Trump undermines Iranian debate on economic role of IRGC

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Article Summary
Rather than isolating the Islamic Revolutionary Guard Corps, the Trump administration’s targeting of the organization in effect stymies ongoing attempts to curtail its role within the Iranian economy.

The US Treasury Department’s recent move to designate Iran’s Islamic Revolutionary Guard Corps (IRGC) under terrorism authority has put the military organization back in the spotlight. The subsequent tweet by Iranian Foreign Minister Mohammad Javad Zarif, in which he declared that “all Iranians are IRGC” ready to defend their homeland in response to US pressure, gave rise to spirited debate on social media about the Guard Corps and its role in Iranian society.

The US Treasury’s action and Zarif’s response illustrate the dual character of the IRGC as it exists in Iran today. On one hand, it is a political and military organization and the principal actor behind Iran’s internal and external security posture. On the other hand, it is an organization of great social significance, motivated by the ideology of the 1979 Islamic Revolution, and a patron of institutions and bodies that define the orthodoxy of Iranian patriotism.

To undergird its position as a cornerstone of the Islamic Republic, the IRGC has long sought proximity to the Iranian public in another, more universal domain — namely, the economy. The Guard Corps has have developed economic proximity with a wide swath of Iranian society through its control of two types of entities. First, the IRGC oversees a network of companies active in strategic sectors such as the operation of airports and seaports, the construction of roads and bridges and the extraction of energy sources and minerals, giving it a stable economic base beyond the money guaranteed to it by the central government. Second, the Guard Corps controls holding companies, often in the guise of bonyads, or charitable foundations. Through these foundations, the IRGC is the indirect shareholder of a number of publicly listed companies, enmeshing its ownership with that of the private sector.

As some Iranian economists have argued, a principal outcome of the imposition of nuclear-related sanctions on Iran was the expansion of the IRGC’s economic activities. This was rationalized by the taking of the notion of the "Sacred Defense," the way the Iranian state characterized its 1980-88 war with Iraq, and transforming it into emphasis on the "resistance economy," namely the idea of defense against economic warfare in the form of sanctions.

The expanded role of the IRGC in the Iranian economy contributed to economic underperformance. Not only do companies linked to the Guards lack transparency — even by Iranian standards — but they also tend to be poorly run, dragging down whole sectors and putting a strain on Iran’s financial system. It should be noted that the IRGC does not dominate Iran’s economy. Estimates place the value of the military organization’s economic holdings at around 15% of GDP. Indeed, an October 2016 report by the hawkish Foundation for the Defense of Democracies could only identify 229 companies with “significant IRGC influence.” While this number included many of Iran’s most economically important entities, this is a manageable number. In the post-sanctions era, as the rationalization for the Guards’ economic role has fallen flat, the concerns around incentives and accountability have entered into the public discourse.

By taking on an economic role, the IRGC exposed itself to a new angle of examination and contestation by the Iranian public, and subsequently by elected politicians who felt compelled to challenge problematic aspects of the Guards’ economic behavior.

Meanwhile, in the face of a sluggish economy and stubborn unemployment, the Iranian public has grown more restless, heightening demands for market liberalization. Indeed, in a recent survey conducted by IranPoll, 41% of Iranian respondents identified the private sector as best able to “help to improve economic conditions in Iran,” whereas 21% chose multinational companies. Just 31% of Iranian respondents identified state-owned companies as well-positioned to improve the economy. In other words, there appears to be broad public support for economic reforms that would reduce the role of state and quasi-state actors such as the IRGC in the Iranian economy.

Responding to these public sentiments, the administration of President Hassan Rouhani has been increasingly direct in its challenge to the Guards’ economic activities — especially since its political mandate is largely tied to the pursuit of economic reform. Rouhani’s message grew particularly pointed during his re-election campaign in the spring of this year. He said in a major speech on Armed Forces Day in April, ahead of the May 19 presidential election, that “the arrival of the armed forces to economic temptations can distance them from their primary mission.” In concrete terms, major players in Iran’s banking sector have been instructed not to work with IRGC companies while key Guard Corps-linked holdings are being restructured or sold in order to push the IRGC out of the economy.

The existence of this discourse, of a clear delineation for the tasks of the Guard Corps, and its effect on policy, is profoundly important. Had the IRGC remained exclusively focused on its military duties, its activities and political orientation might not have become such a wide subject of debate among the Iranian public. This is especially true when considering the role the Guard Corps played in suppressing the unrest in the aftermath of the disputed 2009 presidential election and the renewed strength of revolutionary solidarity in the face of threats from the Islamic State and Donald Trump alike. By taking on an economic role, the IRGC exposed itself to a new angle of examination and contestation by the Iranian public, and subsequently by elected politicians who felt compelled to challenge problematic aspects of the Guards’ economic behavior. In this vein, debate on commercial matters became a way to, in effect, address the IRGC’s political behavior, which stems from the same root causes of poor accountability, transparency and governance.

US policymakers have entirely failed to take this robust discourse into account. Sanctioning the IRGC to limit its economic reach in the post-sanctions era is sensible policy. But it fails to do anything to materially or discursively support the Iranian people as they push for a freer, more productive economy. The Trump administration’s pressure campaign may be having the effect of in fact closing economic issues as a rare channel for claims-making against the IRGC. Indeed, in past days and weeks, members of the Rouhani administration have moved to publicly close ranks with the IRGC, seeking to present a united front in response to American hostility. In this way, the Trump administration’s rhetoric reduces the ability of Rouhani’s technocrats to continue to pursue pro-reform policies. The Rouhani administration cannot be seen to be challenging the IRGC at the precise moment that Trump administration is applying new sanctions and pressures.

As such, the Trump administration and members of Congress alike need to recognize that the Iranian public is itself seeking to cleave the IRGC from the country’s economy. Any policy that aims to create economic obstacles for the IRGC must thus simultaneously create economic opportunities for the Iranian people. That Trump would jeopardize trade and investment in Iran is the ultimately betrayal of ordinary Iranians — not only because of the denial of economic opportunity, but especially because of how it eliminates the role of criticism of IRGC involvement in the economy as an arena for wider political contestation. 

Esfandyar Batmanghelidj has spent the last five years working on business diplomacy projects between the West and Iran. He is the founder of the Europe-Iran Forum, the leading annual gathering for business, government and civil society leaders committed to Iran's economic development. He is a graduate of Columbia University. 

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