Trump's tougher stance could backfire by
boosting Iran's Guards
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[October 23, 2017]
By Parisa Hafezi and Jonathan Saul
ANKARA/LONDON (Reuters) - Iran’s elite
Islamic Revolutionary Guard Corps, a military force with political clout
and an industrial empire, stands to benefit from heightened tension
between Washington and Tehran, officials and analysts said.
President Donald Trump broke ranks with other major powers earlier this
month by disavowing Iran's compliance with a 2015 multinational nuclear
deal, complicating life for foreign investors nervous of possible new
The IRGC, which reports directly to Iran's Supreme leader Ayatollah Ali
Khamenei, began rapidly expanding its commercial interests a decade ago,
before U.S. and EU sanctions were imposed on Iran's oil and finance
sectors in 2012 over the country's nuclear program.
It controls businesses ranging from ports management to
telecommunications and has made the most of both cooling and warming
ties with the West.
When Western oil companies vacated energy projects in Iran after 2012,
the Guards took them on; after the penalties were lifted in 2016, the
IRGC, through front companies, served as a conduit for foreign business
flowing into Iran.
If investors are put off again, the IRGC is ready to step in, said an
official from Khamenei's camp.
"We want foreign investors to stay, but if they leave because of (U.S.)
pressure, the Guards can easily replace them. There is no better
alternative," the official said, declining to be named because he was
not authorized to speak to media.
Under sanctions, Iran's clerical rulers rewarded the Guards by showering
them with contracts for skirting the restrictions as well as for
suppressing dissent at home and helping Tehran’s regional allies from
Iraq to Lebanon.
The IRGC's lack of technical expertise and concern over the viability of
its economic ventures under sanctions meant it later welcomed pragmatist
President Hassan Rouhani's deal that eased sanctions in return for curbs
on the nuclear program.
Khamenei, a hardliner who holds ultimate authority on matters of state
in Iran, guardedly endorsed the nuclear accord but has said Rouhani’s
economic follow-through has fallen short.
To bypass existing unilateral U.S. sanctions, which bar any business
with the Guards and its affiliated firms, many of the IRGC's front
companies are not even formally owned by the Guards, but by individuals
and firms linked to it.
Rouhani has tried to encourage reluctant major European firms and banks
to return to Iran by seeking to curb the Guards' involvement in the
economy, which led to the IRGC transferring ownership of some companies
to the state.
In recent months, the IRGC, which sees itself as a bulwark against
Western influence, has responded by criticizing Rouhani for viewing
foreign countries as the key to economic growth.
"The IRGC will be the main beneficiary of the tension with Washington
... In order to protect its economic dominance, the IRGC prefers only
limited opening to the West," said a Western diplomat who follows Iran
While backing the nuclear deal, Europeans share Washington's concern
over Iran's ballistic missile program and "destabilizing" regional
The IRGC has vowed to accelerate the disputed missile program and Iran's
Shi'ite militia proxies have made big military gains in recent months in
Syria and Iraq, part of a decades-old tussle for influence in the Middle
East with Sunni powers. Tehran emphasizes its role in battling Islamic
Many foreign firms remain hesitant to invest in Iran for reasons
including lingering unilateral U.S. sanctions imposed over human rights
violations and alleged Iranian links to terrorism, and the dominant role
of the IRGC in the Middle East’s second largest economy.
Among European firms that have announced big deals in Iran since last
year are planemaker Airbus AIR.PA, French energy group Total TOTF.PA,
and Germany’s Siemens SIEGn.DE. Planemaker Boeing is the only U.S.
company that has been granted direct access to the Iranian market with a
deal to sell 110 plans to two Iranian carriers.
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Members of the Iranian revolutionary guard march during a parade to
commemorate the anniversary of the Iran-Iraq war (1980-88), in
Tehran September 22, 2011. REUTERS/Stringer/File Photo
But Trump’s hawkish new approach towards Tehran, coupled with
banking worries and domestic political turbulence in both countries,
are causing growing uncertainty over Iran’s plane deals.
Iranian officials have acknowledged publicly that major
international companies are still wary of providing finance for
Iran-related business, fearing potential fines resulting from
existing U.S. sanctions, which include a ban on dollar related trade
with the country.
FOREIGN INVESTMENT IN JEOPARDY
Iran needs the equivalent of billions of dollars in investment to
revitalize industries including oil and gas and develop sectors held
back by a lack of Western financing and the wide economic influence
of the IRGC.
These factors have all added to the difficulties faced by foreign
investors looking to tap Iran's market. “The commercial issue is the
turbulence that Trump creates,” Andreas Schweitzer, managing
director with London-based M&A and investment advisory firm Arjan
Capital Ltd, which has been investing in Iran since 2009.
He said transactions were nevertheless still taking place, including
in the automotive, energy and industrial sectors, in the one hundred
million to two hundred million euros sphere. Merger and acquisition
deals were among them, he said.
"We keep the same mindset as of 2009 – we assume the worst case,
including that the Revolutionary Guards could be sanctioned,
although we don’t deal with them and if sanctioned parties are
involved somewhere we won’t touch the transaction or the company. We
are and remain very cautious and so far we never have had a
Following Trump's speech, U.S. Treasury Secretary Steven Mnuchin
said he planned to impose new sanctions on the Guards and would work
with international counterparts on the issue.
Charles Blackmore, chief executive of London-based due diligence
specialists Audere International, which is active in Iran, said the
policy shift by Washington would have “an adverse effect upon the
more risk adverse investor”.
"For those who are already invested and know the country well, this
will not make a blind bit of difference,” he said.
"There are enough issues at the moment making people aware of how
much of the economy is controlled by shadow shareholdings and opaque
structures of the IRGC.”
The survival of the nuclear deal is up to the U.S. Congress, which
has 60 days to decide whether to reimpose broad sanctions on Iran.
The U.S. administration has said Washington will not stand in the
way of European trade and business transactions with Iran.
Matthew Oresman, counsel with law firm Pillsbury Winthrop Shaw
Pittman, who advises companies on Iran compliance issues, said
Washington had considerable power and leverage to disrupt trade with
Iran if that served its national security interests.
"But the European governments have ways to dampen this and protect
their businesses if they so desire,” he said.
(Writing by Parisa Hafezi; Editing by Philippa Fletcher)
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