“Evergreen, gardened, cypressed, cinema’d, oil-tanked, boulevarded, incense-and-armpit cradle of Persian culture.” —DylanThomas observing Iran, circa 1951
Iran’s economy is dominated by government elites, a practice common in the Middle East. In Egypt and Pakistan, military leaders control large, national-level economic enterprises. In Iran, the Guards are the key players. The poor health of Iran’s economy, characterized by inefficiencies, market distortions, and wealth concentration, reflects Tehran’s statist policies and the national reliance on oil and gas exports. The Guards and ruling mullahs benefit from easy access to low-interest, no-interest loans, preferential treatment in contracting for goods and services, sinecures, and widespread corruption. Ali Ansari, an Iran expert at St. Andrews University, has observed, “The Corps is really a corporation. It is a business conglomerate with guns.”
Before the revolution, Iranians were optimistic about rising living standards. The second half of the twentieth century offered the unfulfilled promise of sustained, broad-sector economic development and substantial gains in Iranian living standards. Fossil-fuel revenue fueled dynamic economic growth by midcentury. By the end of the 1960s, the Iranian economy was a model for the developing world. A founding member of OPEC, Iran was heavily reliant on fossil-fuel exports for revenue. But the 1970s revealed gross disparities in wealth distribution. The ostentation of the super-rich contrasted with the destitution of Dickensian slums.
This relative deprivation fueled widespread social unrest and laid the foundation for the 1979 revolution. In the early 1980s, many wealthy and upper-middle-class Iranians fled their homeland if they could. Most could not expatriate their wealth and left behind private companies, large farms, stately homes, and their contents, which were confiscated as revolutionary war spoils. The exiles, however, also took with them human capital, entrepreneurial spirit, and skill sets that were difficult to replicate quickly. Khomeini’s early promise to deliver social justice resonated throughout Iran. Iranians welcomed the opportunity to enjoy the spoils of the revolution’s victory. But within a generation, those who had ejected the shah soon became plunderers themselves. The revolution did not improve the living standards of most Iranians. The war with Iraq drained and distorted Iran’s economy, and by the turn of the millennium, the Iranian economy had failed by any metric.
Extensive state intervention in many sectors of the economy, along with jockeying between nationalization and privatization of key resources by Guards’ leaders and pettifogging bureaucrats, has led to the decimation of Iran’s economy. Within Iran’s intelligence services, there are wide gaps in wealth. Some leaders live opulent lifestyles, while entry-level Guards are very poor. Iran continues to exhibit significant wealth disparities. There is opulence for a politically connected few and teeming poverty for many. The gap is evident to those who walk the streets and through the haunts of the cities. Iran’s population is young, with a median age of thirty-one, and economic growth has not kept pace with social needs. Iran’s fiscal policy is driven by state-directed panels and run by the ruling theocrats and bureaucrats.
While elites benefit, one in four young Iranians is unemployed. The national currency, the rial, has collapsed, and Iran’s central bank has considered deleting four zeros from rial notes. Western trade sanctions have been effective, and revenue from petroleum exports declined as oil prices fell. The Guards control most of Iran’s economy. The organization gradually built up a vast business empire in various sectors of the Iranian economy through myriad holding companies, front companies, and charitable foundations. The U.S. Treasury Department has sanctioned Iranian conglomerates and corporations because of their connections to international terrorism.
By some estimates, the Guards’ ownership and operation of trade and industrial giants, along with partial ownership of smaller Iranian companies, account for up to half of Iran’s gross domestic product (GDP). The Guards’ economic activities include construction, oil and gas development, finance, banking, telecommunications, and criminal activity. Non-Iranian companies seeking to do business in Iran must either work directly with members of the Guards or use them as intermediaries. Western businesses often employ large legal and public relations teams to navigate the labyrinth of offices and traders and to compete in bids. Europeans will partner with companies linked to or owned by the Guards. In July 2018, Secretary of State Pompeo publicly chastised particularly corrupt and well-known Iranian leaders. He identified Interior Minister Sadeq Mahsouli as partnering with Guard-run companies to exploit national wealth for personal gain. He also disparaged Grand Ayatollah Makarem Shirazi, the “Sultan of Sugar,” whose side business has generated more than $100 million. The secretary also denigrated Ali Khamenei’s “own personal, off-the-books hedge fund called the Setad, worth $95 billion,” which serves as a “slush fund for the IRGC.”
Many Iranians would agree with Secretary Pompeo’s judgment that “Iran is run by something that resembles the mafia more than a government.” Some of the revenue enriches individuals in the Guards and Basij, while other funds are channeled to terrorist organizations.
