W O R L D - C H E C K W H I T E PA P E R
Iran – Future tense or future perfect?
by Rear Admiral Chris Parry CBE
Statement of intent
With economic sanctions against Iran intensifying, this paper argues that, given the predicted change in the
demographic pattern towards a more youthful and politically aware population and an upcoming election in
2013, only carefully targeted sanctions can bring about regime change.
While broad sanctions will continue to pressurise the general population and may further entrench the current
regime, sanctions targeted to the assets and financial institutions of the Iranian Revolutionary Guard Corps
(IRGC), which controls much of the economy, will be far more effective at weakening the hold of the political
elite.
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Iran – Future tense or future perfect?
Contents
1.
2.
3. 4.
5.
Introduction
The rise and rise of the IRGC
Prospects for the future Towards 2013
Conclusion
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3
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Introduction
One of the most urgent geo-political issues facing world leaders today relates to
how economic sanctions can be effectively applied to Iran if it persists in acquiring
a nuclear weapons capability in the face of concerted international opposition.
Given that internal dynamics also threaten the legitimacy and survival of the
regime in Teheran, it is reasonable to assess whether sanctions are likely to weaken
the regime further or simply justify its frequent claims to be the sole authority
capable of protecting the sovereign integrity and interests of the Iranian people.
In other contexts, recent history has shown that economic sanctions tend
– unwittingly – to give rise to illicit, informal mechanisms for avoiding their
effects in the target countries, to encourage official corruption at all levels and
institutionalise black market activities, trafficking and criminality. Authoritarian
regimes generally resort, in these circumstances, to direct control of the national
economic levers, coupled with higher levels of off-shoring and the use of front or
shell companies and shadow banks to conceal and shield economic assets from
the impact of sanctions.
This, indeed, seems to have been the pattern that has emerged in Iran since the
Islamic Revolution. Over the past thirty years, the regime has built up a coercive
and progressively repressive political mechanism for maintaining itself in power;
it has also developed a complex web of direct and indirect measures by which
it can control and manipulate economic activity and financial assets. These
developments have resulted in the concentration of substantial economic power
and financial leverage in the hands of the Iranian Revolutionary Guard Corps
(IRGC). That is why the IRGC has been the primary target of four successive rounds
of United Nations sanctions.
These trends are reflected in the decisive shift that has taken place in the balance
of political power, with the government of Iran passing firmly under the control
of the security apparatus and Armed Forces. The IRGC, in particular, under the
sponsorship and direction of President Mahmoud Ahmadinejad, has extended its
reach and grip in both the political and economic spheres at the expense of the
clerical elements that previously held authority.
The rise and rise of the IRGC
Originally centred on micro-financing and the provision of interest-free loans
for the relief of veterans and their dependants during and after the Iran-Iraq
war of 1980-88, the IRGC expanded its business and economic interests during
the post-war reconstruction and development of Iran. It was substantially
capitalised by various front organisations or foundations that had acquired the
assets of proscribed individuals and elements of the previous regime and moneylaundering associated with widespread smuggling and black market activity. This
growth, in turn, enabled the acquisition of state enterprises and other businesses
available through the Iranian Stock Exchange.
In 2008, a directive from the Supreme Spiritual Ruler (possibly in anticipation
of the forthcoming 2008 elections), ordered the transfer of ownership of a
quarter of Iran’s state-controlled enterprises, worth $110-120 billion, to privatised
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Iran – Future tense or future perfect?
entities. Negligible transparency and obvious bid rigging, as well as a lack of
antitrust legislation and foreign direct investment, meant that the IRGC were
able to undertake multiple acquisitions. The situation was made even more
disadvantageous for the real private sector by limited access to credit by regimecontrolled banks, insider dealing by state employees and the protected legal
position of state-run enterprises.
This economic shift has been accelerated by recent political events. The protests
that accompanied the rigged elections of 2009 led directly to the ruthless
suppression of dissent and an immediate economic crisis, caused by a purge
of experienced political opponents in leading positions in industry, trade,
construction and agriculture who were considered politically unreliable. These
senior managers were largely replaced by members of the security forces, in a
process that has seen a massive shift of economic power from a state-controlled
(in 2008, 80% of industry and agriculture was state-owned) to a ‘privatised’
economic model, dominated by the security forces.
Thus, the IRGC, in response to international sanctions and US pressure, as well as
personal and corporate gain, has reached a point where it is assessed to control
up to a third of the Iranian economy, perhaps even more (mostly in the building,
nuclear and energy sectors). Characterised by a combination of legitimate trading,
corruption and criminality, this powerful business network dominates the military
and economic instruments of state power. Nevertheless, its opaque nature is
maintained by a wide range of front organisations and shell companies, as well as
middle-men and proxy representatives whose role is to obscure direct links with
the military and IRGC elements.
Unsurprisingly, the subsequent ability to acquire the state telecommunication
company, numerous mining concerns, transport concessions and applications for
bank licenses have largely been restricted to potential buyers that were backed
by the IRGC. In other areas, state assets have been – and continue to be - traded
at knock-down prices and insider dealing has been common, in the interests of
leading personalities of the IRGC, to the extent that one IRGC civil engineering
conglomerate, Khatam al-Anbiaa, has received over 800 government contracts
since 2005. Firms affiliated to the IRGC have also been awarded multi-billion-dollar
contracts to develop Iran’s largest offshore gas field, South Pars, after foreign
concerns like Shell, Repsol and Total withdrew in response to sanctions restrictions
and difficulties with the Iranian government.
In addition, the IRGC, although embedded in government, still runs extensive
smuggling and trafficking operations, based around sanction-busting items
and scarce consumer goods, including alcohol. Evidence from Iraq confirms
that smuggling and trafficking arrangements and networks in place during
the rule of Saddam Hussein have remained active, especially among the crossborder towns and communities and among the Shia militia groups. There is also
evidence of systemic money-laundering, which the regime undertakes through
both indigenous and foreign banks. This often involves the acquisition of foreign
currency, notably through bureaucratic deception and creative accounting in the
pricing process for Iranian oil and gas, the export of which, is, of course, subject to
US, UN and other sanctions.
Another important area where regime members associated with the Iranian
security forces are involved, both directly and indirectly, is the manufacture
and transfer to other countries of weapons and systems. High grade weapons
and systems, including modern anti-armour and anti-ship missiles, have been
provided to Hezbollah in Lebanon, as well as a formidable number of short and
medium range rockets. Most recently in October 2010, arms, including rockets and
grenades, were seized at a dock in Lagos in October, thought to be en route to the
Gambia. The scale and range of these transfers is inconceivable without corruption
and connivance at several layers of Iranian government and bureaucracy. Many
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Iran – Future tense or future perfect?
of these weapons and systems are sourced or derived from Russia and China,
complicating and weakening efforts to impose effective sanctions.
In this connection, an aspect that is frequently overlooked is the close connection
between the security forces of the Iranian regime and their counterparts in the
People’s Liberation Army (PLA) of China. Despite frequent public pronouncements
and crackdowns on corruption in both countries, the evidence and range of
bilateral connections suggests a close correlation of business interests and shared
commercial activity at both institutional and individual levels between senior
figures in both the PLA and the IRGC.
Prospects for the future
Given its increasing grip on the military, economic and political levers of power,
conditions in Iran would superficially appear to militate against the overthrow of
the regime in the near future. Although it is possible that trouble could emerge
from the 30% Azeri minority, which has long worried the regime, and from the
Turkic elements of the north-west, it is demographics that are increasingly likely
to provide the most serious challenge to the regime over the next five years or so.
Iran has a distinctively and progressively youthful population, with large numbers
of its people rapidly filling the 20-40 year old cohorts in the time-frame in the
period up to the next election.
Historically, this age group has been the most active in overthrowing authoritarian
regimes, as witnessed in the French, Russian and other pre-modern revolutions,
and in the changes associated with the fall of the Berlin Wall in 1989. Just recently,
similar demographic patterns have stimulated the political changes under way in
Egypt, Tunisia and Libya. It is significant that this age group in Iran has, since 1988,
been seriously depleted as a result of the loss of over a million young men in the
Iran-Iraq war of 1980-88 and is only now bouncing back, with a vengeance.
Indeed, analysis of posts on Iranian blogs demonstrates that there is considerable
desire and support among this critical age group for Iran normalising its
relationship with the rest of the world, and integrating its oil and gas wealth and
broader trading potential into the global economy. Most bloggers resent the
isolationism of the country caused by the regime’s policies and look forward to
a more open, less constrained and more representative socio-economic model.
There are frequent condemnations and examples of official jobbery and corruption
at every level.
Towards 2013
Given current trends, it is possible to envisage a scenario in which popular
revulsion in relation to the current regime, its economically acquisitive, coercive
character and demographic dynamics meet in a critical nexus ahead of the next
national election which falls due in 2013. In these circumstances, it is likely that the
regime will seek to intimidate, incentivise and rig its way into a favourable electoral
position. Bearing in mind the reactions to widespread corruption and vote-rigging
that lead to the survival of the regime in 2009, a repeat of this approach could lead
to widespread popular revolt and defiance.
The likelihood is that, unless it has sufficient control over the electoral system,
through incentives, intimidation or direct interference, the Iranian regime is
unlikely to want to hold the 2013 Presidential and national elections. Without
assurance of success, the regime is likely to postpone or cancel the elections on
some pretext, possibly by claiming or provoking an external threat or by reacting
to internal opposition. This course of action is likely to ignite an already highly
flammable situation in the country and, in the absence of widespread repressive
action on behalf of existing clerical and secular vested interests, the chances of the
regime’s survival would be doubtful.
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Iran – Future tense or future perfect?
Conclusion
Overall, the message is simple. Without rigorous and precise targeting of
sanctions, the IRGC’s control over the economy and society of Iran will continue
to grow. However, the most exposed and vulnerable area of IRGC activities is
its banking sector and sanctions here will be effective in weakening the regime
if the assets of individuals and financial institutions of the IRGC - those that are
critical to the regime’s survival as an economic state within a state - are put
under continuous pressure. Most of the regime’s liquid assets, both personal
and corporate, are held offshore and unlikely to be directly affected by economic
sanctions or financial restrictions in the normal course. Therefore, these measures
can only properly be enabled by accurate identification, analysis and tracking of
individuals, asset ownership and the complex networks and linkages that underpin
regimes of this type.
In this way, targeted sanctions and restrictions against the IRGC’s banking
operations can play a decisive part in assisting the people of Iran in their struggle
for more broadly based political representation and legitimacy at precisely the
point when socio-demographic trends are likely to present a very real challenge to
the regime. If applied indiscriminately and without regard to realistic outcomes,
the burden of sanctions will continue to fall on the bulk of the population,
sustaining resentment against the international community and, by providing an
external focus for that resentment, entrenching the regime still further in power.
About the author
Rear Admiral Chris Parry CBE spent 35 years in the Royal Navy as a Seaman and
as a Fleet Air Arm officer during which he commanded HMS GLOUCESTER, the
Maritime Warfare Centre and HMS FEARLESS. Along with regular operational tours
in Northern Ireland, the Gulf and the Falklands, he was mentioned in dispatches
during the Falklands War and received the 1983 Prince Philip Helicopter Rescue
Award from the Guild of Air Pilots and Air Navigators.
From 2001, as a Commodore, he was Director Operational Capability in the Ministry
of Defence and then, from 2003-5, commanded the UK’s Amphibious Task Group.
As a Rear Admiral from 2005, he formed the Development, Concepts and
Doctrine Centre (DCDC) and spent 3 years as its Director General. Here, he led
and supervised the complete revision of all Armed Forces’ thinking and operation
practices to reflect modern and emerging strategic conditions.
In the Ministry of Defence and in the academic world, he has written extensively
on strategic, policy and transformational issues and contributed to all Defence
options, cost studies and reviews since 1989.
Nowadays, he works as a non-executive director, consultant, writer and lecturer,
specialising in briefing major institutions, leading companies and banks about
strategic forecasting, leadership and risk, as well as on security and geopolitical
themes.
He is a Fellow of the Royal United Services Institute, the International Institute for
Strategic Studies and the Chartered Management Institute and is a member of the
Institute of Directors and the policy board of the Oxford Research Group.
He is the Chair of the UK’s Marine Management Organisation and also president of
a rugby league team.
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