Iran: The High Cost of the IRGC's Economic Might

December 4, 2013 Topic: EconomicsPolitical Economy Region: Iran

Iran: The High Cost of the IRGC's Economic Might

How the Revolutionary Guards got into the economy—and what they're taking out of it.

One of the most controversial and challenging problems in Iran is the economic might of the Islamic Revolution Guard Corps (IRGC). After Ayatollah Ruhollah Khomeini passed away in June 1989, Ayatollah Ali Khamenei was appointed the Supreme Leader and Akbar Hashemi Rafsanjani was elected the President. To rebuild the country, the two men decided to use the IRGC’s considerable experience in road and bridge building and other activities that it had undertaken during the eight-year war with Iraq. Thus, they allowed the IRGC to enter the economic domain.

At the same time, many senior commanders of the IRGC believed that, due to the war, the control of the national economy had been turned over to a new corrupt class of people and, thus, they needed to enter the economic arena in order to cleanse it. Thus, Khatam al Anbia Reconstruction Center was founded in 1992 as an engineering and development center. Cleric Ali Saeedi, Khamenei’s hardline representative to the IRGC, told the reformist Shargh newspaper in July 2006 that, “The goal of setting up Khatam al Anbia was to utilize the heavy machinery and equipment that had been utilized by the IRGC during the war, which could be used after the war in reconstructing the country.”


After the 1979 Revolution, Iran’s oil-driven economy fell under tighter control of the government. But, Rafsanjani’s two-term presidency (1989-1997) was the era in which the government’s economic policy underwent drastic changes. Rafsanjani initiated liberalization of the economy and its privatization. Those who advocated control of the national economy by the government accused him of being “controlled” by the [policies of the] World Bank and International Monetary Fund. But the fact is that privatization during that era was based on nepotism, and many large government assets were “sold” at below-market prices and backed by bank loans to the khodis—the insiders.

In April 2010 then president Mahmoud Ahmadinejad said, “Privatization began in 1993, and the assets that were sold [during the Rafsanjani administration] were worth about $7.5 billion. But, during my administration [beginning in 2005] the total worth of the government’s assets that we have sold to the private sector has been $50 billion, and it has been done through Tehran’s stock market.”

A major problem in Iran’s privatization has been selling the government’s assets to the military institutions. On November 5, 2013, Eshagh Jahangiri, President Hassan Rouhani’s Principal Vice President [Iran has eight Vice Presidents] said, “In order to implement Article 44 of the Constitution [that emphasizes privatization] and to shrink the size of the government, we have sold government’s assets worth a total of $80 billion,” but, “Only 17 percent of this has been turned over to the true private sector. The rest has gone to quasi-governmental organs.” Rouhani’s Minister of Economy, Ali Tabibnia, said on the same day, “At most 17 percent of the privatization has been in the true sense of the word. The rest of the public assets have been sold to institutions that are not considered as belonging to the private sector.”

Creating a class of pro-regime supporters

One needs to understand the reason for the joint order of Khamenei and Rafsanjani that gave the military the permission to begin its economic activities. In March 2011 Brigadier General Mohammad Reza Yazdi, deputy IRGC commander for legal and parliamentary affairs said, “All the economic activities of the Sepaah [the IRGC] are based on the Supreme Leader’s order….”

Rafsanjani’s and Khamenei’s goal was to create a new social class or stratum to systematically share part of the government’s oil income and exclusive rights to many economic activities, and which would in turn support the regime in a national crisis. This was done mainly through “privatization”, by “selling”—practically giving things away—to the new elite social class various state-controlled companies, lands in major urban centers, exclusive rights for mining and for importing from Iran’s major commercial partners, etc. Most of the assets were “sold” to military/security-controlled organs, and to the foundations and corporations that are controlled by the Abode of the Supreme Leader, or beit-e rahbari as it is called in Iran.

The economic activities of the IRGC

Since the beginning of the summer of 2006, less than a year into Ahmadinejad’s first term as president, Khatam Al Anbia has carried out at least 1,220 industrial and mining projects (the true number is not known). Some of the main projects are as-follows:

The development and expansion of the irrigation network for 8,800 hectares of agricultural land in the oil province of Khuzestan in southwest Iran; construction of four large oil storage tanks in Khark Island (Iran’s main oil terminal) in the Persian Gulf; construction of a large natural-gas pipeline from the town of Asalouyeh in the Bushehr province by the Persian Gulf to Sistan and Baluchestan province in southeast Iran, on the border with Pakistan, worth $1.3 billion, and another natural gas pipeline to northwest Iran worth $2.5 billion; completion of the Tehran subway in a joint venture with the Foundation of the Oppressed and Disabled—or Mostazafan Bonyad, in Farsi—and the Ministry of Oil, worth a total of $2.5 billion, etc. At the same time, the Payaam airport in Karaj, a town 40 km west of Tehran, has been controlled by the IRGC for years. In March 2005, Ali Younesi, Minister of Intelligence in the Khatami administration, said that during 2004, goods and commodities worth at least $20 million were smuggled into the country through that airport without any custom officials present.

The IRGC controls tens of illegal jetties in southern Iran by the Persian Gulf. This provoked a strong protest, not only by Mehdi Karroubi, the then speaker of the Majles (parliament) in 2004, but also by Ahmadinejad who, on July 3, 2011, sarcastically referred to the IRGC personnel involved in smuggling as “our own smuggling brothers.” Most recently, on November 8, 2013, Arsalan Fathipour, head of the Majles commission on economic affairs, declared that “$15-20 billion worth of goods are smuggled into the country annually.” It is not clear how much of this is controlled by the IRGC, but most experts believe a sizeable fraction of smuggling is done by the IRGC-linked groups.

During the Khatami administration (1997-2005), the IRGC was involved in an embarrassing controversy. In the ceremonies for the opening of Tehran’s new international airport, called Imam Khomeini International Airport, two aircraft of the IRGC prevented a civilian airliner from landing at the airport. The reason given was that the security of the airport had been contracted to a Turkish company. The IRGC command objected to this and wanted to control the security at the airport. Lieutenant Brigadier General Yadollah Javani of the IRGC said, “This action [taking the control of the security at the airport] has neutralized the West’s conspiracies against us, and at the same time the IRGC, instead of a foreign corporation, is helping the country.”

IRGC banking activities

The IRGC’s banking activities are done through Mehr-e Eghtesad Bank, which has also provoked strong protests. Saeedi, Khamenei’s representative to the IRGC, responded to the protests by saying that the IRGC gets involved only in that part of the economy in which the private sector cannot compete, because it lacks the necessary resources, adding, “That the IRGC has replaced German and French companies to carry out some projects is because it wants to protect the Revolution and the state and, thus, such economic activities [by the IRGC] are justifiable.” Mehr-e Eghtesad Bank is the holding company for many other major corporations in Iran, mostly in the construction field. Just one such company, Mehr-e Eghtesad Investment Corporation of Iranians, is worth close to $2 billion.

Ahmadinejad as the IRGC’s blessing angel

The Ahmadinejad era witnessed deep involvement of the IRGC in the economy. His goal was to create a cadre of mid-level IRGC officers that own a large number of companies, and that will be loyal to him. Some examples:

In July 2007, Khatami Al Anbia received a contract from the government, worth $342 million, to develop the Chah Bahar seaport on the Oman Sea in Sistan and Baluchestan province.

In the largest trade in the history of the Tehran stock market, the IRGC bought 51 percent of the shares of Iran Communication Corporation (ICC), worth $8 billion, in October 2009. This provoked strong protests, since at least one private company had been forced to withdraw its bid, and several reports had indicated that it had been forced to do so under threat. The Majles formed a special commission to look into the matter. The commission reported not only the discovery of hundreds of legal problems with the transaction, but also declared that “since 90 percent of the ICC capital belongs to the people through the deposits that they had over the years with the ICC, the entire transaction is illegal.” The commission’s report declared the transaction as “stealing people’s private properties.”

In February 2010, Ahmadinejad asked the IRGC “to prepare itself to enter the oil and natural gas domains.” Three weeks later, the press reported that the government had awarded several major no-bid oil projects to Khatam Al Anbia worth $850 million.