A significant recent development in Iran’s attempts to liberalize the country’s investment climate was the announcement by Defense Minister Ali Hatami that military organizations have been tasked by Supreme Leader Ayatollah Ali Khamenei to divest from "nonrelated" economic activities. Al-Monitor recently discussed the implications of this instruction, especially the fact that it will be difficult to find buyers who are prepared to invest in assets that have been controlled by military organizations over the past two decades. In this article, we will look at the entities at the core of this process and try to figure out what scenarios could emerge over the next few years, especially how the ownership structures could change.

Focusing on the military owned enterprises in Iran and the assumed process of divestment, there will be two core questions: What can be described as “nonrelated” activity, and which owners within the military sector would be compelled to divest their assets. There is a lot of ambiguity on both levels.

In the past, Islamic Revolutionary Guard Corps (IRGC) principals have defended the expansion of their economic activities underlining that they entered economic fields that were too challenging for the private sector with the intention to help the government and improve economic conditions. Consequently, one can anticipate a long debate about which assets are nonrelated. To an unbiased observer, nonrelated should mean economic activities that are not related to the core tasks of military organizations, i.e., outside the scope of arms manufacturing and potentially construction.

Even construction is one of those sectors where the presence of IRGC-related companies has distorted the market and worked against the interest of the private sector. However, when it comes to a sector such as telecommunications, where IRGC-related companies are in a dominant position, there will be debates whether the sector is related to the military branch or not. Some elements within the IRGC will argue that the IRGC’s intelligence responsibilities would compel the organization to keep watch over telecommunications activities. Others will argue that the ownership will have to be transferred to nonmilitary entities and that the supervisory intelligence role would have to be conducted at the regulatory levels rather than owning various businesses. There will clearly be some sectors where a quick road map should be drafted to sell off the assets of the military organizations, including banking and finance, automotive, trading, oil, gas and petrochemicals. Such a divestment process will also reduce the sanctions risks for international investors who are planning to enter these sectors.