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.

In May 2010 the press reported that Khatam-olanbia had received several other large oil and oil refinery projects worth $10 billion, including development of three of the twenty-eight phases of development of the giant South Pars gas field in the Persian Gulf, the largest natural-gas field in the world; development and expansion of the Ilam oil refinery in western Iran; and development of some large oil fields. The newspaper Donya-e Eghtesad reported at that time that, overall, Khatam Al Anbia had received oil-related projected worth a total of $15 billion.

In February 2011, the Minister of Oil and former head of Khatam Al Anbia, Brigadier General Rostam Ghasemi, announced that a large petrochemical project worth $500 million had been awarded to Khatam Al Anbia.

In April 2012, Khatami Al Anbia began the construction of a large water canal to transfer water from the Caspian Sea in the north to the central desert. In return, the government transferred to the IRGC the ownership of a large portion of the shares of Iran’s petrochemical company.

In August 2013, phases fifteen and sixteen of South Pars gas field began operating. They had been developed by the IRGC. Its spokesman, general Ramazan Sharif, said “unlike what the counter-revolutionaries try to plant in people’s minds that the IRGC’s economic activities are intended to control the national economy,” the IRGC “only participates in such activities to develop the country, to contribute to national security and interests, and to help the country’s independence” from foreign powers.

As mentioned earlier, the IRGC has carried a very large number of projects in the country; see here, here, here, here, here, here, here, here, here, and here, for example. They range anywhere from building roads, railroads, bridges, water tunnels, canals and dams, to mining, oil and gas projects, and agriculture.

Another controversial issue is the amount of land that is controlled by the IRGC. In January 2013, Brigadier General Yazdi said, “A lot of land was turned over to the IRGC by the regular armed forces and the National Natural Resources Organization. These lands did not have deeds, and thus many have claimed their ownership. We have warned the judiciary many times that some people are trying to take over public lands, and we have tried to preserve the Sepaah’s [IRGC’s] dignity and people’s rights. Thus, a government organ that has successfully protected the public’s rights and assets has been” the IRGC.

The IRGC’s share of the national economy

Another dispute is over the IRGC’s share of the national economy, and Iran’s gross domestic product. There is no consensus on the issue.

In December 2010, Brigadier General Ghasemi, then head of Khatam Al Anbia, said that the IRGC is involved with “less than 4 percent” of all the development projects.

Brigadier General Sayyed Mohammad Hejazi, deputy chief of staff of the armed forces, said in December 2010 that, “The share of the IRGC in all of the government’s projects is no more than 2-3 percent. Anyone that takes a look at the annual budget and studies the section on the income and expenses will find out which projects are being carried out by the Sepaah, how much it must pay to the treasury and how much it must receive. This is not classified information; anyone can study it.”

In December 2012, Brigadier General Abolghasem Mozaffari, the then-head of Khatam Al Anbia, said that the IRGC receives 8 percent of the total development budget of the nation of about $1.1 billion, and that, “Khatam Al Anbia receives 5 percent of the total budget given to the private corporations.” He also mentioned some of the projects that are currently being carried out by Khatam Al Anbia: nine projects for constructing a 3,500 km pipeline for transporting oil and natural gas; twelve projects for transferring water from dams and storage areas to towns and villages; six projects for building tunnels to transfer water; a 160 km railroad; fifteen projects to build a 2,185 km-long railroad between cities; ten projects for constructing 1,500 km freeways; twenty-one small and large dams with a water capacity of 3 billion cubic meters, and many other projects.

In January 2013, Brigadier General Yazdi said, “About 45,000 people work directly with Khatam Al Anbia, of whom 2,000 are Sepaah personnel. Five thousand contractors and 150,000 people also work with Khatam-olanbia.”

In June Brigadier General Ebadollah Abdollahi, the current head of Khatam Al Anbia, said that “we have completed over 2500 projects over the past two decades.” He added that Khatam Al Anbia is not working for profit. “We must pay 150,000 people. If there is any profit, we pay our workers and also buy new equipment. We are carrying out 12,000 projects to uproot poverty, and we pay for them from the profit.”

The Consequences of the IRGC’s economic activities

The military’s involvement in Iran’s national economy has had several consequences. The first one is corruption. Consider the following three examples:

The aforementioned Mehr-e Eghtesad Investment Corporation of Iranians acts as a stockbroker for the IRGC in the Tehran stock market. In July 2009, it bought a mine in the province of Zanjan northwest of Tehran for $60 million, whereas experts evaluated its value at more than $200 million. The deal was annulled by the government, and the IRGC was strongly criticized for it.

Last February, Brigadier General Hossein Daghighi was fired from his post as the chief executive officer of SATA (the Farsi acronym for Social Security Organization of the Armed Forces). He was known as “the king of the petrochemical market” and accused of corruption.

On November 6, conservative Majles deputy Ahmad Tavakkoli, who is also an economist, once again protested the “sale” of the ICC to the IRGC, saying the “’stake meat’ of communication was given to the IRGC in the name of privatization, and eliminated an important source of income for the government and the ministry of communication technology. We [a group of Majles deputies] have protested this and are pursuing it.”

The second consequence of its role is the IRGC acting as a “middleman.” Brigadier General Abdollahi, head of Khatam Al Anbia, has said that “more than 70 percent of Khatami Al Anbia’s projects are being done by the private sector.” This implies that the IRGC uses its position to receive large projects and then acts as middleman to receive a large profit and have others carry out the projects.

The third consequence is violating the laws, as Khatam Al Anbia has received almost all of its projects in a no-bid process and without any competitor.

The fourth consequence is Khatam Al Anbia’s refusal to pay any taxes. On November 9, 2013 economist Hossein Raghfar said “most government institutions [that are active in the economy] do not pay any taxes. They have killed the competition, have created exclusive trusts, go around the laws, have access to the banks’ resources, and if there is any foreign currency available, they receive it [first],” adding, “Some of them have their own banks and financial institutions. They do not follow the Central Bank’s regulations. Given the economic sanctions and the weakness of the private sector, the share of such institutions in the national economy has increased, which is dangerous.”

Another consequence is that since the institutions that are directly controlled by the Supreme Leader, including the IRGC, cannot be investigated by any other organ of the government, they do not have to answer to anyone other than the Supreme Leader himself.

But the most important consequence is the massive accumulation of political power by the IRGC. Its military power created its economic might, and the two combined bestowed upon it immense political clout.

Leave the economy

IRGC’s deep involvement in the economy has provoked protests from all quarters, forcing the Islamic Republic’s leaders to react.

Tavakkoli said in August that he was opposed to the “sale” of ICC to the IRGC, but could not prevent it. He added that he sees “no problem in using the military in the development projects, but, taking control of the markets by the IRGC means that their military power has extended to economic sector, which brings political power; but this is against the democratic process. Ahmadinejad expanded the IRGC’s influence and economic activities to all domains. The IRGC used it to expand its power. Thus, the private sector will not be strengthened. The military should not be involved with the market. But, now that they are in the market, it is not easy to force them out. They compete with the private sector in an unfair and unequal competition, and have so much power that they easily win most of the projects.”

In August 2013 Major General Hassan Firoozabadi, armed forces chief of staff, said that the military’s goal in getting involved with the economy is helping the government, not making money, and if the government does not need the military, it will stop its economic activities.