In the wake of anti-government street protests, Iranian leader Ayatollah Ali Khamenei took an unprecedented step ordering both the country’s regular army and its Revolutionary Guards (IRGC) to divest from commercial holdings and businesses not directly affiliated with their work. Given that the IRGC controls almost one-third of Iran’s economy, according to some estimates, the move may catalyse a tectonic shift toward the liberalisation of the economy aimed to address prevalent dissatisfaction within Iranian society, which is believed to have roots in economic hardships. But will it work?
The IRGC’s involvement in business dates back to the aftermath of the Iran-Iraq War (1980-1988). The organisation rapidly transformed itself into an economic giant in the country. The IRGC spread its economic wings and was involved in nearly all lucrative government contracts. Whenever it was confronted, it responded with an upper-hand and with force.
The conflict between Iranian President Hassan Rouhani and the IRGC is a microcosm of the power struggle between the centrists and reformists on the one hand, and the conservatives on the other. Since Rouhani was elected for his first term in 2013, one of the major fronts of this battle has been the economy. A primary goal of Rouhani since he took office has been to weaken conservative institutions by limiting their financial resources.
From a different angle, Rouhani is a fierce proponent of privatisation and neoliberal market economy, which explains his blame of the IRGC for its grip on the economy. He argues not only that the IRGC’s large-scale economic involvement is a hurdle for growth, but also represents a lack of transparency that has led to far-reaching corruption in the country.
In a clear reference to the IRGC, Rouhani once remarked, “If guns, money, newspapers and propaganda all gather in one place, one can be confident of corruption there.”
It could be argued that Khamenei’s recent move, which may dramatically limit the IRGC’s sphere of manoeuvre, demonstrates that he is convinced that the economic status quo is unsustainable. That Khamenei’s order came immediately after the recent protests that spread to 80 cities in Iran further evidences his belief in the unsustainability of the status quo. Millions of people have lost their savings as a result of the collapse of fraudulent financial organisations affiliated with centres of powers within the deep state, including the IRGC. Those organisations offered exceedingly high interest rates to attract the money of individuals but could not afford to pay them.
However, there are serious doubts that the Khamenei’s project could materialise and stabilise Iran.
First, the economic interests of both the IRGC and the regular army are worth billions of dollars. Iranian Defence Minister Amir Hatami cautioned that “the degree of our success depends on market conditions and the possibility of divestment.” An Iran commentator, Esfandyar Batmanghelidj, maintains that the “challenge is how you make privatisation happen. You have the IRGC seeking to divest, you have the Social Security Organisation seeking to divest, and you have a very limited pool of investors able to absorb the firms. Sellers don’t want a fire-sale: they need good prices.”
Second, Iran’s major economic problems are widespread corruption, monumental wealth, and income gaps and unemployment. However, these problems standing alone are the effects of a myopic view that has created a discriminatory and two-tiered social system: those who are part of, or have connections with, the centres of power (khodi), and those who are excluded from this sphere (na-khodi). Na-khodis suffer many types of financial, political, and social pressures and discrimination. It would be naive to think that a combination of privatisation, even at its fullest, and a reduction of the IRGC’s control of different sectors of economy could eliminate this chronic societal division. Indeed, the division which is a product of the system’s governance is the mother of all disparities in Iranian society, and is the primary source of anger and dissatisfaction within a large faction of society. This situation is driven by an ideological principle that views the “self” against, and in constant conflict with, the “others.” It also rejects any interaction and communication with, and recognition of, those “others.”
Third, Iran’s hostile relations with the US have seriously hindered its economic growth and hardships. Thus, as long as these two countries’ relations remain tense, one cannot conclude that Iran’s economy will thrive. Tension between Iran and the US has affected Iran’s economy in two ways.
First, US sanctions have crippled Iran’s economy. And even after the suspension of nuclear-related sanctions following the 2015 nuclear deal, foreign companies and financial institutions were extremely cautious of expanding business relations with Iran, including long-term investments. The argument supporting this position is that while it is true that nuclear-related sanctions have been waived, other sanctions related to Iran’s ballistic missiles activities, its alleged sponsoring of terrorism, and its alleged human rights violations, remain in place. Were foreign companies or financial institutions to work with Iran, they could get caught in the web of these existing sanctions and thus face astronomical penalties.
Second, under President Donald Trump, this theory is gradually becoming a reality: the US president could, at any point and upon his own will, stop extending sanctions waivers (president may waive the imposition of sanctions every 120 to 180 days) and let even nuclear-related sanctions that target Iran’s oil and financial sector to snap back into place. In such an eventuality, a long-term investor in the Iranian economy would either abandon the American market or his investment in Iran. Either way, the investor would be damned. As such, foreign companies are reluctant to work with Iran on a long-term basis. Against this backdrop, “Iran needs approximately $200 billion in investments for oil and gas production, development, and refineries, and roughly 65 to 75 percent of that needs to come from foreign investment,” according to Iran’s oil minister Bijan Zanganeh. And this large amount only for the oil sector.
Fourth, what difference would the transfer of the interests of the IRGC to the private sector make in stopping and reversing the widening gap between the poor and the affluent? This phenomenon, according to the overwhelming majority of Iranian analysts, is the major inter-subjective element shaping the resentment of the lower middle class and those with low incomes.
Cyrus Namjoo Moghadam is a columnist specialising in Iranian issues.