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Reuters

Iran's elites likely to benefit most from sanctions relief

Powerful parts of Iran's society benefited under sanctions and the same group may reap from an expected windfall

U.S. critics and Iranian proponents of the historic nuclear deal struck between Tehran and six world powers have been quick to note the benefits that sanctions relief is expected to have on Iran’s run-down economy. But most of the immediate financial gain will likely make its way to the country’s elites rather than trickling down to Iran’s middle class and poor, experts believe.

“Corruption, waste, and unaccountability are endemic and are likely to present challenges to [Iranian President Hassan] Rouhani’s economic goals until the end of his presidency,” said Alireza Nader, an expert with the RAND Corporation, the foreign policy think tank. “Rouhani would like to privatize Iran’s economy and integrate Iran into the global community, but he has to contend with forces that have thrived off of Iran’s state-controlled economy for decades.”

Iran Nuclear Deal

International sanctions against Iran have had a clear negative impact on the economy. In 2013, the country experienced its first GDP contraction in two decades. In that year, oil exports declined 60 percent, compared to their 2011 level, as sanctions imposed on Iran's energy market from 2006 to 2012 took their toll. That decline translated to a $65 billion dollars drop in oil revenue between 2011 and 2013.

The sanctions regime also had a negative effect on the strength of the rial, Iran's currency, as well as freezing access to reserves of hard currency held in overseas accounts. All told, international banking compliance with U.S. sanctions restricted access to at least $100 billion dollars of Iran’s foreign reserves.

Under the terms of the new deal, once Iran demonstrates compliance in placing verifiable caps on its nuclear program, the country will gain access to frozen funds. Other financial easements are also supposed to accompany the lifting of various sanctions.

But some believe the money will benefit the country’s entrenched economic elite, whose position on power arguably increased under the sanctions regime and who now can further reap the benefits of their positions.

One of the powerful elite interests is the Islamic Revolutionary Guard Corps (IRGC), an influential branch of Iran’s armed forces that commands a vast economic empire in the country. It is expected to exploit the easing of sanctions for its own purposes.

Saeed Laylaz, an Iranian economist with ties to the administration of Rouhani, said in January that sanctions, while negative for Iran as a whole, had benefited some sectors of Iranian society.

“Inside the government of Iran, there have been, and there are, a lot of people who love this sanction, because they need it,” Laylaz told CNBC. “The Islamic Republic of Iran can hide its mismanagement of the country and organized looting of Iranian wealth.”

When sanctions were at their most stringent, a report put out by The Iran Project in 2012 argued that the economic isolation had had the added result of empowering the IRGC and other factions intent on retaining their power and privileges.

“Already, IRGC-controlled firms have acquired large stakes in key economic sectors, including telecommunications, banking, transportation, and energy (where sanctions have forced global companies to abandon some projects to IRGC-linked companies),” it said.

Those assessments were echoed by the Congressional Research Service, which in an April 2015 report (PDF) said that the effect of energy market sanctions was that certain “foreign investors have left the Iran market entirely, and their work has been picked up by domestic companies, particularly those controlled or linked to the Revolutionary Guard (IRGC).”

Some critics of the deal have suggested that the Iran deal will allow Tehran to pursue a more aggressive foreign policy in the region, but Nader said that was not a given.

“This may not necessarily translate into greater Iranian influence abroad, but rather more mansions and Ferraris on Tehran’s streets,” he said. “The Revolutionary Guards, fearful of Rouhani’s economic and political agenda, may boost their spending abroad, but they are likely to pocket much of the money from sanctions relief. In Iran, creating a revolutionary society often means creating immense riches for the elite few.”

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