Once a military institution, Khatam Al-Anbiya (KAA) has assumed an economic mission thanks to the support of Supreme Leader Ali Khamenei. Presently, KAA undertakes multi-billion-dollar projects in the most lucrative sectors of Iran’s economy and dictates terms and conditions even to the government. How has this situation come about?
Three decades after this military-turned-economic institution began its operations, it has become one of the key players in Iran’s political and economic spheres. KAA’s economic activities are vast: huge oil and petrochemical projects (the Persian Gulf Star oil refinery and the three phases of South Pars Gas Field), numerous dams (the Upper Gotvand on the Karun River and the Karkheh), railways (Gorgan-Aq Qala), as well as the construction of tunnels, roads, and subways.
Khatam-al Anbiya (KAA) Central Headquarters, an affiliate of the Islamic Revolutionary Guard Corps (IRGC), was established in 1989 at Supreme Leader Ali Khamenei’s command and Mohsen Rezaei’s decree. The primary aim of this organization was to assist in Iranian construction areas, including “oil and gas, dams, energy, roads, and water transfer projects”. Since its founding, the KAA has broadened its scope as an active player in the fields of oil, gas and petrochemicals, construction, mining and industry, agriculture, and research; it is currently under strict international sanctions. In addition to its economic projects, it also engages in cultural activities. KAA’s ninth commander-in-chief, Seyed Hosein Housh Sadat, came into the current position after the previous commander, Saeed Mohammad, resigned on 13 March, 2021.
A closer look at the history of the IRGC’s foundation and its consequent infiltration into the economic sector will shed more light on its claims to power – including its endeavors for presidency.
Although many consider the IRGC to be the most influential actor in Iran’s political and economic sphere at this historical juncture, its role should not be exaggerated. The IRGC has leveraged its subsidiaries – the KAA, The Cooperative Foundation of the Revolutionary Guards, and quasi-governmental institutions such as the Executive Headquarters of the Imam’s Directive, Astan Quds Razavi, Mostazafan Foundation, Imam Khomeini Relief Foundation, to name a few – to overtake both Iranian politics and the economy. In order to understand why and how the IRGC was founded, it is necessary to look at the history of quasi-governmental institutions that were established after the revolution.
Mehrdad Wahhabi, a professor of economics at Sorbonne Paris North University considers one of the primary reasons behind the establishment of quasi-governmental institutions and the IRGC to be Khomeini’s distrust of Mohammad Reza Shah’s army and ministries at the time.
Wahhabi pointed out that after the 1979 revolution, the army was in turmoil and the government, bureaucracy, and market were in crisis. He said:
At the time, Khomeini was not only suspicious of the shah’s army and ministries, but also of the Shiite clergy. So, he had to establish new institutions that would take over the realms of power and property.
Zamaneh researchers asked Mohsen Kadivar, a religious thinker and professor at Duke University, to comment on the idea of Khomeini’s suspicions of the Shiite clergy. He denied ever having heard such comments and added:
“Early after the establishment of the Islamic Republic, Khomeini believed that the clergy should not hold executive positions such as presidency and head of ministries. He feared that the Islamic Republic would come to be known as operating under mullah rule. The experience of the first prime minister and president, however, led him to the conclusion that the clergy were more reliable. He was no longer opposed to the clergy presiding over the role of the leader and the heads of the forces.”
In fact, by establishing quasi-governmental institutions, Ruhollah Khomeini was institutionalizing the Shiite clergy’s newfound power. On February 28, 1979, he issued a decree called The Confiscation of the Property of the Pahlavi Dynasty and Their Affiliates. Part of this decree reads:
“With the present decree, the Islamic Revolutionary Council is charged with seizing from the Pahlavi dynasty and all of its branches, agents, and members, all of the properties (including real estate and movable properties) that they have embezzled from the treasury of our Muslim nation during their illegitimate rule so that it can be allocated to the poor as well as the less fortunate among the workers. Their cash reserves are to be transferred to a bank account in the name of the Revolutionary Council or in my own name, and the real estate, including lands and tenements, will be duly registered and allocated to providing housing and job opportunities for the poor. I order all Islamic Revolution Committees throughout the country to deposit what they have gained from such spoils into a registered bank account.”
Later that year, on December 25, The Protection and Development of Iran’s Industries Act was passed in two articles. Under this act, the government gained ownership of the large industries and mines whose owners had amassed vast fortunes through illegal ties to the previous regime, illegal use of facilities, and squandering of public rights (some of whom had already fled the country). Initially, 51 people were targeted by Article B of this act; soon after, this group became known as “The 53” when two names were added to the list.
On the topic of the establishment of the quasi-governmental institutions, Wahhabi continued:
In his first fatwa, Khomeini confiscated the properties of 53 industry and bank owners and placed them under the direct supervision of an institution called the Mostazafan Foundation. He did not pass the properties to the government or the Shiite clergy, and they were not considered part of Waqf (mortmain properties). He called these properties “booty.” In my opinion, the turmoil in the relationship between power and ownership resulted in their merger and the establishment of Mostazafan Foundation.
The IRGC and Mostazafan Foundation were not the only parallel quasi-governmental institutions that Khomeini established after the revolution: jihad sazandegi, Islamic Bank, and Qarz al-Hasna were other such institutions. The IRGC was initially established as a military organization but gradually became a quasi-governmental, economic institution. According to Wahhabi, the “lack of boundaries between property rights and sovereignty” from the beginning led to the creation of such quasi-governmental institutions in Iran.
In Protestant Ethics and the Spirit of Capitalism, German sociologist Max Weber coined the term “booty capitalism” as a form of political capitalism in which a ruler consolidates his political power by looting and confiscating the property of members of the former government. “Booty capitalism” could be an appropriate title for the way in which the theocratic regime merged sovereignty with ownership – that is, by looting and confiscating properties and handing them over to the newly established quasi-governmental institutions of the Islamic Republic.
The IRGC was established in the aftermath of the 1979 revolution due to the lack of a strong military force. The first responsibility of this military institution was to confront the “counter-revolution” and to suppress all opposition to the Islamic Republic. In 1979, the IRGC proved its ability to Khomeini in its campaign against Kurdistan and repression of the Kurds, as well as its massacre of the leaders of the Turkmen Sahra. After that, the IRGC solidified its position as the country’s foremost military force in the eight-year Iran-Iraq War.
After the Iran-Iraq War ended, Iran was facing the issue posed by a large number of soldiers returning from the war, some of whom were disabled or unemployed. The government felt an obligation towards this group as well as the war-torn masses. On this topic, Wahhabi commented:
“During the eight-year war, a war economy formed in which the government, and not the market, played a major role. After the war, from 1989 onwards, the country faced the problem of mass unemployment of those who were mobilized for the war, many of whom were youth. In long wars, the need for a welfare state arises; in Iran, various insurances and independent institutions for Islamic welfare resulted. Such a state can be called the “State of the Martyrs” or the “State of the Welfare of the Martyrs.”
The same conditions and logic gave rise to KAA after the war, as it was a supra-governmental institution whose services were partly non-profit. The IRGC and KAA entered Iran’s economic scene after the war and gradually overtook the lucrative sectors, such as oil and petrochemicals. In addition to rent-seeking and systematic corruption in Iranian political and economic sectors, several factors contributed to the IRGC and KAA’s wealth-seeking process: Article 147 of the constitution, which allowed the IRGC to insert itself into the economic scene in the first place; the interpretation of Article 44; and the beginning of a pseudo-privatization process through which governmental institutions were taken over by quasi-governmental institutions; international sanctions; and finally, a multi-factor construction system, which this article will address below.
The IRGC entered into the economy during Rafsanjani’s presidency
According to Article 147 of the Constitution of the Islamic Republic, “In times of peace, the government, in complete respect for the standards of Islamic justice, must utilize military personnel and technical equipment for relief operations, educational and productive endeavors, and jihad sazandegi (reconstruction campaigns), to the degree that the military’s combat-readiness is not impaired.”
When the Iran-Iraq War ended, and the troops returned from the war to face unemployment in Iran, Akbar Hashemi Rafsanjani was president. Hojjat-ul-Islam Ali Saeedi, the IRGC representative of the Supreme Leader, told Mehr News Agency on February 4, 2011: “After the war, there was an acute need for the reconstruction of country’s infrastructure. So, the head of the government (Ayatollah Hashemi Rafsanjani) asked the Supreme Leader to allow a portion of the IRGC’s surplus in human and technical resources to assist the government. The Supreme Leader granted this request and the IRGC entered the economic arena, or more specifically, the construction sector.”
At that time, in accordance with Article 147 of the constitution, the troops were given permission to enter the economic sphere to generate income, and maintain and repair their military vehicles in order to increase the country’s capacity for reconstruction. Article 147 does not allow the IRGC to establish its own economic institutions, but it does enable it to directly assist the government. Therefore, this article does not infer that the IRGC should own economic enterprises. However, that is exactly what happened.
As the structural economic adjustment policies were on the agenda in 1989, the IRGC entered the economic sphere by establishing the KAA. Over the past three decades, whenever the process of the privatization of state institutions has ramped up, there has been a simultaneous expansion of the economic activities of the IRGC, its affiliated companies, and its extra-governmental foundations.
By the end of the Iran-Iraq War, Iran’s official reserves were depleted and the government had to turn to the International Monetary Fund (IMF) and the World Bank for loans to implement its political will. The IMF designed conditional loans, subject to implementation of structural adjustment programs, and so structural economic adjustment policies were initiated in that period. Reducing subsidies, raising taxes, downsizing government, and privatizing companies were all part of these economic adjustment policies.
Structural adjustment programs initiated during that period had devastating effects not only on Iran’s economy, but also on the lives of the lower classes as well as natural resources. In his book Iran’s Economy in the Period of Structural Adjustment, Farshad Momeni, an economist and opponent of the economic adjustment programs, explicitly criticizes the programs implemented in the first development plan. According to Momeni, following the IMF’s recommendations without regard for social and cultural realities exacerbated Iran’s economic problems. He attributes many of today’s problems to these post-war economic policies.
Mehrdad Wahhabi classifies 1988-2005 as the first period of the IRGC’s activities. During this time, the IRGC engaged in entrepreneurship, employed those who had returned from the war, and provided services to the families of fallen soldiers. In this way, the IRGC secured itself a foothold in rebuilding the war-torn economy. It is in this period that the IRGC also began road and dam projects, reconstruction of war-torn areas, and the construction of railways and subways.
KAA’s activities were not limited to Iran. Commander Mohammad Reza Yazdi, the IRGC’s deputy for legal and parliamentary affairs, told Khabar Online in 2011: “The KAA would undertake contracts within its capabilities in other countries.” The military official, however, did not specify these countries.
KAA has always enjoyed the Supreme Leader’s approval and thus has managed to win large project contracts. It has done so by obtaining special privileges in most governments, including those of Mahmoud Ahmadinejad and Hassan Rouhani.
By the end of 2004, KAA had 55,000 employees, including 40,000 military personnel and 15,000 paramilitary forces (the Basijis), and an official revenue of $12 billion. After 2005, the KAA re-aligned its mission and KAA’s power and wealth increased.
Pseudo-Privatization distends IRGC
Another important factor in the economic growth of the IRGC and the KAA was the new interpretation of policies related to Article 44 of the constitution. Critics have referred to this process, which eased rent-seeking by the quasi-official institutions, as “pseudo-privatization.” This term stems from the beginning of privatization in Iran, and is primarily used by those critical of government policies.
Pseudo-private institutions are organizations affiliated with the government; these ties to the regime are sometimes clear, such as through pension funds, and are rather opaque other times, as seen in Astan Quds Razavi, the Executive Headquarters of Imam’s Directive, the IRGC, the Law Enforcement Force (the police), and Imam Khomeini Relief Committee. These arms of the regime, which are ostensibly charitable or revolutionary organizations, enjoy governmental funds and facilities as well as access to information and economic rents and interests. Unlike governmental institutions, however, they are exempt from paying taxes and their operations are not transparent. These military and extra-governmental affiliates, with their covert and overt ties to the government, can enjoy extrajudicial powers, receive rents, and enjoy greater immunity than private companies.
According to Article 44 of the constitution:
“The economy of the Islamic Republic of Iran is to consist of three sectors: state, cooperative, and private, and is to be based on systematic and sound planning. The state sector is to include all large-scale and key industries, foreign trade, major minerals, banks, insurance, utility generation, dams and large-scale irrigation networks, radio and television, mail, telegraph and telephone services, aviation, shipping, roads, railroads and the like; all of these will be publicly- owned and administered by the state. The cooperative sector is to include cooperative companies and enterprises concerned with production and distribution in urban and rural areas, in accordance with Islamic standards. The private sector consists of those activities concerned with agriculture, animal husbandry, industry, trade, and services that supplement the economic activities of the state and cooperative sectors. Ownership in each of these three sectors is protected by the laws of the Islamic Republic, insofar as this ownership is in conformity with the other articles of this chapter, does not go beyond the bounds of Islamic law, contributes to the economic growth and progress of the country, and does not harm society. The precise scope of each of these sectors, as well as the regulations and conditions governing their operation, will be specified by law.”
While in the process of the neoliberalization of the economy, Khamenei issued a communiqué on May 2, 2005 in order to curtail the government’s power. This communiqué changed the policies of Article 44 and authorized the transfer of the country’s major industries to the quasi-governmental, cooperative, and private sectors. A part of this statement dictated that the government could not engage in new economic activities outside of the provisions of Article 44 and that it was obliged to delegate any activity (including continuation and exploitation of previous activities) that was not covered by Article 44 to cooperative, private, and public non-governmental sectors by the end of the fourth five-year development plan.
This communiqué also detailed activities from the beginning of Article 44 that could be invested in, owned, or managed by public non-governmental organizations, cooperative and private sectors. These activities included:
- Large industry: Mother industries (including oil and gas derivative companies), and mines (excluding oil and gas)
- Foreign commercial activities, national currency, and trade policies
- Banking by public, non-governmental, and cooperative entities, publicly-traded companies under limited share ownership (Limited Liability Partnership) of each shareholder as determined by law
- Energy supply including production and import of electricity for consumption and export
- All mail and communications businesses excluding the key communication networks; telecommunications frequency allocation management; the main [postal] networks for exchange, network analysis, and distribution management of basic postal services
- Roads and railroads
- Airlines (air transportation) and maritime routes (sea transportation)
- Creation and use of major dams and water distribution networks (while maintaining all privileges for the those with rights to the water)
With this communiqué, Khamenei transferred almost all major areas of government responsibility included in Article 44 of the constitution (major industries, key industries, foreign trade, large mines, banking, insurance, energy supply, dams and large water supply networks, radio and television, post and telegraph and telephone, airlines, ships, roads and railways) to the quasi-governmental institutions, banks, cooperatives, and the private sector. This change took place under Ahmadinejad’s government, and the then-president transferred more than 80 percent of the government’s assets.
In a 2019 study entitled “Iran’s Commanding Heights”, sociologist Kevan Harris provided detailed information on the extent and manner of privatization in the fifth to eleventh Iranian governments. According to this research, the percentage breakdown of total government asset transfers (including provincial equity funds and pension funds) to pseudo-private, public, and nongovernmental entities was as follows: 3.2% in the first and second governments of Hashemi Rafsanjani; 6.1% in the first and second governments of Mohammad Khatami; 3.7% in the first government of Hassan Rouhani; 87% during Ahmadinejad’s two terms (2005-2013).
In July 2016, the head of Iran’s Privatization Organization told Mehr News Agency that before the eleventh government, the private sector’s actual share of the transfers was about 18%, but this figure reached 67% in the eleventh government, and 100% in the twelfth.
Ali Alfoneh, an Iranian-American researcher who has done a great deal of research on the activities of the IRGC, told Deutsche Welle in 2010:
“During the first ten years of the Islamic Republic’s life, the greater part of Iran’s economy was controlled by various foundations, including the Foundation of Martyrs and Veterans Affairs, and the Mostazafan Foundation. But after the 1997 elections, when Khatami took office, we witnessed the gradual penetration of the IRGC into Iran’s economy; this was especially apparent through the privatization process which accelerated during Ahmadinejad’s political terms. It is unsurprising to me that the IRGC is not content with political power and considers the economy an important lever in Iran’s politics. Of course, the difference between these organizations and the IRGC is that the IRGC is a military entity, and once these companies are handed over to the Revolutionary Guards, it will be very difficult for the government to take them back. So far, the foundations have lost this economic competition to the IRGC.”
The supreme leader gave KAA the green light in late 1988 to officially begin dealing in oil, gas, and petrochemical projects. In less than a decade, KAA became one of the largest contractors in major and minor projects in the oil, gas, and petrochemical industry.
KAA is the main shareholder of the Iran Marine Industrial Company, or Sadra, one of the largest contractors of offshore oil and gas projects in Iran. The IRGC also holds the majority shares in the Khatam al-Awsiya Consortium, another contracting company active in the oil and gas industry.
These IRGC-affiliate companies enjoy a type of monopoly in the oil and gas sector. Over the past few decades – concurrent with the international sanctions regime – millions of dollars’ worth of contracts have been signed for the development of fields, refineries, storage tanks, and oil and gas pipelines without applying “invitation to tender (ITT)” formalities.
In Zamaneh’s November 2020 special report on workers’ conditions entitled “Oil and Gas Contract Workers’ Strike: Roots and Background,” Parviz Sedaghat, an independent economist, told researchers:
“The presence of military institutions in Iran’s economy began accelerating in the early 2000s and reached its peak towards the end of the decade. These institutions now seem to be present in all key sectors of the economy, such as financial services, oil and energy, telecommunications, petrochemicals, and base metals – they practically steer Iran’s economy. Military and security institutions bolstered their power in three ways: first, they quickly established a foothold after the end of the eight-year war by becoming engaged in all economic activities and establishing economic enterprises of their own with the help of intelligence and security institutions and information rents. Second, they won numerous large contracts from the government and public non-governmental organizations. Third, they took hold of profitable industries and economic activities during the privatization process.”
According to Sedaghat, “These institutions, insofar as they play key roles in the economy, greatly benefit from neoliberal ideologies and policies. Their presence in the banking and financial service sector was legalized through an act which permitted the establishment of non-government-owned banks. Furthermore, thanks to Article 44 of the constitution they managed to procure ownership of formerly-governmental economic enterprises through auctions. Finally, they enhanced their profit margins by manipulating neoliberal economic patterns such as using contingent workforce providers and short-term contractors.”
In October 2014 Alef website, headed by Managing Director Ahmad Tavakkoli, published an article: “On the Sidelines of the IRGC’s KAA Economic Report”. Part of this article stated:
“Basically, due to the uneven playing ground, the private sector can never compete with KAA. The KAA: Exploiting the concentration of logistic facilities accumulated in the IRGC (due to wartime conditions), they are miles ahead of the private sector and the gap between the two is constantly widening. In addition, KAA enjoys special privileges, like tax exemptions, which facilitate its economic activities. Close ties with government agencies help to remove legal barriers and channel projects. Perhaps the most important privilege of all is the fact that, unlike other economic enterprises, KAA operates outside of government oversight. According to the Supreme Audit Court of Iran (SAC), neither the General Inspection Organization of Iran (GIO), nor other supervisory arms (even the Intelligence Organization of the IRGC) are allowed to investigate KAA’s activities.”
According to Wahhabi, the second period of the IRGC’s activities began in 2005. He confirmed that the interpretation of the Privatization Act has contributed to IRGC’s reinforcement in the economy. From 2005 onwards, many large industries, including oil/petrochemicals and other crucial financial resources, were transferred to KAA and other IRGC affiliate companies. Wahhabi commented about this period of the IRGC’s transformation:
“Those working in the field of oil, gas and petrochemicals are among the main owners of foreign currency revenues and thus, are directly involved in the financial service sector. This is why the IRGC’s activities in oil, banking, and Qarz-al-Hasna funds are crucial – because they shape its revenue distribution network. Ansar Bank and Mehr Bank were both established independently of the Central Bank of Iran, and these two IRGC banks are both examples of parallel institutions in the financial sector. Mehr Bank received a license as a state-owned bank in 2007 and Ansar Bank was established as a non-government-owned bank in 2009, and there are several other similar banks. When you have the banks and the foreign currency, you control the economy. After all, Iran’s economy since the revolution has been nothing but exporting oil and goods.”
In addition to Max Weber’s booty capitalism, the political capitalism of the Islamic Republic can be described and understood as “crony capitalism,” an economic system characterized by close, mutually advantageous relationships between business leaders and government officials. Manifestations may include privileges in the distribution of legal permits, government concessions, special tax exemptions, or other forms of government control.
Crony capitalism comes into play when a group within the government enjoys special advantages through rent-seeking and political partisanship, and therefore can enter the economic sector and make a profit. In this type of economy, the advantage of the government’s inner circle leads to corruption and reduced social welfare.
Dr. Robert Looney, an American economist and professor of national security in the Naval Postgraduate School, published a 2006 article in the Milken Institute Review entitled “The Iranian Economy: Crony Capitalism in Islamic Garb.” In this work, Looney explained Iran’s crony capitalism in the context of US sanctions. According to the author, the old tradition of crony capitalism (or more simply the rent economy and corruption), will make it difficult for Iran to contend with sanctions.
The formation, expansion, and empowerment of the network of quasi-governmental and military institutions, state-owned banks, cooperatives, and charities in Iran’s politics and economy demonstrate how crony capitalism became part of the Islamic Republic’s economic fabric after the revolution, when Iran’s economy was benefiting from confiscations and booty.
The Four-Factor System and KAA’s Omnipotence in the Field of Construction
After Khamenei’s decree authorizing the transfer of economic entities to the quasi-governmental sector in accordance with Article 44 of the constitution, major changes took place with Iran’s large-scale construction projects. These projects facilitated the implementation of the transfers. From this period onwards, major construction projects moved away from the three-factor and towards four-factor delivery systems. This change paved the way for KAA to undertake many projects without any engineering supervision and therefore to become one of the largest economic and military apparatuses.
What is a three-factor system? Before the Islamic Republic came to power, every project in the field of industry in Iran was implemented through a three-factor system. The three-factors in this system are the employer, the consulting engineers, and the contractor. In other words, in large civil and industrial projects, the employer and the contractor would carry out projects assisted by a consultant or consulting engineer agent. This system ensured that engineers had an effective role in pre-design consulting, design, and quality control of the project, and they prioritized technical quality. While project management was the employer’s responsibility, the employer did not always have the ability or time to do so. In smaller construction projects especially, this process could be time-consuming and therefore expensive.
To solve this problem, in 1999 the Management and Planning Organization of Iran designed a four-factor system, in which the fourth factor assumes project management. In this system, the employer’s management duties are outsourced to a specialized management company in the form of a contract; this company is called the “fourth factor” or “fourth factor contractor.” In order to reduce the employer’s responsibilities, Engineering, Procurement, and Construction (EPC) contractors were tasked with designing and executing projects.
In this type of contract (EPC), the contractor is responsible for project design, the procurement of all necessary materials and parts, and quality control. For example, Mahmoud Ahmadinejad used a four-factor system for Mehr Housing Project in order to eliminate middlemen and brokers, reduce costs, and provide affordable housing to the citizens.
Zamaneh discussed the four-factor system with an activist and civil engineer in Iran who chose to remain anonymous for security reasons. For the sake of this article, he will be referred to as “Engineer Omid.” Engineer Omid believes that Ahmadinejad’s government normalized the systematic use of the four-factor system, and thus gave KAA more freedom of action in construction projects. He explained:
“As long as the former three-factor system was in place, engineers and contractors referred to various regulations, bylaws, and recent publications as their benchmark and this guaranteed the quality of the projects. But when the four-factor system was implemented on a large scale and the fourth-factor contractor became the fulcrum of the project, contracts that gave KAA full responsibility as the EPC contractor grew complicated. Quality suffered a serious blow because KAA would singlehandedly calculate, approve, monitor, and execute.”
When asked about the work style of the fourth factor companies and contractors, Engineer Omid replied:
“In this process, the fourth factor operating company, which has only a supervisory role, oversees the construction based on the contractor’s designs. This procedure can cause problems in large-scale projects. There are many differences between a project designed by consulting engineers and a project designed by a contractor. The contractor always moves towards minimizing costs while the consulting engineers opt for optimizing the project in terms of efficiency, security, and robustness. In large projects, the elimination of consulting engineers leads to a sharp decline in the quality of project.”
According to Engineer Omid, Ahmadinejad jeopardized engineers as well as all others active in the field of construction, despite being the one who wanted to omit middlemen through policy changes. He told Zamaneh about some of the inefficiencies of the four-factor process in large projects:
“The inefficiency of this plan is mainly due to vast corruption in the Housing and Urban Development Organization and even in the Engineering System Organization. Money changes hands under the table in both organizations to verify plans that should not be verified. The addition of the fourth factor did not help to improve the situation. Because there is no anti-corruption system, the result was that the fourth factor companies joined the corruption game themselves. It also led to the exclusion of many good private companies in the long run.”
Therefore, KAA became the omnipotent contractor of small and large projects with the new interpretation of Article 44 of the constitution, the pseudo-privatization and the consequent transfer of state assets to quasi-governmental institutions, and the entrusting of large-scale projects to institutions such as KAA through EPC contracts, in which the fourth factor holds all the power. From this period onwards, consulting engineers with no special ties to KAA were banned from taking part in the design and quality control of its projects.
Sanctions: A Golden Opportunity for the IRGC
The sanctions imposed on Iran by the United Nations, the European Union, and the United States since 2007 to prevent its ballistic missile program and nuclear weapon production have brought major foreign projects in the oil and petrochemical fields to a halt. Khamenei’s communiqué to change Article 44’s policies and Ahmadinejad’s support of the IRGC, however, paved the way for KAA and other military institutions to take over the country’s huge projects.
In a study on the IRGC’s presence in Iran’s oil and gas industry, Hamed Saeedi pointed to US sanctions as one of the key factors that opened the door for IRGC and KAA-affiliated companies to further intervene in Iran’s economy. According to Saeedi, the gradual expansion of the IRGC’s activities in the economy and developments in international sanctions which caused foreign companies to leave the country, allowed for the IRGC’s oil, gas, and petrochemical subsidiaries to enter the scene.
Mehrdad Wahhabi also believes that sanctions played a major role in consolidating the IRGC’s economic power. According to him, the IRGC’s economic growth was a product of political capitalism, or booty capitalism, which spread first during the Iran-Iraq War and again during the international sanctions regime. He told Zamaneh:
“Although the people did not benefit from the sanctions, the IRGC benefited greatly. Sanctions caused the Iranian economy to go underground and as a result, some of its activities were placed under the surveillance of security and intelligence institutions. This trend gave the IRGC a chance to take control. This military institution managed to enter the field of oil, gas and petrochemicals and strengthen its foothold in Iran’s economy.”
Ahmadinejad was sympathetic to the IRGC since he served as the mayor of Tehran, and after becoming president his generosity toward them continued, although with some reserve. For example, a report published by Sharq newspaper in January 2016 stated: “In 2006 and during Ahmadinejad’s presidency, a contract worth more than $2 billion was signed with the IRGC for the development of phases 15 and 16 of the South Pars Gas Field.”
Although sanctions worsened the economic situation and reduced many people to poverty, Saeed Mohammad, the former commander of KAA, praised them on various occasions and declared that the sanctions were an opportunity for KAA to monopolize Iran’s profitable resources and projects in the field of oil and petrochemicals. The IRGC has maintained its hawkish tone when it comes to the sanctions.
Projects and Contracts: 285 Projects and 23 Contracts
In October 2020, Saeed Mohammad, the former chief commander of KAA, told the Oil and Energy News Agency that the organization was in charge of 285 projects in the country at the time. According to him, KAA consists of 8 specialized holdings, 40 subsidiary institutions and companies, and 200,000 personnel, of which 48,000 are directly employed by KAA and the rest are contractors. Mohammad also added that about 5000 private contracting companies cooperate with KAA. This link lists 109 projects extracted from KAA’s official website in 2020. The below table details a number of subsidiaries, groups, institutions, and companies that are affiliated with KAA and are traceable online:
Affiliates, groups, and a number of KAA’s subsidiaries
|Karbala Affiliated Group||Sepasad Group|
|Nouh Group||Shahid Rajaee Professional Group|
Omran Sahel Co.
|Kowsar Affiliated Group||Tehran Gostaresh Co.|
|Ghaem Affiliated Group||Niroo Gostar Co.|
Imensazan Consultant Engineers Institute
Omran Sanat Co.
|Sepanir Affiliated Group||Sepanir Oil and Gas Engineering Company|
|Reyl Gostar Institute|
|Rah Sazeh Institute|
|Rah Sahel Institute|
Although KAA’s former commander-in-chief claims that the institution currently has 285 ongoing projects, contracts are not available to the public. Some completed Iranian contracts are available on the Government Contract Transparency website, but only a limited number of projects have been registered under KAA’s name or its known subsidiaries. According to Iran Open Data, in most of KAA’s projects the employer is either the government, the municipalities, or similar agencies that operate with a public budget (through oil revenues and taxes).
According to the report by Iran Open Data, the Contracts Transparency system shows only 23 projects that are registered under KAA’s name, plus 8 projects under Khatam Al-Awsiya Consortium, and one contract under NAZSA (IRGC Land Forces Engineering Camp). The total value of these 32 contracts adds up to 24,605 billion tomans, and these contracts are dated between January 2012 and June 2019. Select this link for a list of major KAA projects. The list of KAA’s existing contracts in 2020, provided by Iran Open Data, can be found here.
KAA’s Areas of Activity
KAA openly declares that it wants to replace jihad sazandegi (the reconstruction campaign), and so it bargains with the government accordingly. “We do not intend to turn KAA into a ministry, but we accept the responsibilities of jihad sazandegi and are willing to fill its shoes,” said Saeed Mohammad, the former commander-in-chief of KAA.On its official website, this organization has listed its own areas of activity as “major national projects in various fields, including dams, roads and runways, buildings, irrigation and drainage, long tunnels, water, oil and gas transmission lines and storage tanks, docks and offshore structures, huge oil and gas facilities, offshore and onshore drilling, and so on.”
Over time, KAA’s activities have expanded and become more varied, and presently include the construction of bridges, subways, large towers, hospitals, railways, dams, and the excavation of numerous mines. This institution used to undertake both small and large projects until 2011, when an order by the IRGC’s commander-in-chief, decided that KAA would not take part in projects worth less than 100 billion tomans.
According to Iran Open Data, KAA is also involved in real estate transactions, light and heavy vehicles dealership and scrap metal dealing. It uses at least three institutions, namely “Noor,” “Sama,” and “Kowsar”, about which not much information is available, to continuously holds auctions worth hundreds of billions of tomans in the abovementioned areas. On Iran Open Data’s website, there is an interactive table of some of the auctions held by these three institutions.
Surprisingly, the IRGC’s name does not appear anywhere on these three institutions’ websites, but the website of KAA mentions the names of these three institutions. The number of the companies that work with KAA is much higher than what the data actually shows. If we rely on what KAA’s former commander-in-chief had said in 2020, there are at least 40 institutions that cooperate with the organization.
Iran Open Data wrote about this topic:
“In major construction, oil and gas, and telecommunications contracts the financial performance of KAA is not transparent; there is no official report on the turnover in the real estate and vehicle dealership sectors, either. In fact, the most important feature of this organization, apart from its lack of transparency, is its structural complexity. Numerous satellite companies are involved in the labyrinths of this institution’s activities; companies that on the surface are not under the supreme leader’s supervision, but when looked at close enough, their ties can be traced back to institutions such as the Executive Headquarters of Imam’s Directive, Astan Quds Razavi, Mostazafan Foundation, Martyrs Foundation, and the IRGC.”
The IRGC: Economic Interventions and Political Aspirations
The IRGC’s involvement in the construction of dams and the extraction of mines has not always been characterized by immaculate calculations, foresight, and vigilance. In fact, this involvement has sometimes led to ecological disasters, the destruction of local ecosystems, and protests. The use of the four-factor system, which paved the way for KAA to contract large projects, lowered the overall quality in the construction sector. So the question is: Has the IRGC’s intervention in Iran’s economy done the economy any good?
Wahhabi believes that the IRGC’s economic intervention is more political in nature and says:
“In the Islamic Republic, the military institutions aim for enhancing their own political power, not the economic power of the country in general. Economic efficiency has never been their concern. This political capitalism is not in search of efficiency and does not have a managerial role, but brokerage functions; its role is to redistribute oil revenues rather than manage a state-controlled economy.”
Wahhabi believes that Iran is not the only country where military institutions have economic roles.
“For example, in China, Turkey, Afghanistan, Pakistan, and many other Middle Eastern countries and even the United States military institutions are active in the economic arena; but their role is the opposite of the role of the military in Iran, that is, their economic activity (from a capitalist point of view) is also economically efficient,” he said. “But the opposite is true about the IRGC. Anyone with power and influence in the IRGC can turn that power into property. Sovereignty and ownership are fused together.”
Zamaneh asked an Iranian economist and university professor, whose name shall remain anonymous, what factors contributed to KAA’s economic empowerment. He responded:
“KAA is a large capital- and profit-oriented economic unit. In these types of institutions, there is a tendency for capital concentration. Capital concentration will cause the institution to expand and thus, contributes greatly to their economic empowerment. A consequence of this situation is that potential and actual competitors must either back out from the competition or inevitably merge into the larger entity. Of course, the crucial political consequence of capital concentration is that those with greater economic power will have the upper hand in politics as well. In power relations, this goes both ways. As a result of the simultaneous concentration of economic and political power the institution becomes a political-economic magnate that cannot be easily grappled with, because it is active in various fields, is politically influential, has its say in foreign policy, and can affect judicial processes. In short, such an institution is the perfect example of unlimited monopoly in all areas.”
Like Wahhabi, this economist also believes that, from a market economy perspective, the IRGC’s involvement in the economy does not have economic efficiency, and that one of the disadvantages of an unlimited monopoly in the economy is that it kills competition in free markets and destroys economic efficiency.
Saeed Mohammad, the former technocrat commander of KAA, who has also had economic experience in his resume with the IRGC, resigned from his post as KAA’s commander-in-chief in 2021 and ran for the presidency, but the Guardian Council did not verify his fitness for the position. His candidacy also perturbed many IRGC members who condemned his autonomous decision for candidacy so much so that they even fueled allegations that he had been ousted for financial misconduct. It is ironic that those who manage their political and economic careers through rent-seeking and passing and circumventing laws in order to meet their own needs should use a term like “financial misconduct.”
The establishment of quasi-governmental and supra-governmental institutions by Khomeini, laws that have paved the way for the IRGC to enter into the economic scene ever since Rafsanjani held office, pseudo-privatization, the lack of independent monitoring systems, corruption, bribery, rent-seeking, contractor power in the four-factor system and the decline in quality due to spending cuts, the IRGC’s long-standing political ambitions, Khamenei’s support of the IRGC, and sanctions have led to this military institution’s growth in becoming an economic giant independent of the government, that acts as a parallel government, sets conditions for governments, and even demands government assets in exchange for their debts.