IRGC was impeding the development of the Iranian economy. First, the IRGC scares potential investors who are legally obliged to do their due diligence. Second, it prevents the privatisation of the economy. Because of the JCPOA [Joint Comprehensive Plan of Action, commonly known as Iran nuclear deal] Rouhani was able to sideline the IRGC and legally prevent the paramilitary organisation from getting access to some deals.”

Paradoxically, with the reinstatement of US sanctions, the Khatam Al Anbiya and the IRGC stand to benefit because the Iranian market and its 80 million consumers will have no other way than to deal with companies the IRGC controls. “The US decision to leave the JCPOA has destroyed Rouhani’s momentum and his ability to rein in the IRGC,” said Martinez.

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