Will the Guards Support Rouhani?

When asked why he did not meet with President Obama on the sidelines of the United Nations General Assembly, President Rouhani answered, “I believe we didn't have sufficient time to really coordinate the meeting to the full extent that we needed to.”  More than one official has used the phrase “it is complicated” to describe Iran’s reaction, and it is widely speculated that President Rouhani's General Assembly speech was pitched to reassure hardliners back in Tehran.

All of this raises the question about the hardliners lurking in background of Rouhani's “smile diplomacy,” and how they may influence Iran's delicate juncture in its negotiations with the West.  How will organizations such as Islamic Revolutionary Guard Corps (IRGC) react to the prospect of a compromise over Iran's nuclear program? Looking at IRGC recent statements and declaration, one cannot help detecting a cautious tone of support for a diplomatic resolution to the protracted standoff. Only last week the IRGC officially announced “We will support any effort and initiative that is in line with the strategies set forth by the Supreme Leader of the Islamic Revolution and in step with the national interests.” Is it possible that the IRGC's expanding economic clout has softened their approach to foreign policy?

While some argue that the IRGC has not changed, it certainly has evolved. The image many Iranians remember from Guards during the years of Iran-Iraq war is of young men defying all the rules and necessities of warfare, charging well-defended Iraqi positions in human waves. But as the war progressed the IRGC became more sophisticated, reorganizing itself into ground, air and naval forces, and adopting military ranks (a system it had opposed for a decade). Around the same time commanders developed political skills and ambitions of their own, and fended off plans to merge the Guards with the regular armed forces. A similar pattern can be seen in its evolving approach to policy making in both foreign and domestic arenas: beginning as the advocate of revolutionary values and eventually moving toward becoming a classic player, motivated by more practical interests.

In recent years, the IRGC has served the guardian of revolutionary values and principles set by the founder of Islamic Republic, Ayatollah Khomeini. It warned against the liberal policies of former president Mohammad Khatami, supported Mr. Ahmadinejad’s administration and played a role in putting down the unrests following the controversial presidential election of 2009. Many compare the role IRGC plays in Iran’s politics to that of Chinese Red Army; it is not a political party but it acts as one. Its commanders are present throughout the system, from the executive through to the legislature and even the judiciary. The mayor of Tehran is a former IRGC commander, several members of parliament, provincial governors and commanders of police forces across the country are either active IRGC members or former IRGC commanders.

In the years after Iran-Iraq war IRGC became something more than just a military force. Its Quds Force became a major player in the regional conflicts. It also began to assume an increasingly important role in the economy. Ahmadinejad’s administration favoured IRGC in most of public projects and infrastructure development schemes. IRGC received the lion share of government contracts in oil, transportation and other arenas. Today it is common to see IRGC listed as the contractor on the public billboards across Tehran.

IRGC entered the foreign policy arena as a military force. It began by sending forces to Lebanon to train Hezbollah forces, known as Resistance. In the next step it tried to protect revolutionary values in this arena. Particularly it criticized Rafsanjani administration’s approach to European governments and western companies and placed road blocks which prevented Khatami administration from developing closer ties with the west. While some of these actions were driven by ideology, some analysts started to see IRGC as an organization demanding a share of political power and economic advantages.

Both Rafsanjani and Khatami’s administrations decided to include IRGC in their economic projects hoping the Guards would in turn support their policies. It did not always work in their favour. When the Iranian government moved to open Imam Khomeini International Airport, the IRGC did not hesitate to shut down the airport in the opening ceremony because it disapproved of a Turkish company being in charge of handling and ground services in the airport. Cowed, the Khatami government cancelled the contract with the Turkish firm and hired a company affiliated with IRGC. When Ahmadinejad came to power he tried to bring the IRGC to his side by giving them priority in almost everything, even choosing an IRGC commander to head the oil ministry. By the end of his first term the Guards were already dominating Iran’s economy, and by the end of his second even conservative MPs were complaining about the Guards economic muscle.

It is not easy to estimate the extent of IRGC presence in Iran’s economy. Many analysts confuse businesses owned by the members of IRGC with businesses owned by IRGC itself. Still it seems every Iranian businessman has something to complain about the IRGC presence in the economy.  Particularly government contractors and oil businesses have suffered from the privileges consecutive governments bestowed on IRGC. Every time the  Guards win a contract or receive one outside the official channels, there is a business which does not get the project. In many cases IRGC outsources the projects to private sector businesses and private contractors, a transaction which involves an increase in the final cost of projects and another round of favouritism. Individuals with close ties to IRGC and its commanders are better exposed to have these contracts than individuals who lack politically affiliations. Again it is difficult to estimate the true economic impact of these transactions; however few doubt that the transparency has declined in Iran, whose economy ranks among the lowest in Ease of Doing Business and Freedom of Trade indexes.

Sanctions have made matters even worse. The private businessman does not have the necessary means to overcome the barriers set up by the sanctions, while the IRGC does. The IRGC network of businesses and affiliated companies in neighbouring countries have helped it to minimize its losses, and even gain profit at the expense of Iran’s private sector. However that was only round one. Like war IRGC business performance started to evolve as well.

As sanctions continue to take their toll on Iran, IRGC monopolies are beginning to seem more like liabilities for the government and the economy. For example when earlier this month a European court ruled that boycotting the Islamic Republic of Iran Shipping Lines (IRISL) is illegal and lifted the sanctions against this company; some analysts noticed that the ruling might not be helpful to Iran’s trade. All ports are run by an IRGC holding which is already black listed. As the economy shrinks and the budget deficit increases the IRGC is feeling the pain many Iranian contractors already know too well, that of working for the government and not be paid. IRGC started to realize that it is losing business. When oil revenues began to decline because of sanctions and a softer market, the projects in oil industry became less lucrative. The Guards also realized that they need to have access to international markets to import the necessary machinery and equipment. With the volume of trade shrinking the Guards are not realizing the revenue they had originally hoped to earn from running the ports.

Having a bigger slice of a shrinking cake only means one is losing more than others. To this one must add the IRGC economic interest. It is much cited in Tehran that an IRGC commander once said “we should not invest in things, which can be destroyed by American bombardment.” The IRGC commanders developed a keen sense of cost benefit analysis. Sanctions are hurting them now as well as others. Like any other good businessman they want sanctions to be lifted.

Some analysts argue that the IRGC is still thriving, despite sanctions. That is true, but only partially. The IRGC is an economic force to be reckoned with. It has many holdings. However to own an asset is one thing and to make money off that asset is quite another story. IRGC is realizing having the economic privileges does not increase one’s revenue, if these privileges are not translated into more business opportunities. While its share of domestic markets might be assured, the problem the Guards face, stalled business growth, is still very real. 

After President Rouhani’s victory in the last presidential election many started to criticize IRGC’s economic significance more openly. Two conservative MPs from Tehran, Tavakoli and Motaharri, have spoken in uncompromising terms about the IRGC growing economic and business interests in Iran. At the same time IRGC appeared to permit the criticism. Chief of General Staff, General FirouzAbadi went as far as saying “The armed forces will leave economic arena if the government wishes them to do so”. Several commanders interviewed with Iranian media justifying IRGC presence as a form of protecting public interests and an optimum use of its machinery. Instead of silencing the voice of discontent IRGC wishes to collaborate with other stakeholders. Or at least it appears so. Ironically, IRGC, given its monopolies, is exposed to gain more from a détente now than any other time in the last 34 years or any other group in Iran. Perhaps that is why it supports Mr. Rouhani’s diplomatic initiative cautiously. After all in the same statement the commanders remind Rouhani of the history of Iran-USA relations and ask the government to tread carefully with the White House.

If and when sanctions are lifted the IRGC is well positioned to gain. It will be able to utilize a network of businesses and investment firms in different industries to benefit from the new opportunities. Its share of oil industry means that it will benefit from the easing of sanctions on oil industry. It can purchase better equipment and become more efficient in project management. Its presence in the ports means that it will receive a share of the increase in imports and exports. Its firms may consider going regional. As the current commanders retire the nature of IRGC economic role might evolve even further. This does not mean that IRGC will be the only beneficiary or the most significant one; it simply means IRGC may be making some significant gains in the case of any diplomatic compromise.

As an institution exposed to the prospect of both losing and gaining much, the IRGC is moving very cautiously warming up to the idea of a compromise. It might not be as promising as some expect or wish, however no one believes a détente would work without the IRGC. And right now IRGC has its own shop to look after. And in economics no one underestimate the power of incentives.