By Samanvya Hooda*
Since 2006, Iran’s economy had grown more isolated following the imposition of sanctions related to its nuclear programme. The economic dynamics of sanctions forced Iran to restructure the economy in a way that minimised criminalisation. The Islamic Revolutionary Guard Corps (IRGC) was the biggest beneficiary of this policy. How will President Hassan Rouhani’s planned reforms affect the IRGC’s economic clout they have gained and their relative strength within the system?
The power of the IRGC – a weighty entity since its inception – increased manifold during the terms of former President Mahmoud Ahmadinejad, himself an ex-IRGC officer. This power was consolidated by granting no-tender contracts in construction, oil, natural gas and infrastructure projects. The IRGC is also believed to operate Iran’s shadow economy involved in smuggling and sanctions busting; and its fronts control all major sectors of the economy, including banking, mining, shipping, aviation, electronics, etc.
The post-sanctions withdrawal of foreign companies created a vacuum in the economy that businesses affiliated with the IRGC filled. This kept Iran’s oil-dependent economy running, but also ensured a monopoly in the energy sector for IRGC affiliates. For instance, the IRGC owned Khatam al-Anbiya was awarded a no-tender contract to develop the South Pars gas field in the Persian Gulf, the largest in the world. Other IRGC firms provide ancillary services in these sectors. Any competition was swiftly annexed by the Corps itself. The Oriental Oil Kish, Iran’s first private oil drilling company is an example. Effectively, the IRGC monopolised the oil and gas industry by stifling private sector participation.
Telecommunications is the largest non-oil sector in the Iranian economy. This too is controlled by the IRGC. The Telecommunication Company of Iran (TCI) has a monopoly over fixed-line infrastructure, and until recently, was the largest Internet Service Provider in the country. The IRGC-linked Mobin Trust Consortium (MTC) owns 90 per cent of the TCI’s shares. TCI’s subsidiary, the Mobile Communication Company (MCI) has the largest market share of mobile services in Iran, and is valued upwards of US$4 billion. The TCI also controls bandwidth allocation for data services, ensuring IRGC dominance in the telecommunications industry.
The bulk of the IRGC’s economic clout comes from its presence in large-scale development in the country. This sector is also dominated by Khatam al-Anbiya, which along with its subsidiaries, executes contracts in large development projects such as dams, highways, railways, mining, offshore construction, pipelines, and even parts of the Tehran Metro.
Post Sanction Relief
Economic liberalisation therefore threatens entrenched economic interests and has a knock down effect on the power dynamics of the political system. Reintegration with the world economy imposes a dilemma. Iranian investment laws require international companies to operate in joint ventures with domestic companies in key sectors and involve significant technology transfer. While the IRGC controls most of the investment eligible sectors, sanctions specifically exclude the IRGC and affiliates from receiving any foreign investment. For example, EU sanctions on most IRGC affiliates and personnel will be lifted in 2024, but US sanctions will continue.
The current situation therefore creates a huge window of opportunity for the Iranian private sector. It is precisely for this reason that the private sector will become a potent threat to the income of the IRGC, now more than previously. In fact, foreign investment and new technology will almost certainly give the private sector a decisive edge over the IRGC companies. The IRGC’s woes are compounded by the fact that it does not have new markets, since most petroleum contracts are on a long-term basis (20-25 years), limiting its opportunities even post the lifting of sanctions.
In the telecommunications industry, the MCI leads the sector with a very slim margin; it is closely followed by a joint venture between the South Africa-based MTN group and a consortium with indirect ties to the IRGC. Foreign investment with rival groups will threaten the IRGC’s monopoly, but not to the extent it will in the energy sectors. The MTC announced their intention to sell all their shares in TCI in 2015, allowing further foreign investment that will lead to a reduced IRGC role in the industry.
The IRGC’s economic activities face competition and the erosion of its market share across several sectors will result in significant loss of income. This income, currently estimated at several billion dollars annually, funds several of its security initiatives, including power projection in Syria and other parts of West Asia. This loss of revenue makes the IRGC more dependent on the presidency and legislature for funding. Compounding this, moves are afoot to drastically reduce state funding of the IRGC. For instance, President Rouhani slashed the IRGC’s funding by 16 per cent just one day after the lifting of sanctions. The February 2016 parliamentary elections produced a legislature no longer controlled by radical conservatives, further diminishing institutional opposition to IRGC budget cuts.
Far from the IRGC profiting from sanctions relief, the Joint Comprehensive Plan of Action (JCPOA) will diminish its economic and systemic clout, and possibly herald an irreversible shift in the power dynamics in Tehran.
* Samanvya Hooda
Research Intern, NSP, IPCS