Chapter 12 - The resistance economy: Gauging the influence of the military and the IRGC on the economy

Genesis of the economic structure of the Pasdaran

It is no easy task to draw up an historical profile of the economy of the Pasdaran (Islamic Revolutionary Guard Corps, (IRGC). Established in the immediate aftermath of the 1979 Revolution, the Pasdaran gradually evolved after the outbreak of the war with Iraq in 1980, into a multi-faceted organisation with wide‑ranging military, logistical and economic functions.

The decision to use the Pasdaran as a preeminent military tool at home was based on a clear political strategy aimed at affirming the role of the new revolutionary military player relative to the regular army (Artesh). The Pasdaran was meant to represent the new Iranian military ideological state, quickly asserting itself as the backbone of Iran's defence system and its revolutionary principles, through the recruitment and deployment on the front of masses of volunteers and conscripts called to defend their sacred homeland and the Islamic Revolution during the war against Iraq.

The absence of a real administrative structure for the new unit soon required the creation and organisation of a network to provide mobility and refuelling on the front, and equip forces deployed at home. To remedy this deficiency, made more insidious by the initial Iraqi offensive, the seed for a logistical capability was planted alongside that of the traditional armed forces, but with different means, skills and experience.

After eight years of conflict, this embryonic capacity had become an efficient and very flexible tool, built on multiple structures and peripheral functions that, by then, could be construed as a truly autonomous and self-sufficient industrial system^{Footnote 37}.

The logistical capacity of the regular army had been exceeded, stretched to serve the war economy, through the use of a complex independent structure capable of ensuring the military was well resourced. Most importantly, it also granted the economic resources intended to finance weapons development programs and the consolidation of the Pasdaran within the new political and institutional structure of the Islamic Republic.

The need to create an autonomous command structure for Iranian logistics and the military industry arose as a spontaneous response to long-standing shortcomings that preceded the Revolution. In 1963, the Shah had merged all defence industries into the Organisation of Military Industries, directly under the control of the Ministry of Defence^{Footnote 38}, thus creating a sector progressively involved in the development of weapons and equipment, and in the licensed production of weapons, helicopters, vehicles and ammunition.

The over-reliance on foreign personnel convinced the Iranian authorities of the need to restructure the military industry. Therefore, in 1981, the Defence Industries Organisation (Sazeman sanayeh Defa-e) was established, and assigned the task of ensuring—while maintaining complete autonomy—the production of weapons and ammunition to support the war effort against Iraq.

Within a few years, thanks to the creation of a vast system of academic research and the development of universities under the direct control of the IRGC (such as, for example, the Imam Hossein University, established in 1986) the Iranian armed forces and the Pasdaran were able to produce locally much of the weapons and ammunition required for the infantry. This capacity was further expanded over the next two decades.

In 1988, when the conflict with Iraq ended, the Pasdaran’s logistical network could produce all types of goods necessary to conduct the conflict (light and heavy weapons, vehicles, ammunition, spare parts, individual equipment, etc.). The latter were geographically dispersed throughout much of the country and able to optimise the potential of the available labour force during the war phase.

The emergence of the Pasdaran’s network, however, was only possible due to the simultaneous development of a parallel economic-industrial structure capable of generating revenues, which by the late 1980s included a vast and complex group of entities operating in very different fields. An ever-increasing number of companies were then established with IRGC funding and investments, creating a vast network of companies, consortia and joint ventures that increasingly expanded the industrial and economic capacity of the Pasdaran. Those companies turned gradually into a large conglomerate directed by a generation of managers coming from within the same milieu as the IRGC.

In 1989, as part of the significant post-war transformation, it was decided to merge the Ministry of Defence and that of military logistics, creating the current Ministry of Defence and Logistics of the Armed Forces, which had oversight over the IRGC. This transformation was designed not only to help optimise military resources—that had largely decreased after the end of the war—but also to try to limit the autonomy of the IRGC and its growing political, economic and military clout.

The entire IRGC logistical system was then transferred to the Ministry, incorporated into the Defence Industry Organisation and made to serve the needs of the economic recovery projected by then President Rafsanjani.

The IRGC was downsized militarily at the end of the conflict. This lead to the demobilisation of large numbers of conscripts and volunteers, triggering a reorganisation of the Basij on a local and social basis, and promoting the professionalisation of its elite units and intelligence apparatus.

While the government sought to regain control over the IRGC by placing it and its industrial component under the authority of the Ministry of Defence, the Pasdaran continued to enjoy considerable autonomy, thanks to the support of the religious authorities who considered the IRGC to be the most effective tool to restrain reformist political forces.

Today's Pasdaran is no longer a mere military unit. It consists of a large informal network of relationships among its armed component, large industrial apparatus and extensive system of patronage thanks to which a growing number of former IRGC members made their entry in the first half of the 1990s, eventually climbing to the top.

The economic system of the Pasdaran today

Analysing the IRGC’s political and military role remains daunting because of limited sources and data; investigating its industrial potential and ability to influence the economy proves even more difficult. Further complicating the task is the abundant disinformation produced and mainly disseminated on the Internet by the opponents of the Islamic Republic but also by the IRGC themselves, to confuse as much as possible external investigative capabilities and effective verification.

Interest in the industrial strength of the Pasdaran has been stocked particularly by its role in the development of the nuclear and missile programs, neglecting its industrial and civil infrastructure development sectors, equally relevant today and probably superior in size and numbers to the military one.

Examining the IRGC’s involvement in illegal trade and activities is equally challenging and their scope and nature can only be estimated.

With regards to its military industry, the primary consideration is control of the industrial structure. If it is true that, in 1989, with the merger into the Ministry of Defence of the logistical and industrial apparatus in 1989, the skilled industrial workforce was moved away from the IRGC and transferred to the Defence Industry Organisation, then the latter always firmly remained in the hands of the IRGC.

A fairly exhaustive list of companies that are part of the Defence Industries Organisation was drawn up by the United Nations and the US State Department in their effort to identify any entity linked to the IRGC to be subjected to sanctions. The Organisation today represents a conglomerate of over 300 companies of various size, which employ nearly 40,000 highly‑skilled workers, including some of the most talented national experts. The Organisation has industrial linkages to many different sectors, with factories located in major cities and scientific and research relationships with leading academic institutions throughout the entire country.

Further, over the past two decades, the IRGC has followed a clever diversification strategy that has led to the development of a broad range of industrial assets in a variety of other sectors. These include the construction industry (residential industrial, civil military infrastructures), as well as the ever-profitable import-export sector, where the IRGC is not subjected to customs controls and fees.

A large part of the main projects for the development of large public works to be completed in Iran today is handled by the IRGC’s industrial complex, and particularly by companies such as Khatam-al Anbiya, a giant engineering and mining company, which has over 800 subsidiaries active in various industrial and mechanical engineering sectors^{Footnote 39}.

Khatam-al Anbiya was established in the last phase of the war with Iraq as an asset for post-conflict reconstruction, as well as a vehicle to re-employ the many IRGC soldiers demobilised and reorganised through a vast network of companies and consortia predominantly managed by the bonyads, the foundations of the IRGC's economic system^{Footnote 40}.

For the IRGC, the construction of roads, bridges, tunnels, airports, railways and dozens of other large public works represents a golden opportunity for economic development and further strengthening its role in economic and industrial growth^{Footnote 41}. The role it plays in the production and trade of oil and gas and other mineral resources must also be included, given their strategic importance.

Several witnesses report that a significant component of the drug trafficking is directly managed by elements of the IRGC, through its control of the eastern border with Afghanistan and its ability to transfer loads from inaccessible border areas to the major cities of the country^{Footnote 42}. Drug use, a real social problem in today’s Iran, is thus both managed and combatted by the same security forces, which record several hundred casualties in the border regions every year in their attempt to stem the massive flow of narcotics. Elements of the IRGC^{Footnote 43} may also be linked to other goods traded on the black market, from the more harmless alcohol products to precious stones and weapons, managed by a tight network of brokers that mainly supply the wealthier classes of the urban areas.

The Rouhani administration and the economic conglomerate of the IRGC

Tensions between the executive and the Pasdaran have never been so high as following the nuclear deal agreed to in the summer 2015. Hassan Rouhani, who was to an extent the creator of the national security system and has dominatedit for over two decades, launched a powerful attack on the IRGC's power system and its suppliers in the aftermath of his inauguration. Rouhani’s goal is to break the rigid control system over the national economy, and particularly the hegemonic and paralysing role of the IRGC’s economic complex, by allowing in foreign capital, organisations, technologies and, most importantly, an expert workforce capable of triggering economic growth and diminishing the importance of some national players.

This presents an existential threat to the complex of industries that have largely benefited from their monopolistic position and a closed economy—made impenetrable by the sanctions—where the IRGC's economic system has been able to flourish without restrictions of any kind. Not surprisingly, therefore, recourse to the "revolutionary" and anti-US narrative has promptly resurfaced on the political scene in an attempt to discredit the government and call Iranians to rally once again against a common external enemy.

The primary mission of the IRGC is the defence of the Islamic Revolution and its institutions, ensuring the continuity of the political project of Ayatollah Khomeini and of the institutional system built around the velayat-e faqih. Any attack on—or even simply a reduction—of the revolutionary rhetoric, therefore, is perceived by the IRGC as a direct threat to its own role and its own continuity, and can trigger disorderly and violent reactions.

The return to anti-Americanism is rooted in the need to perpetuate the perception of an imminent external threat, aimed at overthrowing the Islamic Republic and its institutions. While the first political generation after 1979 was genuinely convinced of the need to prevent a normalisation of relations with the United States, believing openness to be extremely dangerous to the ideological values ​​of the country, the second generation does not harbour such fears and instead believes that it can use this perception to its advantage.

The failure, or substantial reduction, of the perceived threat could justify the cancellation or significant reduction of many development programs in the weapons sector, considerably reducing the financial resources of many companies that are part of the Defence Industries Organisation. Moreover, the opening to Western companies and the end of the embargo could foster economic competition in a market that is no longer self-referential and impenetrable. This would surely penalise the less competitive national companies and cause the collapse of a significant part of those conglomerates for infrastructural and industrial developments in which the IRGC has vast interests. ​​Rouhani’s attempts to develop a new market that the private sector promotes at the expense of state industry is therefore incompatible with the IRGC’s efforts to maintain firm state control over the national economy.