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Iran’s Economy Suffers from Effects of Corruption, Not Sanctions

Iran's IRGC planning for huge construction project
Iran’s IRGC controls huge construction projects

Iran’s economic problems have been growing steadily worse for many years. Iranian officials have made concerted efforts to blame that situation on Western sanctions, but this narrative ignores the fact that the downturn was ongoing even when the 2015 Iran nuclear deal, or Joint Comprehensive Plan of Action, was in full force. In fact, it was in December 2017, several months before the US pulled out of that agreement and began re-imposing unilateral sanctions, that the Iranian people staged their first in a series of nationwide uprisings, spurred in part by grievances over rising levels of inflation, poverty, and unemployment.

Although that uprising quickly assumed a broad political message, the first constituent protest was organized in the city of Mashhad specifically as a response to worsening economic indicators. Subsequent demonstrations clarified that the Iranian people attributed that trend to government mismanagement and corruption, and not to foreign pressure. As a matter of fact, even after US sanctions were re-imposed and expanded on the Iranian regime, protesters were regularly heard to chant slogans such as, “The enemy is here; they are lying when they say it is America.”

Increasingly, the regime’s narratives about sanctions and the economy are being contradicted not just by ordinary citizens and political activists but also by the regime’s economists. In recent remarks, some of which have been carried by state media, a number of those experts have sought to quantify the effects of longstanding corruption that spans government entities and a private sector that is dominated by political elites and members of the regime’s hardline paramilitary, the Islamic Revolutionary Guard Corps.

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“Iran’s political economy has been increasingly taken over by the mafia from the end of the Iran-Iraq war until today,” said Farshad Momeni, a professor of economics at Allameh Tabatabai University. After that conflict empowered the IRGC politically, subsequent “privatization” of government-run industries served to channel more and more wealth into the hands of IRGC front companies like the Khatam al-Anbia construction conglomerate. Today it is estimated that the IRGC controls, in whole or in part, entities that account for well over half of Iran’s gross domestic product.

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So-called privatization schemes have been run more or less consistently by every Iranian administration since that of Hashem Rafsanjani. From 1991 until 2019, there have been 900 projects, companies, and state-owned enterprises transferred to the private sector, with a total value of 720 trillion tomans, or more than 170 billion US dollars. But even assuming all of this wealth went directly into the hands of the IRGC, it still pales in comparison to the amount of money the IRGC and other corrupt entities have acquired through Iranian import and export markets, including black markets.

According to Iran’s Central Bank, the country earned roughly 180 billion US dollars through exports in 2018 and 2019 alone, but it is unclear where some of these earnings ended up. The money no doubt added to the hoard of wealth that was already understood to exist in IRGC financial institutions and so-called religious foundations that are controlled by the regime’s Supreme Leader Ali Khamenei. These entities had already benefited, in previous years, from earnings associated with a steady rise in foreign imports. Between 2005 and 2011, the value of these imports grew from 16 billion dollars to 90 billion dollars, making Iran more dependent on goods that are produced abroad while also providing the IRGC and its “private sector” partners with incentives to promote this trend.

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These incentives stand in contrast to Khamenei’s public insistence upon boosting domestic production as a way of offsetting the supposed effects of Western sanctions upon ordinary Iranian society. Ahead of the Iranian calendar year that began in March 2020, the Supreme Leader made a point of declaring that this sort of a boost to production should be the country’s top priority, even though it was clear by then that the coronavirus pandemic would make most forms of work much more dangerous.

Consequently, Iran has suffered the worst effects of that pandemic in the Middle East, and some of the worst in the world. Although the Iranian Health Ministry reports that just over 60,000 Iranians have died from Covid-19 so far, the People’s Mojahedin Organization of Iran (PMOI/MEK) has examined hospital and morgue records and has determined that the figure is closer to a quarter of a million. In either case, Tehran has provided little financial assistance to the public during this crisis, even as the IRGC and the supreme leader are still sitting on hundreds of billions of dollars in assets.

Meanwhile, approximately 80 percent of Iran’s population is living under the poverty line, and the situation is growing steadily worse as a result of runaway inflation and rising commodity prices. Many citizens have been forced to remove vital staples from their diet, and pensioners throughout the country have staged months of protests calling attention to the fact that their income is not keeping up with the rising cost of living.

Those protests are a likely indicator that broader unrest is looming, as the people’s concerns over the coronavirus are overtaken by the effects of economic hardship and the lingering resentments regarding crackdowns on prior uprisings.