The Journal for Interdisciplinary Middle Eastern Studies Volume 5, Fall 2019, pp. 33-54 DOI: https://doi.org/10.26351/JIMES/5/2 ISSN: 2522-347X (print); 2522-6959 (online)
Iran’s Empire Strikes Back: Lessons from the Soviet Union
Ofira Seliktar and Farhad Rezaei
Abstract This article argues that in the process of spreading its Islamist revolution, the Iranian regime created a Shiite empire based on a string of proxies from Lebanon to Yemen. However, like in the Soviet empire, this ideologically- driven project required a tremendous investment of resources. This imperial outreach had to be balanced with another mission of the regime, to provide a decent existence to its citizens, notably the impoverished lower classes. The imposition of sanctions sharpened the inherent contradiction between the regime’s dual commitments, leaving the country ill-prepared to tackle a series of crises ranging from a dysfunctional banking system to water shortage and environmental degradation. Based on the lessons from the Soviet Union, the Islamic Republic overreach would contribute to its demise.
Keywords: Iran, Soviet Union, exporting revolution, crisis of legitimacy, Shiite Empire
Prof. Ofira Selktar – Gratz College; [email protected]
Dr. Farhad Rezaei – The Center for International Policy Studies (CIPS) at the University of Ottawa; [email protected]
33 34 Ofira Seliktar and Farhad Rezaei
Introduction
When announcing the Islamic Republic of Iran in 1979, Ayatollah Ruhollah Khomeini vowed to fulfill the “sacred mission” of spreading the Islamist revolution in the region and beyond. Over the next decades, Khomeini’s vision created the so-called Shiite crescent, a de facto Iranian empire based on a chain of proxies in Lebanon, Syria, Iraq, and Yemen. This impressive Shiite empire has required an enormous investment to keep it viable. Most recently, however, cracks appeared in the Iranian built edifice. Massive civil protest rocked Lebanon and Iraq, and the Iranian infrastructure in Syria was devastated by raids of the Israeli Air Force. More to the point, during the periodic waves of domestic unrest, protesters voiced their anger at the fact that the cost of the empire’s upkeep condemned them to penury. In many respects, the Iranian experience resembles the fate of the Soviet empire. Dedicated to the export of communism in the wake of WWII, the Soviet Union created its own empire in Eastern Europe and encouraged communist insurgencies all over the globe. However, in an inversion of the economic model of the colonial empires of Great Britain and Spain, it was the Soviet Union that bore the cost of its domain. Coupled with a highly inefficient economic system, maintaining the empire took a considerable toll on the regime. By the 1980s, the country was plagued by food shortages, a collapsing health system, and unprecedented ecological degradation. Soviet-style communism became a by- word for corruption, dysfunctionality, and behavioral malaise known as anomie. First to rebel were Moscow’s satellites in Eastern Europe, followed by unrest in the Baltic republics. Mikhail Gorbachev, the last Soviet leader, tried to reform the system only to trigger the collapse of the communist empire. The present work attempts to analyze the domestic crisis in Iran through the methodology developed to study the collapse of the Soviet Union. The underlying assumption is that the stressors of reverse colonialism compounded by the neo- patrimonial political-economic system and the sanctions regimen would eventually force a regime change in Iran. Iran’s Empire Strikes Back: Lessons from the Soviet Union 35
The paper has three parts. Part One will provide an overview of the tensions between revolutionary export and the effort to fulfill the regime’s commitment to improving the wellbeing of the population. Part Two will discuss the legitimacy crisis posed by the sanction regimen. Part Three will analyze the so-called externalities, which are consequences of neglecting crucial functions of the state, such as banking and the environment. The concluding section will assess the capacity of the regime to overcome these problems without giving up most, if not all, of its revolutionary export project.
Improving the Wellbeing of the Mustazafeen and Revolutionary Export: The Fundamental Contradiction of the Islamist Regime
There was nothing in traditional Shiite theology to indicate an inclination to partake in political activism. To the contrary, most of the ayatollahs, including Grand Ayatollah Hossein Borujerdi, were strong advocates of clerical quietism. Ayatollah Ruhollah Khomeini, however, broke with tradition by insisting that a proper Islamic political order should be based on the principle of velayat-e faqih, the rule of a capable jurist. Once in power, Khomeini introduced two additional theological innovations that have shaped the character of the regime. In his view, Islam should be dedicated to redeeming the mustazafeen (Refahe Mustazafeen), the oppressed lower classes of Iran. Ali Shariati, the Islamist sociologist, was the first one to elaborate on this principle in his work on “Third Way” socialism. Shariati contended that Islamic economics should adopt a middle way between Western capitalism and communism. In one of his earliest statements, Khomeini vowed to create an economic system that would improve the lives of the poorest members of society. However, eschewing both the free market and Marxist egalitarianism forced the new regime to pick a variant of the economic system known as neopatrimonialism. In a neo-patrimonial system the ruling elite used public resources to pay off its clients, mostly the poorer sections of the population. 36 Ofira Seliktar and Farhad Rezaei
Khomeini was equally dedicated to exporting the Islamist revolution to the Middle East and beyond. Velayat-e faqih asserted that the mandate of the religious ruler extends beyond Iran to include the entire ummah, the universe of Muslim countries. According to Khomeini, the nation-state was a Western construct and part of the imperial-colonial design, which he considered to be heretical (kufr) in Islam. Liberating the non-Iranian mustazafeen thus required propagating Islam (tabligh-e eslam) and exporting the revolution (sudur engilab). For instance, on January 14, 1980, Ayatollah Khomeini stated: “We are at war against the infidels […] I ask all Islamic nations, all Muslims, to join the holy war. There are many enemies to be killed or destroyed. Jihad must triumph.” In a New Year message on March 21, 1980, he announced that “we must strive to export our revolution throughout the world and must abandon all ideas of not doing so.”1 Among the enemies to be destroyed, Israel was high on the list. Indeed, the Supreme Leader postulated that the Islamist revolution could not be completed without the liberation of Jerusalem. The United States, “the Great Satan,” was not far behind, because it supported the Jewish state. Although there was considerable opposition in the provisional government, Khomeini and his then heir apparent, Ayatollah Ali Montazeri, the so-called “Iranian Trotsky,” pushed for an immediate implementation of sodure enghilab. To get around the government, on April 22, 1979, Ayatollah Khomeini announced the foundation of the Islamic Revolutionary Guard Corps (IRGC), known popularly as the Revolutionary Guards. Ostensibly, the IRGC was limited to domestic operations, but it was quite clear that spreading the revolution was also on the agenda. As Montazeri put it in a talk to IRGC commanders, “You Guardian brothers should protect Islam and the Islamic Revolution, and with your efforts, our Islamic revolution will be exported to other countries.”2 He added, “We want people of the region, affected by the essence of our revolution, to wake up and
1 Yossef Bodansky, Target America & the West: Terrorism Today (New York: S.P.I. Books, 1993), p. 167; Richard J. Leitner and Peter M. Leitner (eds.), Unheeded Warnings: The Lost Reports of the Congressional Task Force on Terrorism and Unconventional Warfare (Washington: Crossbow Books, 2007), p. 193; Shmuel Bar, Iranian Terrorist Policy and Export of Revolution, Institute for Policy and Strategy, Working Paper, 2009. 2 Ayatollah Hossein Ali Montazeri, The Memoir (Iran: KETAB Corp, 2001), p. 565. Iran’s Empire Strikes Back: Lessons from the Soviet Union 37
start their revolutionary movement.” In due time, the IRGC described its mission in transnational terms: “The Islamic Revolution does not have any borders […] The Islamic Revolutionary Guard Corps does not have the word ‘Iran’ in its title. This means that it seeks to defend the Islamic Revolution and its achievements without regard to particular borders.”3 In due time, the Guards created a dedicated foreign operation wing, the Quds Force (QF), which was charged with revolutionary export. In what amounted to a brilliant strategy, the QF sponsored a series of Shiite proxies, starting with Hezbollah in Lebanon. In the early 1990s, the QF encouraged the Palestinian Islamic Jihad (PIJ) and Hamas to launch devastating suicide bombings to undermine the Oslo peace process. After Hamas took over the Gaza Strip, Iran armed the two groups to create a southern front against Israel. The American invasion of Iraq in 2003 provided the IRGG-QF an opportunity to form new militias under the umbrella of Popular Mobilization Forces [al-Ḥashd ash-Shaʿbī]. Ayatollah Ali Khamenei, who inherited the Trotskyite mandate from Khomeini, called the American decision “a gift of God.” According to recently leaked documents, the Iranians managed to penetrate every corner of the Iraqi state. So much so that Major General Qassem Suleimani, the legendary head of the QF, became known as the “viceroy of Iraq.”4 The Arab Spring gave the IRGC-QF leverage in the Gulf area. Ansar Allah, known as the Houthis, a group within the Zaidi-Shiite community in Yemen, challenged the elected government of President Abdrabbuh Mansur Hadi. Having adopted the Anti-Access, Area Denial (A2/AD) plan to block naval traffic in strategic naval passages such as Bab al Mandab, the IRGC-QF decided to back the Houthis. Even more important, helping Bashar Assad survive the civil war in Syria gave the Iranians considerable control over what Hujjat al-Islam Mahdi Taeb, the head of the Ammar Strategic Base – an organization established to promote “soft war tools” and an adviser to the Supreme Leader – called the
3 Nader Uskowi, Temperature Rising, Iran’s Revolutionary Guards and Wars in the Middle East (Lanham, MD: Rowman & Littlefield, 2019), p. 158; Montazeri,The Memoir, p. 565. 4 James Risen et al., “A Spy Complex Revealed: Leaked Iranian Intelligence Reports Expose Tehran’s Vast Web of Influence in Iraq,” The Intercept, November 18, 2019, https://theintercept.com/2019/11/18/iran-iraq-spy-cables/ (Accessed on December 2, 2019). 38 Ofira Seliktar and Farhad Rezaei
35th province of Syria. Three decades after the revolution, the Islamist regime could boast of control of the Shiite Crescent, a Shiite empire that extended from Lebanon to Yemen.5 However, the steady expansion of the Shiite Crescent did not come cheap. Unlike the Western colonies that generated wealth for Great Britain, Spain, and Portugal, the Iranian empire resembled that of the Soviet Union, which invested untold treasures in propping up its dysfunctional satellites. It is virtually impossible to estimate the amount which Iran spent on its proxies. By far, the most expensive was the Syrian expedition, which cost some $15 billion by some estimates. Public displeasure with the extravagantly costly foreign adventures has surfaced on many occasions. For instance, during the riots in 2018, the mobs chanted, “Leave Syria [alone], Think about us.” [Soryeh ro Raha Kun, Fekri be Hale Ma Kun]. In 2019, an increase in gas prices prompted by the sanctions spurred widespread protests in 100 cities. Chanting “No Gaza, No Lebanon, I will die for Iran,” [Na Ghazeh Na Lobnan, Janam Fadaye Iran], protestors demanded to terminate interventions abroad. More interestingly, critics of the Supreme Leader and the Guards pointed out that expanding dominance in the Middle East clashed with Khomeini’s original vow to help the mustazafeen.6 Much as the direct cost of maintaining the proxies hurt the mustazafeen project, it was the consequences of launching a nuclear program that put an end to Khomeini’s ambitious vision to create a prosperous Islamic society dedicated to the wellbeing of its members. In the mid-1980s, Ali Khamenei and other revolutionary exporters determined that nuclear weapons would provide deterrence against kinetic actions by the United States and regional actors upset about Iran’s expansionism. In 2002, the secret project was exposed, triggering a wave of increasingly harsh sanctions that culminated with the comprehensive sanction regimen, which the P5+1 (Germany, Great Britain, France, Russia, China, and the United States) imposed in
5 Asriran, Chief of Amar Base, “Syria is the 35th province of Iran”, Asre Iran, February 14, رئیس-قرارگاه-عمار-سوریه-استان-سی-و-پنجم-است-اگر-دشمن-/www.asriran.com/fa/news/257730 ,2013 بخواهد-سوریه-یا-خوزستان-را-بگیرد-اولویت-حفظ-سوریه-است-حتریم-ها-مثل-قبل-نیست 6 Fash News, “Leave Syria and No Gaza No Lebanon”, www.fashnews.ir/fa/news-details/59797/ Iran’s Empire Strikes Back: Lessons from the Soviet Union 39
2012. Known as “smart sanctions,” the regimen tested the very limits of the legitimacy of the regime.7
Wellbeing and Sanctions in a Neopatrimonialism System: Threshold for Delegitimization
Unlike the dictatorships of North Korea, Nazi Germany, or the Soviet Union under Stalin, which relied on brutal power to maintain the public order, the Islamic Republic aspired to create a veneer of legitimacy for its rule. The regime used a sophistically calibrated system of neo-patrimonial incentives and selective coercion to keep the population quiescent. After all, how could Iran claim to be the embodiment of Khomeini vision, if it looked like North Korea incarnated? As a rentier state with huge oil reserves, Iran could maintain the veneer of legitimacy. However, the sanctions that reduced Iran’s ability to sell oil devastated the economy. Oil sales, which accounted for about 60 percent of the government revenue, were cut in half. The GDP contracted by a cumulative 8.6 percent during 2012-2014, declining from a peak of $514 billion to $342 billion. Inflation rose from about 12 percent in late 2010 to around 37.39 percent in 2012, and over 50 percent in early 2013; the drop in the rial value accelerated the inflation. The IMF’s global inflation index had Iran at the top with a rate of 45 percent during the first three months of 2013; it reached 56 percent during the last three months of 2013. Many economists, however, asserted that the actual inflation level was closer to 71 percent.8 The unemployment rates were equally abysmal: by March
7 Farhad Rezaei, Iran’s Nuclear Program: A Study in Proliferation and Rollback (New York: Palgrave Macmillan, 2016). 8 Trend, “Controlling inflation in Iran impossible under sanctions,” Trend.az, November 19, 2013, http://en.trend.az/regions/iran/2213172.html; Trend, “International Monetary Fund predicts Iran’s GDP to shrink current fiscal year,” Trend.az, November 12, 2013, http://en.trend.az/ capital/business/2210400.html; ISNA, “Tavarom 56 Darsadi dar Tehran ‘56 Inflation Rate in Tehran,’“ Iranian Students News Agency, April 25, 2014, www.isna.ir/fa/news/92061609566/; Steve H. Hanke, “Iran: Down, But Not Out,” Cato.org, September 14, 2012, www.cato.org/ publications/commentary/iran-down-not-out (Accessed on December 2, 2019). 40 Ofira Seliktar and Farhad Rezaei
2013, 12 million people were out of work, roughly 12 percent of the workforce. Some observers, however, suggested that the number was 17 percent.9 At the collective level, the distress suffered by the population manifested itself in the so-called misery index, which measures the wellbeing of a population in a given country. The popular modified misery index is calculated from the rates of unemployment, inflation, and bank lending rates, minus the percentage change in real GDP per capita. The Iranian misery index escalated from 38 percent in 2010 to 76.21 percent in 2013, second only to Venezuela, which stood at 79.4 percent.10 Although the misery construct, devised by the economist Arthur Okun, tried to probe the human condition based on a wellbeing-misery range, it has used hard economic data to create the index. But the political scientist Samuel Huntington who studied the process of regime delegitimization and change, famously argued that “legitimacy is a mushy concept,” in the sense that aggregate economic data was not sensitive enough to indicate when economic hardship would bring a government down. Deciphering delegitimizing undercurrents is especially hard in authoritarian regimes such as Iran, which work tirelessly to create an edifice of legitimacy through constant and lavish public displays of support and assiduous suppression of dissent.11 Sociologists and anthropologists specializing in the study of political change have offered insight into how a crisis of legitimacy may develop. The psychological construct of eudaimonia, a Greek term commonly translated as a state of wellbeing, is at the core of the process. Three different estimates drive a
9 Ettela’at, “Nerkhe Bikarye Javanan Dar Marhaleye Bohran Ast” (Unemployment Rate is in Crisis Phase), October 25, 2013, www.ettelaat.com/ etiran/?p=26059 (Accessed on December 2, 2019). 10 Entekhab, 2013, “Mirase Ahmadinejad baraye Rouhani”; “183 Hezar Miliard Bedehi” [Ahmadinejad Legacy for Rouhani; 183 billion Toman Debt], Entekhab.ir, October 19, 2013, www.entekhab.ir/fa/news/133469/; Ettela’at, “Nerkhe Bikarye Javanan Dar Marhaleye Bohran Ast” (Unemployment Rate is in Crisis Phase), October 25, 2013, www.ettelaat.com/ etiran/?p=26059 (Accessed on December 2, 2019); Steve Hanke, “Measuring Misery around the World,” Cato.org, April 24, 2014, www.cato.org/publications/commentary/measuring- misery-around-world (Accessed on December 2, 2019). 11 Samuel Huntington, The Third Wave: Democratization in the Late Twentieth Century (Norman: University of Oklahoma Press, 1991). Iran’s Empire Strikes Back: Lessons from the Soviet Union 41
sense of wellbeing: an individual’s evaluation of his or her economic standing; comparison with the economic standing of a reference group or groups; and being aware of the economic entitlements embedded in the distributive justice perimeters of the political system. The noted nineteenth-century sociologist Emil Durkheim postulated that after experiencing a negative sense of wellbeing, individuals develop anomie, defined as behavior at odds with the normative parameters of the collective belief system. Durkheim used suicide rates to prove his theory, but other out-of-norm behaviors such as murder, theft, drug use, alcoholism, divorce, and domestic violence have been subsequently adopted.12 Scholars who studied the seemingly sudden collapse of the Soviet Union discovered that the system was riddled with a high level of anomie and dysfunctional behavior. As Gorbachev would later recall, “we could not go on like this.” Significantly, his first step was to cut down on endemic alcoholism and theft before launching perestroika.13 By all accounts, the level of anomie rose sharply after the imposition of sanctions, as reflected in key statistics such as homicide, suicide, and divorce rates. The rate of HIV and AIDS infections, once a closely guarded secret, have gone up from the base number of 9,000 to 80,000, nine-fold since 2002, an 80 percent annual increase. Drug addiction, another early taboo, had expanded from 2 percent before 2012 to 8 percent in 2014. With several surreptitiously filmed accounts making the rounds on the Internet, the squalid lifestyle of drug addicts attracted public attention at home and abroad.14
12 Emile Durkheim, Suicide: A study in sociology, Translated by John A. Spaulding and George Simpson (New York: Routledge, 2005). 13 Ofira Seliktar, Politics, Paradigms, and Intelligence Failures: Why So Few Predicted the Collapse of the Soviet Union (Armonk, NY: M.E. Sharp, 2004), p. 79 [Interview with Reuters, October 18, 2019]. 14 Shahrvand Newspaper, “Drugs Damage to the Economy is 40 Billion Tomans Annually,” موادمخدر-ساالنه-40 هزارمیلیارد-تومانبه-/July 26, 2015, shahrvand-newspaper.ir/News/Main/35429 Saeed Khamali Dehghan, “Iran Aims to Ban Vasectomies and Cut Access ;اقتصاد-آسیب- میزند to Contraceptives to Boost Births,” The Guardian, March 10, 2015, www.theguardian.com/ world/2015/mar/11/iran-ban-voluntary-sterilisation-contraceptive-access-block-boost- population (Accessed on December 2, 2019); The Guardian, “Iran Sees Dramatic Rise in HIV Infections,” December 2, 2013, www.theguardian.com/world/2013/dec/02/iran-rise-hiv (Accessed on December 2, 2019). 42 Ofira Seliktar and Farhad Rezaei
Incidences of sexually transmitted diseases (STDs), less publicized statistics, had a significant impact on fertility rates. Studies found a very high level of STDs, notably chlamydia, fueled by an upsurge of casual sex. Experts blamed it on the institution of sigha, a form of temporary marriage which parties could contract for as little as a few hours. Both the frequency of sigha, as well as the number of prostitutes, have increased dramatically, causing the chlamydia epidemic. Experts noted that chlamydia was among the factors behind the dramatic decline in birth rates − from seven children per woman in 1979 to just 1.6 children in 2012. As one commentator put it, “never before in recorded history has the birth rate of a big country dropped so far and so fast.” Ahmadinejad, in one of his dramatic flourishes, accused women who declined to bear children of “genocide against the country.”15 Media coverage reinforced the sense of growing social gloom. Dr. Saeed Mo’ayedfar, head of Iran’s Sociological Association, argued that “due to the worsening economic situation, our society is facing anomie to the extent that nowadays having 10,000 Toman ($3) in the pocket causes the risk of extortion. This should raise the alarm, and we should be ready for social crises and more crimes.” In an interview with the Arman newspaper, Mustafa Eqlima, president of Iran’s Social Workers Association, noted that “predicting [the rate] of anomie and social crisis, which may happen in the new year, is not a difficult task. We will be faced with increasing anomie, such as a high number of divorces, a decreasing marriage rate, as well as a growing rate of addiction, robbery, and other social abnormalities and crises. The source of all these crises is the country’s worsening economic situation.” Social workers were particularly alarmed at the anomic behavior of the younger cohorts (15 to 35 years) whose unemployment level stood at some 30 percent. Bereft of prospects, young people were more likely to find themselves in the ranks of drug addicts and criminals.16
15 Ibid; “Temporary marriage,” The Telegraph, June 18, 2011, http://my.telegraph.co.uk/ hatefsvoiceofpeace/hatefsvoice/40/temporary-marriage/#more-40; Aftab, “Dramatic Increasing of Prostitution Rate in Iran,” June 12, 2011, http://aftabnews.ir/vdceeo8z7jh8wzi.b9bj. html; David Goldman, “STD’s and Strategy in Iran,” Asian Times Online, January 30, 2015, www.atimes.com/atimes/Middle_East/MID-02-300115.html 16 Alef.ir, “Political and Economic Crises are the Roots of Crimes,” February 7, 2013, http://alef.ir/vdcezf8zxjh8fvi.b9bj.html?177813; Arman Newspaper, “Economic-Political Iran’s Empire Strikes Back: Lessons from the Soviet Union 43
For a regime that reveled in lambasting the “decadent culture” of the West, these statistics were particularly distressing. Even more alarming to the elites was the sense that anomic behavior caused by sanctions was a real threat to the survival of the regime. The Ministry of Culture and Islamic Guidance was careful to censure any linkage of anomie to a crisis of legitimacy. Still, the Supreme Leader was concerned enough to enter the nuclear negotiations, which led to the Joint Comprehensive Plan of Action (JCPOA), signed in 2015. President Trump’s May 2018 decision to withdraw from the nuclear agreement and the subsequent imposition of sanctions has returned the Iranian economy to its pre-2015 state. Trump’s administration has ended sanctions exemptions that it previously granted to Iran’s oil customers, and as a result, brought Iran’s oil exports to 100,000 barrels per day. The currency has experienced a sharp devaluation, dropping to its lowest point and traded at 156,500 to the US dollar.17 Thanks to the rial devaluation, Iran’s inflation jumped to 48 percent in 2018, and so did the Misery Index score, moving the country from 11th rank in 2017 to the 3rd most miserable country in 2018. Levels of STDs, HIV/AIDS, drug use, and violence have also risen; the rate of HIV/AIDs infections alone shows a staggering annual growth of 80 percent. Drug use has doubled since 2011, and divorce increased 57 percent in 2017-2018, reaching 175,000, the highest rate in the history of the conservative society. Corruption, a long-time
Problems are Roots of Crimes,” April 4, 2014, http://armandaily.ir/; Kaveh Ghoreishi, “Violence became culture,” Rooz Online, June 22, 2012, www.roozonline.com/persian/news/newsitem/ article/-0f392b7340.html; Mehr News Agency, “There are 16 Divorces per Hour,” March 10, 2013, www.mehrnews.com/news/2010874/; Trading Economics, “Iran Youth Unemployment Rate 2011-2015,” 2015, www.tradingeconomics.com/iran/youth-unemployment-rate (Accessed on December 2, 2019); Quandl.com, “Iran, Islamic Rep.: Unemployment, youth total (% of total labor force ages 15-24),” February 19, 2015, www.quandl.com/data/ WORLDBANK/IRN_SL_UEM_1524_ZS-Iran-Islamic-Rep-Unemployment-youth-total-of- total-labor-force-ages-15-24 17 Alex Lawler, “Hit by Sanctions and Rising Tensions, Iran’s Oil Exports Slide in July,” Reuters, July 30, 2019, www.reuters.com/article/us-oil-iran-exports/hit-by- sanctions-and-rising-tensions-irans-oil-exports-slide-in-july-idUSKCN1UP1UD (Accessed on December 2, 2019); Radio Farda, “Iran’s Currency Continues Downward Trend, Impacted By Nuclear Decision,” May 9, 2019, https:// en.radiofarda.com/a/iran-s-currency-continues-downward-trend-impacted- by-nuclear-decision/29930597.html (Accessed on December 2, 2019). 44 Ofira Seliktar and Farhad Rezaei
scourge of the economy, has skyrocketed, forcing the regime to proclaim an anti-corruption campaign.18 The new round of sanctions could not have come at a less convenient time. In 2010, the Iranian parliament, the Majlis, passed the targeted subsidies reform plan. The goal of the plan was to replace subsidies on food and energy, among the highest in the world, with targeted social assistance, in order to move to a free market. Numerous experts argued that the subsidies, estimated at some $100 billion a year, distorted the economy and created waste, and in some cases spurred criminal activity, such as gas smuggling across the border. In the face of public resistance, the government hesitated to implement the reform. When, at the end of 2019, President Hassan Rouhani, squeezed by the sanctions, was forced to cut the subsidies on gasoline – raising the price of a liter of gas from 10,000 rials to 30,000 rials – the country erupted in a massive protest. Protesters set on fire 34 ambulances, 731 banks, nine religious centers, 70 gas stations, 307 cars, 183 military vehicles, and 1,076 military motorcycle. The government responded by using violence, and according to inside sources, 366 people were killed by the security forces.19 Commentators noted that, compared to previous cycles of protest, the new riots were more violent and included the lower classes, normally the most reliable supporters of the regime. Testifying to the magnitude of the threat, the authorities shut down the Internet for five days, causing an estimated $300 million loss to the economy. There is little doubt that the regime would put down the current rebellion, except for the poor future prospects for the overextended Iranian empire. As the Soviet case showed, imperial overreach creates negative economic externalities, defined as a condition
18 Steve Hanke, “Hanke’s Annual Misery Index 2018: The World’s Saddest (and Happiest) Countries,” Cato.org, www.cato.org/publications/commentary/hankes-annual-misery-index- 2018-worlds-saddest-happiest-countries (Accessed on December 2, 2019); Mehr News ثبت-/Agency, “175 Thousand Divorce Cases Registered,” www.mehrnews.com/news/4679428 /Drug Use Doubled since 2011,” DW, www.dw.com“ ;۵۵۰-هزار-ازدواج-و-۱۷۵-هزار-طالق-در-سال۹۷- a-43140602 (Accessed on December/شمار-معتادان-ایران-به-نسبت-سال-۹۰-دو-برابر-شده-است/fa-ir 2, 2019). 19 Eghtesad Online, “How Much it Cost to Rebuild the Fired Banks,” www.eghtesadonline.com/ بخش-بانک-398046/5-بازسازی-بانک-های-آسیب-دیده-در-اغتشاشات-چقدر-هزینه-دارد Iran’s Empire Strikes Back: Lessons from the Soviet Union 45
where the marginal cost exceeds the marginal benefit to society. Among the many Iranian externalities, two stand out – the banking system and water management.
The Banking System on the Verge of Collapse: The Cost of Propping Up Terror Proxies
When running for office in 2013, President Hassen Rouhani promised to reform the economy ravaged by years of mismanagement, corruption, populist policies, and sanctions. Indeed, the hope of economic betterment drove the widespread support for the nuclear deal. Within days of signing the JCPOA, Rouhani announced in an open letter to First Vice President Eshaq Jahangiri his intention to heal the economy by focusing on the banking system. In the intricate political discourse in Tehran, this very public declaration signaled the government’s determination to deliver the “peace dividend” on the nuclear agreement. After analyzing the systemic problems, the administration concluded that the cornerstone of the economic recovery should be a reform of the banking system, which had operated for decades “with low capital adequacy requirements and inadequate regulatory and supervisory mechanisms.” As a result, the banks have been hobbled with a large inventory of nonperforming loans and have lacked capital for extending credit to businesses. Veliollah Seif, the then governor of Iran’s Central Bank, commented that the financial mismanagement left the country’s financial system in “tatters.” The Banking Overhaul Plan, signed into law by Rouhani in July 2016, was designed to remedy the situation. An official government website promised “to get financing for short and medium-term projects back on track, provide a cash cushion to tackle bad loans, promote competition, reorder the money market by regulating the army of uncertified credit and financial institutions, and to increase banks’ lending power by raising their capital.”20
20 Financial Tribune, “Rouhani Signs Banking Loan into Law,” July 2, 2016, financialtribune. com/articles/economy-business-and-markets/44712/rouhani-signs-banking-reform-plan-law (Accessed on December 2, 2019). 46 Ofira Seliktar and Farhad Rezaei
Much as the law was urgently needed, it did not go far enough to secure foreign investment, known as Foreign Direct Investment (FDI). Indeed, Rouhani hoped to cash in on the JCPOA’s promise of FDI, especially as the country’s critical oil and gas sectors had severely degraded under years of mismanagement and sanctions. But, as Seif put it, the Iranian banks are outdated for attracting FDI because they are “behind international norms and standards.” The Central Bank governor’s somewhat oblique reference pertained to the 1999 UN International Convention on the Suppression of the Financing of Terrorism.21 It was also a reminder that the banking system catered to the extensive financial holdings of the IRGC, which got Iran placed on the US list of countries sponsoring terrorism. Enacted in response to the growing threat of terror, the Convention aimed to bloc banks from laundering money of the terror groups. Soon after, the Financial Action Task Force (FATF), an international watchdog, was created to monitor compliance with the Convention. On February 19, 2016, the FATF described itself as “particularly and exceptionally concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.” In addition to advising member states to guard against all transactions with Iran, the FATF also recommended that members continue to apply counter-measures, such as enhanced due diligence on transactions and systematic reporting requirements.22 FATF’s strong language was a clear sign that Iran would not be able to access the FDI investment market without joining the Convention, renamed the Terrorist Financing Convention (TFC). On August 4, 2015, Majlis voted to join the TFC. On March 5, 2016, the Guardian Council approved the TFC legislation, paving the way for a membership application. As a rule, states participating in the TFC have been required to enact national legislation that criminalizes acts of terrorist financing.23
21 Ibid. 22 FATF, “FATF Public Statement – February 16, 2016,” www.fatf-gafi.org/publications/ high-riskandnon-cooperativejurisdictions/documents/public-statement-february-2016.html (Accessed on December 2, 2019). 23 Iran Economist, “Oil Industry Needs 200 Billion Dollars Investment,” May 8, 2016, زنگنه-صنعت-نفت-به-200-میلیارد-دالر-سرمایه-گذاری-در-برنامه-/iraneconomist.com/fa/news/106721 ششم-نیاز-دارد Iran’s Empire Strikes Back: Lessons from the Soviet Union 47
Unsurprisingly, the Revolutionary Guards unequivocally opposed such legislation, but the post-JCPOA period presented them with some complex choices. Over time, the Guards evolved from a strictly military organization into a leading economic and political entity. President Ali Akbar Hashemi Rafsanjani’s privatization policy let the IRGC take control of several confiscated companies and established their signature Khatam al-Anbiya Construction Headquarters. They have subsequently branched out into agriculture, mining, telecommunication, transportation, and import and export services.24 Mahmoud Ahmadinejad, who came to power with the help of the Guards, dramatically increased their economic standing. More than half of his cabinet members were either IRGC veterans or people with ongoing ties to the organization. The Guards were awarded hundreds of no-bid government contracts and billions of dollars for construction and energy programs.25 To mask their extensive economic empire, the IRGC eschewed the traditional “pyramid ownership structure” in favor of an elaborate network of hundreds of nominally private companies normally run by Revolutionary Guards veterans, or subsidiaries which own shares in other companies. The total number of parastatal companies is thus challenging to estimate. For example, based on registered companies on the Tehran Stock Exchange (TSE), the Guards are the major stock owners of approximately 250 major companies out of the 700 companies listed. Of the 36 banks and major financial intuitions, some 12 are said to be owned or related to the IRGC.26 As a large stakeholder in the economy, the Revolutionary Guards shared the Rouhani’s desire for an infusion of foreign capital, especially in the oil, gas, and mining sectors. Their lease on the gigantic South Pars field would require intensive investment. According to the Bijan Namdar Zangeneh, Iran would need $200 billion in foreign investment to develop its oil industry. The minister
24 Farhad Rezaei and Somayeh Khodaei, “The Revolutionary Guards: From Spoiler to Accepter of the Nuclear Agreement,” British Journal of Middle Eastern Studies, Vol. 45, No. 2 (2018), pp. 138-142. 25 Ibid. 26 Ibid. 48 Ofira Seliktar and Farhad Rezaei
estimated that $130 billion was needed for exploration and extraction projects, and $70 billion for crude processing and marketing.27 However, revealing the identity of this extensive network of holdings, as FATF required, would have jeopardized the IRGC’s control of an estimated one-third of the economy. Ali Jafari, the then chief of the Guards, took a hardline stance. He called for sticking with the “resistance economy,” a policy of total economic self-reliance, to “sanction-proof” Iran. In spite of the public posturing, the behind- the-scenes maneuvering revealed a more nuanced reality. On the terror financing, the government essentially presented the Revolutionary Guards and the Supreme Leader with a fait accompli. On June 12, 2016, Iran joined the Eurasian Group, a FATF-style regional body, which was expected to aid with the implementation of the anti-laundering laws. The British authorities helped three banks – Persia International Bank, Melli Bank, and Sepah Bank International – to make them FATF- compliant. The latter two banks, once the premier outlets for illicit transactions, announced that they would not service the Guards accounts, including that of the giant construction concern Khatam Al Anbiya.28 Some Tehran insiders predicted that the Rouhani administration would force other banks to comply with FATF- style policies, limiting the Revolutionary Guards’ access to banking services.29 Rouhani’s drive to reform the banking system, however, was short-lived, not least because hard-liners in the Majlis refused to approve key legislation to satisfy FATF. Government officials complained bitterly about the legal obstacles to the banking reform. Deputy Foreign Minister Abbas Araghchi noted, “Inside the country, there are some holes and weaknesses in banking networks, which unfortunately facilitate terrorist groups and drug-smuggling […] Without international cooperation and
27 Zangeneh: Oil Industry Needs 200 Billion Dollars Investment. 28 Fars News Agency, “Iran Joined the Eurasian Group,” June 12, 2016, www.farsnews.com/13950323000767; Martin Arnold, “British Regulators Help Iranian Banks Come in from the Cold”, Financial Time, January 31, 2016, www.ft.com/cms/s/0/54144ec2- c692-11e5-b3b1-7b2481276e45.html (Accessed on December 2, 2019). 29 Aftab News Agency, “Government under Attack for Implementing FATF,” September 6, 2016, -حمله-بهدولت-بخاطر-اجرای-قانون-موردتأیید-مجلس-و-شورای-نگهبان/www.aftabnews.ir/fa/news/394086 Bartarinha, “What the FATF Solicitous (Delvapasan) are Looking ;چیست-و-میراث-کیست-fatf به-دنبال-چه-هستند-fatf-دلواپسان/for?” September 23, 2016, www.bartarinha.ir/fa/news/391877 Iran’s Empire Strikes Back: Lessons from the Soviet Union 49
joining international conventions, it is impossible to confront it.” Government spokesman Mohammad Baqer Nobakht warned that if FATF-related legislation is not approved, “Iran’s enemies can accuse the Islamic Republic of funding terrorism, but if Iran joins the international treaty, it can defend itself against such allegations.”30 Hardliners responded by painting FATF as a US-controlled entity that sought to interfere in financial transactions of the Islamic Republic in order to weaken Iran’s relationships with “resistance groups” such as Hamas, Hezbollah, and the Yemeni Houthis. Kayhan Newspaper, a mouthpiece of Supreme Leader Ayatollah Ali Khamenei, wrote that “the first and final word of the global arrogance [the US] hidden in the language of the FATF is that Ansarullah [Houthis] of Yemen, Palestinian militant groups, Lebanese Hezbollah, oppressed Myanmar Muslims, Syrian and Iraqi Hashed Al-Shaabi [Shi’ite militias] are terrorist and we should not fund them.” The daily warned that “FATF is nothing less than accepting the humiliating JCPOA.2.”31 Similarly, Tasnim News Agency, an outlet close to the Revolutionary Guards, wrote that the global institutions such as FATF and the International Monetary Fund are fully controlled by the US and its European allies and are seeking to “put an end to Iran’s ties to resistance groups.” On June 20, Khamenei himself weighed in, siding with the conservatives. While acknowledging positive aspects of the FATF convention, he questioned adopting measures without knowing “where they lead.” As he put it, “We do not need to approve treaties that have problems, [to be approved] for their positive aspects.” Mohammad Reza Tabesh, deputy of the Majlis Hope Fraction, told Sharq Newspaper that members of parliament had received threats warning them against adopting the convention.32
30 Mehr News Agency, “Risk of ISIS Using Iran’s Financial System,” www.mehrnews.com/ خطر-استفاده-داعش-ازسیستم-مالی-ایران-قدرت-نظامی-ما-مهارناپذیر/news/3807468 31 Kayhan Newspaper, “No Reason for Changing the Law of Terrorist Financing Act,” هیچ-توجیهی-برای-تغییر-قانون-مبارزه-با-تامین-مالی-تروریسم-وجود-/www.kayhan.ir/fa/news/134012 نداردخبر-ویژه 32 Tasnim News Agency, “We should Surrender Qassem Suleimani if the FATF Law is Passed,” -نبویان-در-گفتگو-با-تسنیم/June 1, 2019, www.tasnimnews.com/fa/news/1397/03/20/1745903 Accessed on December 2, 2019); Shargh) تصویب-شود-باید-قاسم-سلیمانی-ها-را-حتویل-دهیم-fatf Newspaper, “The Dossier of Environmental Activists is Waiting for the Court Decision,” پرونده-فعاالن-محیط-زیست-در-انتظار-تصمیم-دادگاه/www.sharghdaily.ir/fa/main/detail/189697 50 Ofira Seliktar and Farhad Rezaei
To put more pressure on the Majlis, the Basij organized a public protest against the FATF legislation in the Majlis. Orchestrated by Basij, the public rallies brandished banners criticizing a vote for banking reforms as a “self-sanction” that would lead to the arrest of Qasem Soleimani, the QF chief. One banner read that “my representatives […] will not let [Rouhani] hand over Suleimani handcuffed.” The Basij militia distributed a flyer warning that by joining FATF, “our ability to support Syria, Iraq, and Hezbollah will diminish.” Friday prayer leaders in Tehran, Mashhad, and other cities also attacked supporters of the legislation. Ahmad Khatami, the hardline Friday prayer leader in Tehran, reminded his audience that “under the guise of fighting the terrorists, the FATF will be monitoring all Iranian actions.” According to Khatami, “FATF is the window for the entrance of those traitors that we expelled from the country 40 years ago.”33 FATF’s response was predictable. It warned Iran to pass the law stalled in Majlis before February 2019. A statement by the organization noted that, should the legislation fail, FATF would impose strong counter-measures against Iranian banks. In other words, all the members of the TFC would refrain from investing in the country. Foreign businesses rushed to declare that they would not invest without compliance with FATF.34 In a gesture of defiance, hardline leaders rejected the FATF ultimatum, and vowed not to succumb to international pressure. However, experts asserted that without a functioning banking system, the Iranian economy would be doomed to collapse in a few short years.
33 Farhad Rezaei, “Iran Postpones Key Bank Reforms over Fate of the Iran Deal,” Atlantic Council, June 20, 2018, www.atlanticcouncil.org/blogs/iransource/iran-postpones-key-bank- reforms-over-fate-of-the-iran-deal/ (Accessed on December 2, 2019). 34 Reuters, “Global Watchdog Gives Iran until February 2020, to Tighten anti-Money Laundering Rules,” October 18, 2019, www.reuters.com/article/us-fatf-iran/global-watchdog-gives-iran- until-feb-to-tighten-anti-money-laundering-rules-idUSKBN1WX167 (Accessed on December 2, 2019). Iran’s Empire Strikes Back: Lessons from the Soviet Union 51
Running on Dry: Resistance Economy Runs into Water Scarcity
Well before the current round of sanctions, the regime had embarked on increasing its food self-sufficiency. Sources familiar with Tehran’s strategic planning revealed that the decision was made out of fear that the United States and its allies could use food as a tool to roll back the revolutionary zeal of the regime. As a result, the IRGC included wheat and other staples in the list of strategic foods. The authorities ordered a boost in wheat production, and, on October 22, 2018, Esmaeil Esfandiari, a spokesman for the Ministry of Agriculture, announced that Iran had reached wheat self-sufficiency and had even become a net exporter.35 It is not clear whether this statement can be taken at face value since Iran’s water problems are well known. As early as two decades ago, hydrologists warned that the government needed to adopt a robust water management plan to stave off future problems in the country. Experts noted that Iran relied too heavily on rainfall, and used the archaic irrigation method. Climate change exacerbating water scarcity, combined with a lack of advanced management techniques, created a severe water crisis. In recent years there was a dramatic decline in annual precipitation levels; in 2018 alone, the rainfall decreased by 20 percent. This amounted to a reported reduction of surface water; in the dams alone, the amount went down by 33 percent, from 32 billion cubic meters (BCM) of surface water in 2017 to 25 BCM in 2018. Since the agricultural sector consumes 92 percent of renewable water (as opposed to the standard 70 percent in most countries), this threatens the agricultural sector. Wheat production is especially vulnerable as it relies on irrigation from rainfall and the dammed reservoirs. Farmers have compensated for the shortages by digging illegal wells, a process that has contributed to the degradation of the aquifers. According to government statics, some 4.7 BCM of water is being withdrawn illegally, in addition to the 42 BCM which is pumped
35 Mehr News, “Iran Reached Wheat Self-Sufficiency and even Became a Net Exporter,” تولید-گندم-در-کشور-به-پایداری-رسید-چهارمین-سال-خودکفایی/www.mehrnews.com/news/4629957 52 Ofira Seliktar and Farhad Rezaei
legally. Further illegal tapping of water could irrevocably degrade the aquifers. Indeed, in its sixth development plan (2012–2016), the government proposed to curtail withdrawal of ground water by 11 BCM, a goal that was not realized.36 In 2016, the Majlis Research Center published a critique of the water management system. The report stated that the efficiency of water usage is half of the international norm, and that there was an overreliance on dams, to the detriment of other delivery systems such as irrigation systems, artificial watersheds, and drainage networks. President Hassan Rouhani tried to reverse reliance on dams by halting the construction of 14 dams and by ordering the construction of underground pipelines less prone to evaporation. However, the IRGC construction company, Khatamal Anbya, lobbied against the plan to save its monopoly on dam building. Critics pointed out that the IRGC dams were poorly built, leading to evaporation and reabsorption of the water into the ground.37 The water shortage is bound to adversely impact plans for self-sufficiency in wheat production, one of the five most water-intensive crops. However, the situation has repercussions that reach far beyond agriculture. Iran’s hydroelectric output has been cut, affecting its relations with Iraq, which has been one of its customers. With increasing salinity and contamination from untreated effluence, potable water for urban use and industry has been affected as well. Experts have calculated that billions of dollars would be needed to address these challenges, an amount that is beyond the capability of the government, besieged as it is by sanctions. Even if sanctions are lifted, there is little chance that the revolutionary exporters would be willing to give up on their hugely expensive imperial outreach. Unlike other problems such as banking, water scarcity versus revolutionary export presents the ultimate built-in contradiction of Khomeini’s vision. As experts warned, the desertification of large swaths of Iran would trigger a migration of rural migrants to urban areas. A 2017 United Nations report on Iran stated, “Water shortages are acute; agricultural livelihoods no longer sufficient. With few other
وضعیت-سدها-/ISNA, “The Condition of the Dams is Critical,” www.isna.ir/news/97062311707 36 بحرانی-است 37 Persia Digest, “Majlis Report about the Consequences of Water Crisis in Iran,” گزارش-مجلس-از-پیامدهای-بحران-آب-در-ایران/https://persiadigest.com/fa/news/6094 Iran’s Empire Strikes Back: Lessons from the Soviet Union 53
options, many people have left, choosing uncertain futures as migrants in search of work.”38 Issa Kalantari, a former Minister of Agriculture, stated that the “water crisis is the main problem that threatens” Iran, adding that it is more dangerous “than Israel, the USA, or political fighting among the Iranian elite.” If the water issue is not addressed, Iran could become “uninhabitable.” If this situation is not reformed, in 30 years Iran will be a ghost town. Even if there is precipitation in the desert, there will be no yield, because the area for groundwater will be dried up, and water will remain at ground level and evaporate.”39 Since the severity of the crisis can vary according to annual precipitation, it is impossible to predict the actual number of potential migrants. Some analysts have contended that a worst case scenario might force out some forty million people in the next thirty years. In the past two years, water-related riots broke out around the country, only to be put down by the IRGC and Basij. However, an upheaval of the magnitude that some have predicted would not only be beyond the coercive power of the state, but would doom the regime.
Conclusion
During the fortieth anniversary of the Islamist revolution in January 2019, the Iranian leaders expressed great pride in their Shiite Crescent Empire stretching from Lebanon to Yemen. They were especially buoyed by the victory of the Assad dynasty in Syria, which gave them a free hand to create a bridge to Lebanon and open a new front against Israel. Less than a year later, these gains seem to be in jeopardy: There have been anti-Hezbollah protests in Lebanon, anti-Iran
38 “Iran: Communities Conquer Dust and Drought, Helping Themselves and the Environment,” UNDP, June 6, 2017, www.ir.undp.org/content/iran/en/home/presscenter/articles/2017/06/06/ iran-communities-conquer-dust-and-drought-helping-themselves-and-the-environment.html (Accessed on December 2, 2019). 39 Asre Iran, “The Seriousness of Water Crisis in Central, East and South Areas of the Country,” جدی-شدن-بحران-آب-در-مناطق-مرکزی-شرق-و-جنوب-کشور-مهاجرت-/www.asriran.com/fa/news/494573 50-میلیون-ایرانی-تا-25-سال-آینده 54 Ofira Seliktar and Farhad Rezaei
riots in Iraq that forced the Tehran-imposed prime minister out of office, and a gradual strengthening of the legitimate Yemeni government at the expense of the Houthis. Much of the IRGC-QF infrastructure in Syria has become vulnerable to Israeli attacks, adding to millions of dollars’ worth of materials lost or damage already sustained. But it is the erosion of domestic support that has put the regime in real danger. A new generation of Iranians is far less accepting of the velayat-e faqih political theology and downright resentful when it comes to supporting the Shiite empire. The sanctioned-crippled economy has triggered an underlying crisis of legitimacy manifested in anomic behavior of the type prevalent in the former Soviet Union. Although the hardliners are not likely to embark on a Gorbachev-style perestroika, the inherent contradictions between redeeming the mustazafeen and exporting the Islamist revolution would ultimately doom the regime.
About the Authors
Prof. Ofira Seliktar is Professor Emeritus of Political Science at Gratz College in the United States.
Dr. Farhad Rezaei is a research fellow of the Center for International Policy Studies (CIPS) at the University of Ottawa.