As the United States threatens to pull out of the Iran nuclear deal, Iran is ordering its entire military — made up of the Islamic Revolutionary Guard Corps (IRGC) and the regular army, Artesh — to divest any economic activity unrelated to its core mandate. The move is a significant one, considering how entrenched the IRGC is in Iranian politics and the economy. But the jury is still out on whether a legitimate crackdown is underway or if it's all for show.
There are domestic drivers that could be behind the crackdown and that should not be dismissed, but international drivers certainly have influenced Tehran's calculus. The United States is pressuring Iran economically and urging the European Union to do the same, in the form of a supplemental agreement that increases the scope of the Iran nuclear deal. If a supplemental agreement is not signed, Washington says it will pull out of the nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA).
The Pervasion of the IRGC
Militaries often play significant roles in the economies of developing countries and are often financed informally. Following the old adage that money is power, these militaries often play an outsize role in shaping policy — sometimes to the detriment of civilian (or in Iran's case theocratic) leadership. The IRGC's involvement in Iran's economy and civil society is significant. The force has always had an economic role, but under former President Mahmoud Ahmadinejad from 2005 to 2013, the IRGC's business empire began to expand markedly, perhaps even to the detriment of its defense and intelligence capabilities, and with it, the force's political clout also grew.
Ahmadinejad criticized his predecessors' attempts to privatize parts of the Iranian economy while stacking his Cabinet full of members of the IRGC and of the Basij, a volunteer militia branch of the IRGC. In this way, he built an alliance with Iran’s hardliners against the reformists who held the presidency before him. But at the IRGC's behest, Ahmadinejad continued — and even accelerated — the pace of privatizing many of Iran's state-owned enterprises, putting semipublic firms and individuals with close ties to the IRGC in powerful positions. Many lucrative domestic contracts for things such as oil and natural gas licensing and public works projects were given to IRGC-linked firms through no-bid contracts.
As a result, the IRGC, and especially its construction unit, the Khatam al-Anbia, pervaded almost every economic sector, either formally or informally. The drawbacks to the new order soon became apparent. The IRGC's forays into the oil and natural gas sector were largely unsuccessful, and at one point the announcement was made that the IRGC would no longer be developing major oil and natural gas projects directly. Moreover, money laundering, smuggling, corruption and mismanagement became commonplace, damaging the Iranian economy, which was soon dealt a double blow when Western sanctions choked off the country's oil exports.
Small Rollbacks and Slow Reform
Ahmadinejad's final presidential term ended nearly five years ago, but his economic policies still haunt the Iranian economy. From the beginning of his first campaign, current Iranian President Hassan Rouhani ran on the moderately reformist promise that he would negotiate sanctions removals to boost Iran's economy. And one of his core messages during the 2017 presidential campaign was that the IRGC needed to relinquish aspects of its business empire. But the IRGC has pushed against Rouhani's economic reform agenda to protect its own interests. This explains why, for example, it took so long for the Iranian Petroleum Contract to be awarded to international oil companies. The IRGC has played a significant role in foreign policy, too, working especially hard to undermine the nuclear deal.
Rouhani has tried to make good on his campaign promises and to push back against the IRGC, but in Iran the president can do only as much as the supreme leader allows — and Supreme Leader Ayatollah Ali Khamenei is much more hardline than Rouhani. Because of this, Rouhani struggled to rein in the IRGC during his first years in office, but last year reports emerged that some IRGC members and affiliated businessmen had been detained and arrested and that some of their assets had been seized; other IRGC-affiliated companies were forced to sell their assets. Such moves would not have been possible without at least the tacit support of Khamenei.
Iranian President Hassan Rouhani has tried to make good on his campaign promises and to push back against the IRGC, but in Iran the president can do only as much as the supreme leader allows — and Supreme Leader Ayatollah Ali Khamenei is much more hardline than Rouhani.
Over the past month, a spate of protests in Iran has focused squarely on economic problems and perceived graft by groups, including the IRGC. And this time around, Khamenei's support for Rouhani's efforts against the IRGC was explicit. It was Khamenei who ordered the IRGC to sell its assets outside of its core function as a military force. Rouhani appears to have Khamenei's full support to reform and restructure Iran's political economy, as well as his support to pragmatically deal with the West on its nuclear and ballistic missile programs. But ordering the IRGC to step out of the economy and ensuring it actually does so are two very different things.
The IRGC is likely to broadly define the business operations that constitute its core interests. Already, Defense Minister Gen. Amir Hatami announced that some of the IRGC's development projects will remain under its watch, which could mean that construction arm Khatam al-Anbia will still be called on for large-scale civil engineering and construction projects. And though the IRGC and its affiliates have direct stakes in certain companies, many of the companies to benefit from the IRGC's political strength are owned by former IRGC members or close affiliates, meaning their role in the economy will remain strong. Similarly, any stakes the IRGC privatizes probably will go to close associates of the force. The fact that much of Iran's economy is informal makes enforcement all the more difficult.
Any further talks between Tehran and the West over aspects of Iran's nuclear program or its other military activities, such as its long-range ballistic missile program, could occur only with Khamenei's authorization. Last week, Germany's foreign minister, Sigmar Gabriel, told U.S. Secretary of State Rex Tillerson that Iran had offered to discuss some aspects of its ballistic missile program in new talks. French Foreign Minister Jean-Yves Le Drian made similar comments Jan. 21, saying that France already had begun talks with Iran on the matter. And though Iran swiftly denied the claims, those denials cannot be trusted, considering Iran has little to gain and much to lose by acknowledging such negotiations.
The economic imperatives that initially drove Iran to negotiate with the West over its nuclear program remain. Protecting the sanctions relief agreed on through the JCPOA is a top priority for Iran, and it will continue doing what it can to offer Europe concessions to keep it from falling in line with the United States. (The administration of U.S. President Donald Trump believes the JCPOA is insufficient and is threatening to abandon it, whereas European powers are warning Washington against such a move and advising that Iran is in compliance with the agreement.)
Iran has, for example, held three talks since 2016 with the European Union that have included discussions about EU human rights concerns, and it has acted on some of those concerns. Iran's recent decision to eliminate capital punishment for certain drug offenders acts as one concession to the bloc. In another concession, Iran's crackdown on recent protests was far less heavy-handed than in the past. In addition, Iranian Foreign Minister Javad Zarif penned an op-ed in the Financial Times on Jan. 21, hoping to trigger strategic talks on regional issues with its neighbors and with the West. And Khamenei has banned ballistic missiles with a range farther than 2,000 kilometers.
The crackdown on the IRGC could be yet another concession to Europe. In the past, the IRGC has worked to disrupt talks with the West, so weakening it is key to ensuring any talks with the West succeed. And even if any potential talks fail and sanctions are snapped back into place, limiting the IRGC's involvement in businesses will reduce the impact of sanctions, many of which target the IRGC specifically.
The European Union certainly will accept the concessions Iran offers, but it is less clear whether the United States will. And the moves will do little to appease Iran's regional rivals Israel and Saudi Arabia. This week, when Tillerson is in Europe, will be definitive when it comes to determining whether Europe will respond to Iranian concessions and maintain its support for the JCPOA or whether it will fall in line behind the United States and increase pressure on Iran over its nuclear and other military programs — thereby weakening the JCPOA. Iran, aware of the stakes, is hoping that this most recent move against the IRGC will sway the balance in its favor.