There’s a battle in Iran over the Islamic Revolutionary Guards Corps business empire

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Iran’s Islamic Revolutionary Guards Corps (IRGC) is perceived by some as a business empire, with an estimated quarter of the country’s economy under its control. That has not changed since President Hassan Rouhani assumed office in 2013, despite his repeated calls for a reduction in the IRGC’s economic and financial activities, which had grown substantially during the eight years of Mahmoud Ahmadinejad’s presidency.

Rouhani’s efforts to rein in the IRGC economically have intensified since Iran and the P5+1 signed and adopted the Joint Comprehensive Plan of Action (JCPOA) in 2015, as the president has sought to bring much-needed foreign direct investment to the country’s key economic sectors. Rouhani’s ability to contain or coordinate the IRGC’s economic activities is crucial for reviving Iran’s economy and would be enhanced by the sanctions relief and foreign direct investment provided by the JCPOA — not to mention the endorsement or approval of Iran’s Supreme Leader Ayatollah Ali Khamenei.

The IRGC has been reluctant to fully comply with Rouhani’s efforts to reduce its economic role. Since the IRGC is under the direct command of the supreme leader and does not report to the elected president, it has, on many occasions, ignored and circumvented the government’s moves to limit its involvement in the economy. Several months ago, this came to a head when Rouhani’s government announced an agreement assigning the IRGC a leading role in the economic development activities of the country’s border regions with Iraq and Pakistan. The agreement has been portrayed in some quarters as a victory for the IRGC. However, rather than further paving the way for the IRGC’s unchecked economic expansion, the agreement can be seen as part of the president’s plan to contain that expansion.

The IRGC’s involvement in the national economy dates back to the early 1990s. However, since that time, the IRGC has mainly focused on large scale engineering projects as a contractor and, more recently, on financial institutions. This agreement involves activities that include opening and expanding investment loan cooperatives and border trade centers as well as infrastructure projects (roads, bridges and electricity) primarily through the IRGC’s engineering and construction firm, Khatam al-Anbiya Construction Headquarter. The agreement represents a new area for the IRGC’s economic engagement that will allow the organization to integrate its development and security activities in the border regions, which remain the country’s most underdeveloped.

The expanded role of the IRGC — with its ideological commitment, vast resources and extensive reach — could improve the socioeconomic conditions of these regions. In principle, such development could help subdue their marginalized and restless, ethnic populations and dissuade them, especially their youth, from joining the ranks of separatists and militants, such as the Kurdish Party of Free Life of Kurdistan (PJAK) and the Baluch God’s Brigade (Jundallah). The agreement would also allow the IRGC, which already maintains an active military and security presence in these regions, to extend patronage and informant networks among the local residents who benefit from its economic initiatives.

During the first half of 2016, Rouhani’s government refused to award 10 large contracts to Khatam al-Anbiya. Just recently, his government canceled the sale of 50 percent of Iran’s telecommunications corporation to IRGC-affiliated companies. The agreement to increase the IRGC’s involvement in rural development and the management of cross-border trade represents a way for the president to make amends for denying the IRGC these contracts and acquisitions.

Speculation exists in Iran that Rouhani also offered the IRGC a larger role in rural development — which has traditionally been the responsibility of the ministry of agriculture — in exchange for less involvement in larger, more lucrative sectors, such as oil, natural gas, petrochemicals and finance. These sectors are in urgent need of foreign direct investment, which can be attracted more successfully if they are less dominated by the IRGC. After long negotiations, Iran has been able to negotiate multibillion-dollar gas and oil deals with France’s Total and the Netherlands’ Royal Dutch Shell in November and December, respectively.

Developments following the signing of the rural development agreement demonstrate its fragility as well as the unresolved tensions that persist between the president and the IRGC over its role in the domestic economy. In October, the IRGC’s top commander, Maj. Gen. Mohammad Ali Jafari, cast doubt on the progress of the agreement’s implementation. Without further mention of the agreement or any indication of coordination with the government, Jafari unilaterally announced the IRGC’s plans to establish Progress and Development Headquarters (PDH) in the same border regions that the agreement had targeted.

Rather than react to the IRGC’s announcement or clarify whether the PDH was part of the agreement, the president responded by taking unilateral action of his own. On Nov. 20, he submitted an urgent bill to parliament to seek funding for job creation projects in the underdeveloped border regions that the IRGC had designated for the PDH. The announcement of Rouhani’s proposed bill did not mention the PDH initiative, making the level of coordination between the president and the IRGC unclear.

The unilateral announcements and actions by the IRGC and the president following their signing of the agreement can be interpreted as another chapter in their ongoing political dispute over governance and economic policy. The announcement of the PDH by the IRGC signaled its frustration with Rouhani’s slow or delayed implementation of the agreement. Rouhani probably proposed the legislation to live up to the name of his Moderation and Development Party, ensure that he remains relevant to these regions, and maintain their political support ahead of upcoming presidential elections in June 2017.

Khamenei has appeared to remain above the fray during these disputes, but his continued call for a “resistance economy” in the face of renewed and persistent U.S. sanctions has given an added justification to the IRGC to expand its economic role beyond construction and finance into rural development. When announcing the creation of the PDH, Jafari invoked the supreme leader’s call for a resistance economy as the main rationale for the new economic mission of the IRGC — a demonstration of its resolve to remain relevant to the domestic economy.

Given the precedent that has been set, even before Ahmadinejad’s presidency, Rouhani or any future president will likely be unable to completely marginalize the IRGC as a major economic player. The recent agreement on rural development and the uncoordinated steps that have followed indicate that Rouhani’s initial expectations for restricting the IRGC’s economic activities have been unrealistic.

Without Khamenei’s unwavering support for this rollback plan, the best that Rouhani can do is engage in a give-and-take negotiation with the IRGC in the hope of directing and confining its economic activities to specific sectors. At the same time, if the JCPOA remains intact during U.S. President-elect Donald Trump’s term and Rouhani manages to attract a substantial amount of foreign direct investment, his bargaining power in future negotiations over the IRGC’s economic activities are likely to improve.

Eric Lob is an assistant professor in the Department of Politics and International Relations at Florida International University. Nader Habibi is the Henry J. Leir Professor of the Economics of the Middle East and senior lecturer in the Department of Economics at Brandeis University.

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