Uncovering the tracks of Iran’s Revolutionary Guards

Published in MEED, 7 June 2016

The Islamic Revolutionary Guard Corps is often portrayed as playing a central role in the Iranian economy, but just how extensive are its business interests?

The Islamic Revolutionary Guard Corps (IRGC) is widely considered to play a central role in the Iranian economy and to be active in almost every sector. But to understand just how wide-ranging its involvement is is not a straightforward exercise. The organisation has become extremely good at hiding its tracks and there is a culture of secrecy and obfuscation in Iranian business life, which makes the job all the harder.

That does not stop people trying to put a number on it, however. In July 2015, UK news agency Reuters cited an unnamed Western diplomat who estimated that the annual turnover of IRGC-owned businesses was in the range of $10bn-$12bn, equivalent to about a sixth of Iran’s GDP at the time. If it was a regular company, that would place it among the biggest in the Middle East.

Other analysts have made similarly large estimates of the IRGC’s business empire. The Foundation for Defense of Democracies (FDD), a US think-tank that argues for tougher sanctions against the IRGC, estimates that the body’s investment portfolio includes substantial holdings in 14 firms traded on the Tehran Stock Exchange (TSE). The IRGC or other elements of the country’s armed forces also own significant stakes in a further 13 listed companies. In total, these 27 corporates are worth somewhere between $16.4bn and $19.7bn, and account for about 20 per cent of the bourse’s total market capitalisation. The IRGC’s share is about 10 per cent of the TSE.

Widespread influence

The companies involved cover a wide range of sectors and include carmaker Bahman Group, Telecommunication Company of Iran, Shiraz Petrochemical Company, Parsian Oil & Gas Development Company and Iran Zinc Mines Development Company. The nuclear deal with Tehran, which saw many sanctions removed from January this year, does not seem to have made much difference to its portfolio, according to Saeed Ghasseminejad, an associate fellow at the FDD.

We have not seen a fundamental change in the IRGC-military share of the TSE,” says Ghasseminejad. “Given that, unlike the macro-economic variables, market prices are forward-looking, one may conclude the market does not anticipate a fundamental change in the IRGC’s economic influence.”

In addition, the FDD says it has identified 218 private companies owned by the IRGC Cooperative Foundation, also known as Bonyad Taavon Sepah, and a further 85 businesses run by the Basij Cooperative Foundation, part of the IRGC’s volunteer militia arm, the Basij. These bonyads, or trusts, are even more opaque than regular companies, so it is all but impossible to know the true extent of their activities. In addition, the firms they have shareholdings in often have many subsidiaries, which in turn have subsidiaries of their own. This leads to a situation where the IRGC exerts influence or control over many ‘front companies’ that have no obvious ties to the organisation.

“When you’re doing due diligence, in many cases it’s quite difficult to get a clear understanding of who the shareholders are and of course the shareholders could include the IRGC, “ says John Whittaker, a partner at UK law firm Clyde & Co. “The problem is also in relation to bonyads. Because of the nature of trusts, you can’t really understand the ownership.”

Sanctioned firms

Some, but certainly not all, of the companies linked to the IRGC have been included in various sanctions put in place by the US, EU and others in recent years. Among the companies that the US authorities and others have identified as being owned by the IRGC are construction and engineering firm Khatam al-Anbia Construction Base, port operator Tidewater Middle East, and National Iranian Oil Company.

Of these, Khatam al-Anbia is one of the most significant, with extensive involvement in the oil and gas, petrochemicals, transport infrastructure, water, mining and other sectors. It employs an estimated 135,000 people, according to the FDD, and has more than 800 subsidiaries. Khatam al-Anbia has been involved in more than 50 contracts with the Ministry of Petroleum and numerous non-oil projects, including Line 7 of the Tehran Metro and the Bakhtiari Dam in the west of the country.

Finally, the IRGC is also thought to be heavily involved in the grey and black economies, although putting a valuation on that is difficult for obvious reasons. Ghasseminejad suggests Iran’s shadow economy is worth $100bn-$140bn a year. “The IRGC is the major player in this shadow economy,” he says.

All in all, this adds up to a complex and wide-ranging business empire taking place alongside the organisation’s original purpose of protecting the revolution from foreign and domestic opponents.

One reason why the IRGC has become so big and economically powerful is the sanctions themselves. When international firms were forced to leave Iran, it left the field open for domestic companies and the IRGC was able to step into the gap. It has a ready network of members and former members throughout the public sector, and this helps it win contracts and gain access to preferential exchange rates, among other benefits.

Powerful correlation

“There is a powerful correlation between the intensification of multilateral sanctions on Iran and the expansion of the political and economic influence of the Revolutionary Guards,” said Suzanne Maloney, senior fellow at US think-tank Brookings Institution, in a hearing at the US Congress on 17 September last year. “During the same years that the Iranian nuclear impasse intensified and economic pressure mounted, the political and economic role of the Revolutionary Guards expanded markedly.”

Now that many sanctions have been lifted and the economy is starting to open up, there will be more opportunities for IRGC-affiliated businesses. All of this matters for international firms because the IRGC remains under sanction by the US and others.

However, it is also perhaps easy to overstate the importance of the body and its related bonyads. While many of the companies they control are important actors within the economy, they still form just one part of the wider picture and the reforms of recent years have meant their relative power has diminished, according to some observers.

“We have quite a large group of semi-government institutions and players in the Iranian economy. They go well beyond the IRGC and the bonyads,” said Rouzbeh Pirouz, chairman of Tehran-based investment firm Turquoise Partners, speaking at an Iran investment conference in London in March. “As a result of the privatisation process that we’ve had over the past decade, the relative significance of the bonyads in the Iranian economy, relative to the pension funds, the Iranian social security fund and so on, is significantly diminished.”