The architects of the Trump administration’s Iran policy expect that the “maximum pressure” strategy would force Iran to renegotiate the nuclear deal from a weaker position. Regardless of its impact on Iran’s foreign policy behavior at this stage, this strategy had repercussions for domestic developments with implications for regional politics. Trump’s policy tipped the domestic balance of power in a consequential way by undermining president Rouhani’s ability to constrain the Islamic Revolutionary Guard Corps’ (IRGC) economic activities. In the context of the post-nuclear deal economic opening, Rouhani had a chance, albeit small, to limit the IRGC’s economic power by prioritizing foreign investors and removing the IRGC from strategic economic sectors. However, he squandered this opportunity as his government had to tackle the domestic and international consequences of Trump’s Iran policy.
It is no revelation that the IRGC plays a significant role in Iran’s economics and politics. Its political influence gradually grew over the past decades, specifically after its increased economic power in the mid-2000s. Although it was President Rafsanjani who sanctioned the IRGC’s entrance into the economy in the late 1980s, the IRGC boosted its economic power exponentially under President Ahmadinejad’s leadership. Ahmadinejad’s mismanaged privatization of the state-owned enterprises — a process known as “pseudo-privatization” or “customization” — provided the IRGC with economic opportunities on a non-bidding basis. The IRGC expanded its economic activism into diverse sectors, such as oil, mining, construction, finance, and banking; it also marginalized the private sector actors. Although the data is inconclusive, reports estimated that the IRGC controlled about one-third of the economy. Politically, it capitalized on its economic power to gain leverage.
Iranian political and civil society circles incessantly criticized the IRGC’s economic activism. By the end of Ahmadinejad’s term, and during the presidential campaign in 2013, then-candidate Hassan Rouhani echoed critics’ concern over the IRGC’s strategic advantage vis-à-vis the private sector, and its ability to outcompete the private firms. Once in office, Rouhani targeted IRGC’s economic role, especially following the signing of the Joint Comprehensive Plan of Action (JCPOA) in 2015. The IRGC was a harsh critique of the nuclear negotiations, and Rouhani was motivated to contain its influence economically and politically. The nuclear deal and the diplomatic win emboldened Rouhani’s position compared to the other elite networks. Moreover, the prospects for the lifting of the sanctions offered Iran a window of opportunity to reengage with the global markets and attract investment. Capitalizing on new opportunities, Rouhani advocated for renewed economic reform and cited the IRGC’s economic activism as an obstacle to both fostering private sector growth and to attracting foreign investment, especially in strategic sectors.
Rouhani’s most remarkable announcement was his reference to the IRGC as a “government with a gun.” In June 2017, Rouhani complained that privatization was expected to decrease the state’s role and empower people, but instead “transferred a part of the economy from the government without a gun to the government with a gun.” Although Rouhani’s comment triggered a fierce response from the IRGC, his government had already initiated a process of containing the IRGC’s economic power via crackdown, forcing the IRGC to pay its debts, or declining to grant new projects to the IRGC. To attract foreign investment, his government had begun negotiating with foreign companies instead of granting contracts to IRGC-affiliated companies.
In 2016, Khatam Al-Anbia, the IRGC's infamous engineering company, bid for ten different projects but did not win the contracts. Similarly, Rouhani’s government came under fire for selecting a South Korean shipbuilding company over Khatam Al-Anbia. Permitting western companies to bid for a bullet-train project to reduce the IRGC’s involvement in the project was another example to contain the IRGC. Also, the Iranian Privatization Organization that operates under the auspices of the Ministry of Economic Affairs and Finance reported to annulling a contract that had transferred more than 50 percent of the Telecommunication Company of Iran to an IRGC-affiliated consortium. Citing IRGC’s debt, the government aimed at pressuring the IRGC to pay its debt.
Rouhani’s criticism of the IRGC was not limited to its economic power. He also challenged IRGC’s political ambitions by citing monopolization as a cause for corruption. He stated that “[i]f capital, websites, newspapers, news agencies, artilleries, military facilities, and other manifestations of power coalesce into one institution, it would even corrupt Abu Zarr and Salman (famous companions of the prophet Mohammad).” Other elites also joined in condemning the IRGC’s expanding role. A conservative politician and then member of the Iranian parliament, Ahmad Tavakoli, demanded authorities’ decisive response to economic activities of the “military” and “security forces” and suggested to forbid their participation in the financial sector.
The IRGC, perceptibly, contested Rouhani’s positions and heavily criticized his refusal to grant the IRGC new contracts. In response to arguments on its damaging impact on the private sector, the IRGC praised its role in Iran’s development. In this context, Rouhani reached an agreement to assign the IRGC’s developmental projects in the rural areas of bordering provinces. While some believed that granting these projects was an excuse to deepen security forces’ grip over ethnic minorities of these regions, others saw this as a strategy to contain the IRGC’s economic expansion. Regardless of the outcome, Rouhani’s government tested various strategies to reduce IRGC’s economic power in Iran. If he succeeded, Rouhani could have curbed the IRGC’s economic and political leverage to an extent. Needless to say, that a possible containment of the IRGC would have impacted both domestic and regional dynamics.
The U.S. withdrawal from the JCPOA, however, put Rouhani in a disadvantaged position. Meanwhile, the IRGC’s position as the JCPOA’s critic was bolstered. The Iranian government that was rallying behind its diplomatic win faced a new crisis since the U.S. failed to honor the agreement, and the expected economic benefits did not materialize. The opportunity to contain the IRGC decreased as prospects to attract foreign investment shrank, and thus, addressing the IRGC’s economic role-expansion took a back seat. Thus far, U.S. foreign policy has put pressure on Iran but has not weakened the IRGC’s role in domestic politics and has not curbed its pursuit of foreign policy objectives. Instead, the maximum pressure undermined Rouhani’s efforts to contain the IRGC, and hence, the IRGC’s economic and political interests would factor in any future political and economic developments, both domestically and in regional politics.
In today’s Iran, disastrous economic conditions and shrinking prospects for foreign investment and economic reforms have limited opportunities for containing the IRGC’s role in strategic economic sectors. Meanwhile, the recent protests over the petrol price hike and the regime’s repressive reaction to those protests have deepened the crisis of legitimacy in a state that relies heavily on security forces to preserve the domestic order. The Iranian regime’s unified response to the recent protests displayed elite networks’ solidarity in the face of domestic discontent. The state’s brutal suppression of the protesters pinned the ruling elite against the population. These diverse elite networks’ ambitions for power-sharing and contestation were replaced by a single goal of preserving the regime’s survival, while the IRGC showcased its utility in suppressing the protests. Speculating future developments is an arduous task, but one should not dismiss the effects of the maximum pressure policy on domestic politics. If the divide between the population and the elite continues to deepen, it would be difficult to imagine a scenario where the IRGC wouldn’t rise to a more prominent position.
