By: FISN Research Team Led by Dr. Hossein Jahansouz, Biochemist and a Leading Scientist and Industry Executive in the United States for Over Three Decades
July 2025
Picture: Siman Steel Industries in Siman, Iran
1. Abstract
Iran’s industrial decline is often attributed to international sanctions and geopolitical isolation. However, the root cause lies within: the militarized economic domination of the Islamic Revolutionary Guard Corps (IRGC). Over the past three decades, the IRGC has evolved into an expansive economic empire, controlling vast segments of Iran’s oil, gas, construction, telecommunications, mining, banking, and heavy industry sectors. This monopolistic structure—fueled by political favoritism, opaque no-bid contracts, and systematic exclusion of the private sector—has hollowed out the country’s productive base.
This paper explores how the IRGC’s rise to economic supremacy has led to inefficiency, corruption, and the destruction of industrial competitiveness. Using sector-specific data, it documents the mismanagement of infrastructure projects, smuggling and sanctions evasion networks, and financial capture that has displaced independent firms and undermined economic mobility. It presents three emblematic case studies: the South Pars gas field, Tehran Metro Line 7, and nationwide dam construction—all of which reveal the IRGC’s pattern of rent extraction, delay, and strategic failure.
The report further examines the social consequences of this system: the collapse of job markets, brain drain, protests in marginalized provinces, and deepening regional inequality. It concludes by outlining structural reforms essential for dismantling this militarized economic architecture and restoring transparency, meritocracy, and sustainable industrial growth.
2. Introduction: The Militarized Economy
Iran’s economic system is neither a free market nor a conventional state-run model. It is a hybrid structure shaped by revolutionary ideology, geopolitical siege mentality, and above all, militarized dominance. At the center of this hybrid lies the Islamic Revolutionary Guard Corps (IRGC), an institution originally created to defend the 1979 Islamic Revolution but which, over time, has transformed into Iran’s most powerful economic actor. Today, the IRGC wields immense control over not only Iran’s security apparatus but also its oil and gas resources, transportation infrastructure, banking system, telecommunications networks, and industrial base [1][2].
The IRGC’s economic expansion was catalyzed in the 1990s during post-war reconstruction. Under Supreme Leader Ali Khamenei’s guidance, the Guards were entrusted with large-scale engineering responsibilities through the creation of Khatam al-Anbiya Construction Headquarters (KAA). This move, justified as a patriotic necessity, soon evolved into a vast, opaque, and unaccountable empire. By the early 2000s, the IRGC was entrenched in nearly every critical sector of the economy. In 2006, U.S. sanctions formally targeted Khatam al-Anbiya as a front for IRGC enrichment, describing it as controlling “hundreds of companies” in construction, mining, oil, and telecommunications [3].
Far from slowing its growth, sanctions became a convenient justification for deepening the IRGC’s economic reach. The doctrine of a “resistance economy” — articulated by Khamenei in response to Western pressure — provided ideological cover for turning over strategic assets to entities tied to the military elite [4]. As state-owned enterprises were “privatized” beginning in 2005, many were sold not to competitive private bidders, but to shell companies and holding firms directly or indirectly controlled by the IRGC [5].
The result is what many Iranian economists describe as a “shadow state” — a system where vast parts of the economy are effectively off-limits to independent entrepreneurs, civil institutions, or democratic oversight. Instead, they are run by retired generals, intelligence officers, and loyalists with little technical expertise and strong political connections [6]. While the regime deflects attention by blaming sanctions for Iran’s industrial collapse, the truth is that it has built a system designed to funnel resources upward to a militarized elite, while starving the private sector of investment, opportunity, and autonomy [7].
This paper investigates that system — sector by sector, project by project — to show not just the scale of the IRGC’s economic power, but the damage it has inflicted on Iran’s long-term development.
3. The Rise of the IRGC’s Economic Empire
The roots of the IRGC’s economic empire can be traced to the years following the devastating 1980–1988 Iran–Iraq War. With Iran’s infrastructure in ruins and Western firms wary of engagement, the regime turned inward. In 1990, Supreme Leader Ali Khamenei authorized the creation of Khatam al-Anbiya Construction Headquarters (KAA) — a sprawling engineering and construction conglomerate under direct IRGC command [8]. Its stated purpose was to aid in national reconstruction, but within a decade, KAA had evolved into one of the largest contractors in the Middle East.
By the early 2000s, KAA had expanded into every major infrastructural sector: roads, tunnels, dams, pipelines, airports, metro systems, and oil and gas installations. It operated through a dense web of more than 800 front companies and subcontractors — many of them registered under civilian names to mask military control [9]. The IRGC was no longer merely a participant in the economy; it had become an empire unto itself.
The transformation accelerated during Mahmoud Ahmadinejad’s presidency (2005–2013), which marked the beginning of large-scale economic favoritism toward the Guards. A former IRGC officer himself, Ahmadinejad oversaw a wave of “privatizations” in which over $120 billion in state assets were transferred to so-called private entities — many of which were IRGC-controlled or affiliated with regime elites [10].
One of the most illustrative examples is Mobin Trust Consortium, a holding firm backed by IRGC-linked foundations. In 2009, Mobin acquired a 50%+1 controlling share in the Telecommunication Company of Iran (TCI), the largest telecom firm in the country, in a no-bid auction where no other serious bidder was allowed to participate [11]. This acquisition gave the IRGC access not only to massive revenues, but also to the nation’s digital communications infrastructure — a key tool for surveillance and censorship.
By 2010, the IRGC’s economic activities extended to the petrochemical sector, automobile parts, shipping and port operations, insurance, and finance. Its reach was so vast that analysts began referring to Iran as having a “state within a state” — one governed not by ministries, but by military business cartels [12].
Independent estimates now suggest that the IRGC controls between 25% and 50% of Iran’s total GDP when including its direct assets, informal networks, and influence over regulatory agencies [13]. In 2021, the U.S. Treasury Department listed more than 200 companies as being IRGC-affiliated through Khatam al-Anbiya and its subsidiaries [14].
What makes this system especially pernicious is its opacity. IRGC entities operate with no public accountability. Their books are not audited by the National Audit Office. Their contracts are awarded behind closed doors. Their revenues are off-budget and hidden behind layers of shell companies, charitable foundations (bonyads), and offshore accounts [15].
This concentration of economic power in the hands of a military institution has had corrosive effects: it has displaced the private sector, discouraged foreign investment, distorted market signals, and made corruption systematic rather than incidental. Iran’s economy is no longer just inefficient — it is structurally designed to enrich and protect an authoritarian elite at the cost of national prosperity.
4. Privatization as Takeover (2000s–2010s)
In 2004, Supreme Leader Ali Khamenei issued a directive under Article 44 of the Iranian Constitution, calling for the reduction of state ownership in key economic sectors. This ostensibly pro-market reform was presented as a step toward liberalization. But in practice, it became a cover for massive asset transfers to regime insiders — especially the IRGC — under the guise of privatization [16].
Between 2005 and 2013, during Mahmoud Ahmadinejad’s presidency, the Iranian government sold more than $120 billion in public assets. Yet according to internal audits and parliamentary reports, over 80% of these sales went to institutions affiliated with the IRGC, bonyads (religious foundations), or state-controlled pension funds [17]. In many cases, companies were sold via opaque or single-bid auctions, often with no independent bidders allowed.
The most notorious example is the 2009 sale of the Telecommunication Company of Iran (TCI). Valued at over $8 billion, a controlling 50%+1 share of TCI was sold to Mobin Trust Consortium, a firm directly tied to the IRGC’s Etemad-e-Mobin group. The auction was conducted behind closed doors, lasted only one day, and involved no competitive process [11][18]. With this acquisition, the IRGC gained control over the country’s main telecom infrastructure — a vital asset not just economically, but for surveillance and censorship.
Another critical acquisition was SADRA (Iran Marine Industrial Company), a bankrupt shipbuilding firm handed over to Khatam al-Anbiya during the 2000s. Despite years of government investment, SADRA failed to deliver key maritime contracts and was used primarily as a vehicle to absorb state subsidies and channel no-bid military contracts [19].
The banking sector also experienced IRGC expansion. Two key financial institutions — Bank Ansar and Mehr Eghtesad Bank — were founded and operated under IRGC-affiliated foundations. These banks issued unsecured loans to Corps-linked contractors and were later merged into Bank Sepah in 2019 following international sanctions and pressure to consolidate military banking arms [20].
This process of privatization was not an accident; it was an engineered system for shifting economic power from state bureaucracies to military-aligned actors under the protection of the Supreme Leader. The result was the de facto militarization of Iran’s economy.
The consequences were profound:
- Market competition collapsed, as small and medium-sized enterprises (SMEs) could not compete with IRGC-backed conglomerates.
- Innovation declined, as economic success depended on political loyalty rather than technical competence.
- Corruption deepened, as the same institutions that allocated contracts also owned the bidding firms and financed the deals.
In essence, Article 44 was not a move toward capitalism but toward crony-military monopolization. It entrenched a new class of economic elites — generals turned tycoons — who operate behind closed doors, immune to scrutiny, and accountable only to the Supreme Leader [21].
5. Smuggling, Sanctions, and the Black Economy
While the IRGC has amassed wealth through formal contracts and asset takeovers, a significant portion of its economic power lies in its control over Iran’s informal and black-market economy. This includes large-scale smuggling, sanctions evasion, and the operation of shadow companies abroad. These activities not only undermine national revenue but also devastate legitimate businesses inside Iran.
According to the Iranian Parliament’s Research Center, an estimated 20 to 25 billion dollars’ worth of goods are smuggled into the country annually — nearly 30% of total imports [22]. Of this, analysts attribute a significant portion to IRGC-controlled routes through Bandar Abbas, Bushehr, and other ports managed by the IRGC’s Qods and Bahman bases [23].
The IRGC leverages its legal immunity and military infrastructure to bypass customs. Its operations are facilitated by “invisible docks” — ports and warehouses under military control that are exempt from inspection or taxation. These locations allow for the entry of everything from consumer electronics to luxury goods, weapons components, and narcotics precursors [24].
Beyond imports, fuel smuggling is a major pillar of IRGC profiteering. Iran’s heavily subsidized fuel prices — among the cheapest in the world — have created a lucrative black market. Reports by the Iranian National Audit Organization and international watchdogs estimate that $1–1.5 billion worth of fuel is smuggled annually into neighboring countries like Iraq, Pakistan, Afghanistan, and the UAE, primarily through IRGC-controlled border crossings [25].
Sanctions have amplified this black economy. As formal banking and trade channels were restricted, the IRGC stepped in to run clandestine networks for oil sales, banking services, and currency exchange. Through front companies in Malaysia, Oman, Turkey, and China, IRGC-affiliated firms continued to sell Iranian crude, bypassing U.S. Treasury restrictions. The use of ghost tankers, ships with disabled transponders or forged identities, became routine [26].
In 2023 alone, the IRGC was estimated to control 40–50% of Iran’s oil exports via these unofficial networks — worth $25–30 billion, according to oil tracking analysts and satellite data [27]. This allowed the regime to sustain its foreign proxy militias and fund military-industrial projects, while ordinary Iranians suffered from currency devaluation and inflation.
The impact of the IRGC’s black economy on Iranian industry is severe:
- It undercuts domestic producers by flooding markets with untaxed, often lower-quality imports.
- It drains state revenue, reducing funds available for infrastructure, education, and healthcare.
- It corrodes transparency, as law enforcement and regulatory agencies are powerless to challenge military smuggling networks.
Former customs officials and even members of Iran’s Chamber of Commerce have openly acknowledged this issue. In 2022, Masoud Karbasian, a former Minister of Economy, stated that “the country’s largest smuggling operations are conducted by institutions we are not allowed to name” — an unmistakable reference to the IRGC [28].
In effect, Iran’s black economy has become a dual economy, in which one side plays by rules and suffers, while the other — protected by guns and ideology — profits with impunity.
6. Case Study: South Pars Gas Field
The South Pars gas field, shared between Iran and Qatar, is the world’s largest natural gas reservoir. Spanning 9,700 square kilometers — two-thirds of which lie within Iranian territory — it represents one of Iran’s most strategic economic assets. However, the development of South Pars over the past two decades has become a symbol of the IRGC’s inefficiency, cronyism, and mismanagement.
In the early 2000s, the Iranian government aimed to develop South Pars in 24 phases, inviting international oil firms such as Total, Eni, and Statoil to help build the infrastructure. But after U.S. sanctions escalated in 2006 and again in 2010, most foreign companies pulled out [29]. In their absence, the government awarded numerous development contracts to Khatam al-Anbiya, the IRGC’s construction and engineering arm — despite it having no proven expertise in offshore gas projects [30].
Phases 15 and 16 were assigned to Khatam al-Anbiya under a contract worth over $2.5 billion. According to Iran’s own Ministry of Oil, these phases experienced delays of over five years and were plagued by budget overruns, poor construction standards, and repeated failures in processing and compression systems [31]. While the Qatari side of the field boomed — with exports generating tens of billions in revenue — Iran’s side languished under mismanagement.
One reason: instead of forming efficient consortia with experienced partners, the IRGC relied on a network of subcontractors owned by retired officers or regime-connected firms, many of whom padded costs and failed to meet deadlines. Iranian engineers and technicians involved in the project have anonymously told Persian-language media outlets that Khatam al-Anbiya refused to hire independent experts and replaced qualified managers with ideologically loyal personnel [32].
The results have been disastrous. Iran’s total output from South Pars lags far behind Qatar’s, even though Iran controls the larger share of the field. In 2022, Qatar’s production was nearly twice that of Iran’s, despite starting years later [33]. Analysts attribute this gap largely to:
- Technical mismanagement by unqualified contractors,
- Lack of investment in technology and infrastructure,
- Systemic corruption in procurement and staffing,
- And political insulation that prevents criticism or reform.
In 2017, then-Oil Minister Bijan Zanganeh publicly criticized Khatam al-Anbiya’s performance, calling their execution “slow, expensive, and opaque.” However, his ministry had no authority to terminate the contracts, as they had been approved by the Supreme Leader’s office [34].
South Pars is more than a technical failure — it is a cautionary tale of what happens when military elites are handed the keys to national treasure without oversight. It encapsulates the structural flaws of Iran’s political economy: where national priorities are subordinated to ideological loyalty, and economic incompetence is protected by unaccountable power.
7. Case Study: Tehran Metro Line 7
Urban transportation is a critical component of any country’s development strategy, and for a sprawling metropolis like Tehran — with over 9 million residents and chronic air pollution — the metro system is indispensable. Yet, the saga of Tehran Metro Line 7 reveals how the IRGC’s economic involvement has not only delayed key infrastructure projects but also jeopardized public safety, wasted public funds, and undermined trust in governance.
The contract for Line 7 — intended to connect the southeast and northwest of Tehran via a 27-kilometer line — was awarded in the late 2000s to Sepasad, a subsidiary of Khatam al-Anbiya, despite strong opposition from urban engineers and municipal planning authorities [35]. The selection process was not open to competitive bidding, and oversight responsibilities were split between the IRGC-led contractor and politically aligned municipal administrators.
From the outset, the project was plagued with delays and design problems. Sepasad consistently missed milestones, and by 2017, when the line was hastily opened by then-Mayor Mohammad Bagher Ghalibaf (a former IRGC commander himself), it was already years behind schedule [36]. The inauguration was widely viewed as a political stunt ahead of presidential elections.
But within three weeks of launch, Metro Line 7 was forced to shut down. According to a report by Tehran’s City Council, the line lacked critical safety components, including:
- No completed emergency ventilation system,
- No functioning automatic braking system,
- Incomplete electrical signaling infrastructure [37].
In short, the metro line was a death trap waiting to happen. Experts warned that had there been a fire or derailment, passengers would have had no safe exit or ventilation — a disaster scenario reminiscent of deadly metro incidents in other parts of the world.
Following the shutdown, it took nearly four more years to retrofit and reopen sections of the line. Total project costs soared from an estimated $1.1 billion to over $2.3 billion, with most of the added cost attributed to reconstruction of already completed stations, replacement of faulty equipment, and last-minute emergency systems [38].
Throughout this period, IRGC-affiliated media downplayed the problems and blamed city officials, while engineering experts were pressured to stay silent. Whistleblowers who raised concerns about faulty construction were either transferred or faced legal threats from security agencies [39].
Line 7 has since reopened in stages, but ridership remains low due to ongoing safety concerns and incomplete access to key districts. Moreover, the poor construction quality has led to repeated service interruptions, high maintenance costs, and public skepticism about the safety of IRGC-led infrastructure in general.
The case of Tehran Metro Line 7 illustrates a broader truth: when public works are handed to unqualified political actors with no accountability, the cost is borne not just in money, but in public safety, lost time, and national credibility.
8. Case Study: Dam Construction and Water Monopolies
Iran’s water crisis is one of the gravest existential challenges the country faces. Driven by mismanagement, climate change, population growth, and ecological neglect, dozens of Iranian provinces now face severe water scarcity, aquifer collapse, and environmental degradation. Central to this disaster is the role of the IRGC in monopolizing dam construction and water transfer infrastructure, often through its subsidiaries Khatam al-Anbiya and Sepasad.
Beginning in the 1990s, the Islamic Republic pursued an aggressive dam-building policy, with over 600 large dams constructed across the country by 2020 — one of the highest per capita rates globally [40]. The IRGC became the regime’s preferred contractor for these projects, winning most of them through non-competitive, closed-door processes. Between 2005 and 2018 alone, Khatam al-Anbiya and Sepasad were awarded over 200 major dam and canal projects, with contracts often exceeding $500 million each [41].
The results have been disastrous.
Lake Urmia, once the largest saltwater lake in the Middle East, has lost over 90% of its surface area since the early 2000s — largely due to damming of feeder rivers by IRGC-controlled firms [42]. Water from tributaries such as the Baranduz and Nazlou was diverted to supply large agribusiness and petrochemical facilities operated or subsidized by IRGC-linked investors. This not only dried out the lake but triggered salt storms, collapsing biodiversity, and mass outmigration of farming communities.
Another example is the Gotvand Dam on the Karun River — constructed by Sepasad — which was placed directly atop salt domes, leading to massive salinization of downstream water. The dam released thousands of tons of salt per day, damaging thousands of hectares of farmland in Khuzestan and poisoning drinking water for cities like Ahvaz and Abadan [43]. Despite warnings from hydrologists, the IRGC pushed forward, citing national pride and “self-sufficiency” narratives.
Perhaps the most egregious aspect of IRGC-led dam construction is the complete disregard for environmental impact assessments (EIAs). A 2019 parliamentary report found that over 70% of large water projects were launched without proper EIA procedures, or in direct contradiction to findings from independent scientists [44].
The financial structure behind these projects is also opaque. Many were financed through quasi-public banks, foreign exchange reserves, or “development bonds” issued by municipalities — but executed by contractors linked to the Guards. Payments and subcontracts often disappeared into shell companies, with no final cost disclosure. Whistleblower engineers have described systematic cost inflation, fake invoices, and duplicate charges for design and labor [45].
The consequences go beyond environmental damage:
- Over 500 villages in Isfahan and Khuzestan have been abandoned due to lack of irrigation water.
- The drying of Lake Hamoun and Hirmand River has devastated livelihoods in Sistan and Baluchestan.
- Massive subsidence and sinkholes now threaten cities like Tehran, Mashhad, and Yazd — directly linked to groundwater over-extraction worsened by damming [46].
Meanwhile, the IRGC’s influence over water transfer decisions — such as diverting rivers between provinces — has become a source of ethnic and regional conflict. Protests over the Zayandeh Rud in Isfahan, the Dez and Karun in Khuzestan, and the Hirmand in Sistan have all been met with riot police, arrests, and in some cases, fatalities [47].
The IRGC’s water empire is often referred to by Iranian experts as the “Water Mafia” — a network of military contractors, regime-aligned engineers, and loyalist bureaucrats who profit from large-scale projects with zero accountability. Their activities have not only wasted billions in public funds, but turned a manageable resource crisis into an unfolding national catastrophe.
9. Impact on Manufacturing and Industry
While the IRGC’s most visible economic footprint lies in infrastructure and energy, its indirect impact on Iran’s industrial base has been equally destructive. Over the past two decades, the manufacturing sector — once a pillar of Iran’s economic diversification strategy — has suffered massive contraction due to corruption, exclusion, and systemic displacement by IRGC-linked enterprises.
Iran’s industrial output peaked in the early 2000s, accounting for over 25% of GDP, with key sub-sectors including steel, cement, automotive parts, textiles, and petrochemicals [48]. However, by 2023, this figure had fallen to below 15%, according to data from the Iran Statistical Center [49].
One of the principal reasons: IRGC-linked monopolization of procurement and financing. Independent manufacturers complain that they are systematically excluded from government tenders, as ministries and municipalities prefer to work with politically connected firms that guarantee loyalty — even at higher cost or lower quality [50].
Compounding the problem is the credit chokehold. IRGC-owned and affiliated banks — such as Ansar Bank, Mehr Eghtesad, and later Bank Sepah — have disproportionately directed loans to construction and infrastructure companies aligned with the Guards. According to leaked 2022 Central Bank data, over 60% of industrial sector credit went to less than 100 firms, most of them state-connected conglomerates [51]. Small and medium-sized enterprises (SMEs), which make up 90% of Iran’s industrial employment, were effectively frozen out.
The result is widespread underutilization and shutdown of production lines:
- The Arak Machinery Plant, once a major industrial hub, is now operating at less than 30% capacity.
- The Gilan textile complex, which employed over 5,000 workers in the 1990s, has been reduced to a few hundred staff on part-time wages.
- Several automotive parts suppliers have closed due to import dumping by IRGC-affiliated trading companies that smuggle in components untaxed and below market price [52].
In 2021, Iran’s Ministry of Labor acknowledged that over 600,000 manufacturing jobs had been lost since 2012 — many of them permanently. Most affected were mid-sized firms in Isfahan, Yazd, Mashhad, and Tabriz, which had thrived under local investment before being crowded out by IRGC-linked competition or starved of fuel and capital [53].
Industrialists also cite supply chain strangulation. The IRGC’s control of port logistics, customs routes, and import/export licenses has made access to raw materials dependent on political allegiance. Steel producers, for instance, complain of deliberate delays in customs clearance unless they subcontract with IRGC-approved forwarders [54].
The decline in manufacturing is not merely an economic statistic — it has cascading effects:
- Reduced export earnings, widening the trade deficit.
- Increased rural-urban migration as regional industries collapse.
- A growing sense of disenfranchisement among skilled workers and entrepreneurs, many of whom now emigrate.
Perhaps most damaging is the psychological toll: in the words of one former factory owner in Semnan, “We are no longer in business — we are in a battlefield where the winner is chosen before the fight begins.”
Iran’s industrial collapse is not due to sanctions alone. It is the outcome of an exclusionary, militarized economy, where the rules of the game favor the politically loyal, not the economically productive. In this environment, merit has no currency, and industry has no future.
10. Financial Capture and SME Exclusion
A modern industrial economy depends on access to capital, transparent credit systems, and rule-based financial governance. In Iran, however, these financial arteries have been captured and distorted by the IRGC and its sprawling network of affiliated banks, credit institutions, and front companies — to the detriment of independent business owners and small and medium-sized enterprises (SMEs).
The IRGC’s financial empire expanded significantly in the 2000s and 2010s through the establishment of several quasi-private banks and investment firms. Key among them were Ansar Bank, Mehr Eghtesad Bank, and Hekmat Iranian Bank, all formally registered as independent entities but operated by foundations and cooperatives tied to the IRGC, such as the Bonyad Taavon Sepah [55].
These banks were used to channel billions in public funds to IRGC projects, including:
- Unsecured loans to Khatam al-Anbiya and its subsidiaries.
- Financing of real estate speculation in Tehran, Mashhad, and Isfahan.
- Offshore accounts used to circumvent sanctions via currency manipulation and trade fraud [56].
In 2019, under international pressure, the Central Bank of Iran ordered a forced merger of five IRGC-affiliated financial institutions into Bank Sepah, one of Iran’s oldest state-owned banks. Though framed as a regulatory reform, the merger was widely viewed as a consolidation of military financial influence into a single, protected channel [57].
Meanwhile, SMEs — the backbone of Iran’s real economy — were left to struggle. According to data from the Ministry of Industry, Mine, and Trade, over 70% of SME loan applications were either denied or delayed indefinitely between 2018 and 2022, primarily due to lack of collateral or informal “political ratings” that penalized non-aligned business owners [58].
Entrepreneurs frequently report being:
- Blacklisted from major banks if they criticize regime policies.
- Asked for excessive collateral (up to 300% of loan value).
- Pressured to accept “strategic partnerships” with IRGC-affiliated investors in order to gain access to working capital.
The IRGC’s dominance over currency allocation has also exacerbated the crisis. In Iran’s multiple-exchange-rate system, certain firms receive preferential access to cheap dollars from the Central Bank to import raw materials. IRGC-aligned firms routinely obtain these allocations, only to sell the subsidized currency on the black market for massive profit — a practice known locally as “arze ranthi” (rent-seeking currency arbitrage) [59].
This distortion has real effects:
- Importers without connections pay up to 4x higher rates for essential goods.
- Domestic producers are undercut by imported competitors with subsidized costs.
- Inflation is artificially amplified as speculation, not production, drives credit flows.
The impact is felt most sharply in regional and minority-heavy provinces. In Sistan, Kurdistan, Lorestan, and Khuzestan, SMEs in agriculture, metalwork, and textiles have folded due to lack of liquidity — even as IRGC-backed mega projects receive unlimited financing [60].
In short, the IRGC has weaponized Iran’s banking system. Instead of serving the real economy, credit and currency are now tools of political patronage, managed by a militarized financial elite. Those outside the circle are not just ignored — they are structurally excluded.
11. Social Fallout: Unemployment, Brain Drain, and Protest
The IRGC’s economic domination and exclusionary practices have not only distorted Iran’s industries and markets — they have profoundly affected its social fabric. Across the country, waves of unemployment, migration, and public discontent have intensified in tandem with the rise of militarized monopolies. What once were structural economic issues have now become sources of deep societal trauma.
Unemployment and Labor Market Collapse
According to the Iran Statistical Center, the national unemployment rate among youth aged 18–35 has hovered between 25–30% since 2020, and exceeds 35% in marginalized provinces like Sistan and Baluchestan, Khuzestan, Kurdistan, and Lorestan [61]. The hardest hit sectors include:
- Manufacturing (due to factory closures),
- Construction (due to project delays and favoritism),
- Agriculture (due to water misallocation and rural exodus).
Women face even steeper challenges. Female labor force participation has dropped below 13%, in part because the shrinking private sector offers fewer professional paths outside regime-controlled or ideologically filtered jobs [62].
The IRGC’s preference for hiring former military personnel and ideological loyalists has locked many qualified graduates out of employment pipelines. As one laid-off steel worker in Isfahan said in a local interview: “They build factories not to create jobs, but to feed contracts to their own.”
Brain Drain and Talent Exodus
With opportunity and meritocracy suffocated, educated Iranians are leaving the country in record numbers. A 2023 report by ISNA (Iranian Students News Agency) found that 65% of engineering and science graduates planned to emigrate within two years of completing their degree [63].
The reasons are not only economic, but psychological: a widespread perception that success in Iran is determined by connections, not competence. Talented engineers, doctors, coders, and researchers seek futures in Europe, Canada, Australia, or Turkey — where the barriers to entry are often lower than the walls of IRGC-controlled institutions at home.
The cumulative result is a brain drain that robs Iran of its human capital advantage, undermines innovation, and leaves critical sectors — like renewable energy, software, and clean water engineering — chronically understaffed.
Public Anger and Recurrent Protest
Discontent has manifested not just in private despair, but in public revolt. Since 2017, Iran has witnessed at least four major waves of economic protest, each with labor and livelihood at its core:
- 2017–2018: Protests began over inflation and unpaid wages in Mashhad and quickly spread to 80 cities.
- 2019: Fuel price hikes triggered mass demonstrations; over 300 people were killed in the crackdown according to Amnesty International [64].
- 2021–2022: Farmers in Isfahan and Khuzestan protested water diversion and industrial misallocation — much of which was linked to IRGC megaprojects [65].
- 2022–2023: The “Woman, Life, Freedom” protests, though sparked by the killing of Mahsa Amini, quickly grew to encompass economic grievances, particularly in working-class neighborhoods.
In many cases, the protesters specifically cited IRGC-linked contractors, dam projects, and land seizures as sources of hardship. And in nearly every case, the regime responded not with reform, but with repression — arrests, internet shutdowns, and military deployment.
This social volatility reflects a deeper truth: the IRGC’s economic model is not just unfair — it is unsustainable. When vast portions of the population are locked out of opportunity, when regional disparities deepen, and when basic necessities like water, employment, and housing are allocated by political loyalty, discontent becomes inevitable.
As one university professor in Ahvaz put it: “This isn’t just about money. It’s about dignity. And the Guards have taken both.”
12. Conclusion and Recommendations
Iran’s industrial decline is not a story of failed policy or unfortunate circumstances — it is the outcome of deliberate political design. At the heart of this design lies the Islamic Revolutionary Guard Corps (IRGC), whose economic empire has grown not by building capacity, but by extracting wealth, stifling competition, and institutionalizing corruption. What began as a post-war reconstruction effort has metastasized into a militarized economy that rewards loyalty over expertise, and control over productivity.
This paper has documented — across key sectors and emblematic case studies — the systemic damage inflicted by the IRGC’s economic domination:
- In energy, their mismanagement of the South Pars field has cost Iran tens of billions in lost gas output [29][30].
- In infrastructure, projects like Tehran Metro Line 7 were rushed, unsafe, and overpriced [36][37][38].
- In water policy, IRGC-led dam construction has worsened droughts, collapsed agriculture, and sparked unrest [40][41][42].
- In manufacturing, a once-thriving SME ecosystem has been suffocated by monopolization, lack of credit, and smuggling [48][49][51].
- In finance, state banks now function as IRGC war chests — not public lending institutions [55][57][58].
- And in society, these failures have led to mass unemployment, brain drain, and waves of protest [61][63][64].
What Iran faces is not just an economic crisis, but a structural crisis of governance — where the most powerful economic actors are also the least accountable.
Recommendations
If Iran is to rebuild its industrial base and restore public trust, the following reforms are not optional — they are essential:
- Dismantle IRGC Monopolies
- Remove the IRGC from no-bid infrastructure contracting.
- Prohibit military-affiliated entities from owning majority stakes in telecom, banking, and energy sectors.
- Implement asset transparency laws for military-linked firms.
- Reform the Banking System
- Restore independent oversight of credit allocation.
- Prosecute insider lending and subsidized currency arbitrage.
- End military pension fund ownership of commercial banks.
- Reopen Economic Opportunity
- Reestablish equal access to procurement tenders for SMEs.
- Decentralize permit issuance and licensing away from military influence.
- Create regional industrial recovery zones in marginalized provinces with civil oversight.
- De-militarize Strategic Resources
- Freeze further dam projects until environmental reviews are independently conducted.
- Create a civilian water authority to manage interprovincial water flows.
- Audit and publish all state contracts over $10 million with IRGC-linked firms.
- Support Workforce and Innovation
- Expand vocational and startup credit programs targeted at young professionals.
- Create incentives for diaspora return and academic repatriation.
- Strengthen labor protections in semi-privatized industries.
- Enforce Legal and Constitutional Limits
- Reinforce the separation of military and civilian economic roles under Article 147 of the Iranian Constitution.
- Empower parliamentary commissions to investigate military-run foundations and holdings.
- Enact whistleblower protections for civil servants and engineers who report IRGC-linked corruption.
These reforms will not be easy. They challenge the very institutions that have become synonymous with power in the Islamic Republic. But without them, Iran will remain trapped in a cycle of exclusion, stagnation, and repression — a country rich in talent, but crippled by the predation of its own protectors.
If Iran’s future is to be reclaimed, its economy must first be demilitarized.
13. References
[1] Chatham House, The Militarization of Iran’s Economy, 2022.
[2] Middle East Institute, The IRGC’s Economic Empire and Its Role in Domestic Governance, 2021.
[3] U.S. Treasury Department, Designation of IRGC and Khatam al-Anbiya, 2006.
[4] Khamenei.ir, The Doctrine of Resistance Economy, 2014.
[5] World Bank, Privatization and Market Distortion in Iran, 2022.
[6] Transparency International, Corruption Perceptions Index: Iran, 2023.
[7] IranWire, Economic Exclusion and Political Patronage in the Islamic Republic, 2023.
[8] ISNA, Khatam al-Anbiya’s Project Portfolio and Budget History, 2022.
[9] BBC Persian, Unregistered IRGC Shell Companies and Military Procurement, 2021.
[10] Financial Tribune, Privatization Failures under Ahmadinejad, 2019.
[11] Reuters, IRGC Acquisition of Iran’s Telecom Company, October 2009.
[12] Al-Monitor, Iran’s State within a State: The IRGC in Business, July 2021.
[13] IISS, Iran’s Parastatal Economy: GDP Impact of the IRGC, 2020.
[14] U.S. Treasury Department, List of IRGC-Affiliated Companies, 2021.
[15] Center for Strategic Studies – Iran, Unregistered Bonyads and Foundations, 2022.
[16] Iran Privatization Organization, Privatization under Article 44, 2015.
[17] Iranian Parliament Research Center, Report on Privatized Assets 2005–2013, 2020.
[18] Mehr News, Mobin Trust and the TCI Acquisition, November 2009.
[19] Radio Farda, SADRA Shipbuilding Failure Case, 2018.
[20] Central Bank of Iran, 2019 IRGC Bank Merger Directive, 2019.
[21] Kalemeh.com, Military Ownership of Strategic Economic Institutions, 2022.
[22] Iranian Parliament Research Center, Estimates of Annual Smuggling Volume, 2023.
[23] Iran Customs Organization, Unregulated Ports and Military Exemptions, 2022.
[24] Global Initiative Against Transnational Organized Crime, Smuggling Routes in Iran, 2021.
[25] Oil Ministry Reports, Fuel Smuggling Volume and Losses, 2023.
[26] TankerTrackers.com, Ghost Tanker Activity in the Persian Gulf, 2023.
[27] Energy Intelligence, Iran’s Oil Export Networks Under Sanctions, 2024.
[28] ISNA, Statement by Karbasian on Protected Smuggling, 2022.
[29] EIA, Production Disparities Between Iran and Qatar in South Pars, 2023.
[30] Platts Energy, Technical Failures in South Pars Development, 2021.
[31] Iran Ministry of Petroleum, South Pars Phase Completion Reports, 2022.
[32] BBC Persian, Whistleblowers in South Pars: Interviews with Engineers, 2023.
[33] Rystad Energy, Comparative Gas Output from South Pars and North Dome, 2023.
[34] IRNA, Zanganeh Criticizes Khatam al-Anbiya Performance, 2017.
[35] Shargh Daily, Contracting Sepasad for Tehran Metro, 2016.
[36] ILNA, Metro Line 7 Safety Deficiencies Post-Launch, June 2017.
[37] Tehran City Council Audit Office, Line 7 Construction Deficiencies, 2018.
[38] Hamshahri Online, Metro Line 7 Retrofitting Costs, 2022.
[39] HRANA, Engineers Targeted for Whistleblowing on IRGC Projects, 2020.
[40] Ministry of Energy, National Dam Construction Statistics, 2020.
[41] Environmental Research Institute, Sepasad and the Gotvand Salinization Crisis, 2021.
[42] Lake Urmia Restoration Committee, Impact of IRGC Dams on Urmia Drying, 2022.
[43] Iranian Water Authority, Environmental Failures of IRGC Projects, 2021.
[44] Parliament Environment Committee, EIA Compliance Report, 2019.
[45] Etemad Daily, Cost Inflation and Duplicate Contracts in Dam Projects, 2022.
[46] Geological Survey of Iran, Land Subsidence from Aquifer Overdraft, 2023.
[47] Amnesty International, Repression of Water Protesters in Khuzestan and Isfahan, 2022.
[48] Iran Statistical Center, Manufacturing Output Trends, 2023.
[49] Ministry of Industry, Mine and Trade, Decline of Manufacturing Employment, 2022.
[50] Iran Chamber of Commerce, Private Sector Exclusion in Procurement, 2023.
[51] Central Bank of Iran, Industrial Credit Distribution Report, 2022.
[52] Farda News, Factory Closures in Gilan and Arak, 2021.
[53] ILNA, 600,000 Jobs Lost in the Industrial Sector, 2021.
[54] Jahan Sanat, IRGC Port Control and Customs Delays, 2022.
[55] Central Bank Press Office, List of IRGC-Owned Financial Institutions, 2018.
[56] UANI, IRGC Banking and Sanctions Evasion Networks, 2022.
[57] Financial Tribune, IRGC Bank Consolidation into Bank Sepah, 2019.
[58] Ministry of Industry Loan Registry, SME Loan Approval Rates, 2021.
[59] Donya-e-Eqtesad, Currency Arbitrage and Preferential Dollar Abuse, 2022.
[60] Tasnim News, SME Decline in Minority Provinces, 2023.
[61] Iran Statistical Center, Youth Unemployment by Province, 2023.
[62] UNDP Iran Report, Women’s Labor Force Participation Trends, 2023.
[63] ISNA, Graduate Migration Intention Survey, 2023.
[64] Amnesty International, Death Toll from 2019 Fuel Protests, 2020.
[65] Human Rights Watch, Water Crisis and Repression in Khuzestan, 2022.