New Iran sanctions could strengthen Rev. Guard

By TAREK EL-TABLAWY, AP Business Writer

CAIRO – Tougher sanctions against Iran that the U.S. and its allies are considering to pressure it over its nuclear program might only strengthen its hard-line president and the Revolutionary Guard, boosting the elite force's economic and political muscle, experts warn.

The Revolutionary Guard has already worked its way into virtually all aspects of Iran's economy, from banks to manufacturing to the oil sector, and it is believed to have a hand in the country's black market. Isolation under sanctions could push even more of the economy into the corps' hands.

"A lot of companies that have invested in the economy are linked to the Revolutionary Guard," said Alireza Nader, an Iran expert with the RAND Corp. "You can make the argument that if you scare away foreign investors, you are strengthening the Guard."

The Revolutionary Guard was created after the 1979 Islamic Revolution as an ideological bulwark to defend Iran's clerical rule. The 120,000-strong elite force controls Iran's missile program and has its own ground, naval and air units.

The United States and European countries have warned of tougher sanctions if negotiations with Iran that began this month do not bring progress. Calls are also mounting from the U.S. Congress for more sanctions, including possibly a ban on exports of gasoline to Iran.

Sanctions would likely hurt the Revolutionary Guard's businesses, but they could also fuel the corps' expansion in the economy. Amid a privatization campaign in Iran in past years, Guard-linked companies have won tens of billions in no-bid government contracts under President Mahmoud Ahmadinejad, himself an alumnus.

Most recently, a consortium linked to the Revolutionary Guard, Etemad-e-Mobin, bought a 50 percent stake in the country's newly privatized telecommunications company. The deal was valued at $7.8 billion.

The corps' engineering arm, Khatam al-Anbia, is one of the country's largest enterprises with stakes in mining, telecommunications, dam construction and the oil and gas sector.

Also, the corps controls numerous jetties and ports, and much of the smuggling of goods already banned by the U.S. into Iran — as well as alcohol and drugs for the black market — is run with at least implicit approval of the force, experts say. Under sanctions, the underground economy would increase and funnel more money to them.

"They will gain further control of who gets what inside Iran. And that will empower them," said Djavad Salehi-Isfahani, an economist at Virginia Tech and a guest scholar at the Brookings Institution.

Greater power for the Revolutionary Guard would have a political impact as well.

Its increasingly dominant role has already brought criticism from some in the traditional clerical leadership that Iran is moving away from its Islamic Republic ideals toward a more militaristic society. The country's turmoil after the disputed June 12 presidential election has highlighted the split, as some in the clergy have backed reformists against the Revolutionary Guard-supported Ahmadinejad.

"The divisions you see within Iran right now are particularly motivated by clergy apprehension about the Guards," said Nader, pointing to economic competition between the traditional elite and a new elite dominated by the Revolutionary Guard.

Washington and its allies accuse Iran of seeking to develop a nuclear weapon, a claim Iran denies. They are threatening to seek U.N. sanctions if Iran does not make concessions, though heavy sanctions could be blocked by Russia and China. If that happens, the U.S. would likely impose its own sanctions and try to bring as many of its allies as possible on board.

Analysts question whether such steps would push Iran to compromise on its nuclear ambitions, saying past sanctions regimes imposed by Washington and the United Nations on Libya and Iraq, for example, largely failed to do more than strengthen nationalist and anti-Western sentiment. Iran presents an even bigger challenge. Its economy is larger and more diversified than those of Iraq and Libya.

U.S. officials say they know sanctions must be carefully targeted to avoid boosting the Revolutionary Guard. In a briefing to a U.S. Senate committee, Treasury Undersecretary Stewart Levey said the corps "seeks to monopolize black-market trade of popular items, funneling the proceeds from these transactions through a patronage system and using them to help subsidize the government's support for terror groups."

Members of Congress have floated ideas including sanctioning companies that export gasoline to Iran, tightening financial restrictions and imposing travel bans on Iranian officials.

The gasoline sanction and the financial restrictions are the most likely to hurt Iran.

Iran, though one of the world's top oil exporters, lacks refining capacity to meet domestic demand and must import over 30 percent of its fuel needs. Ahmadinejad's government has had to ration gasoline and take other steps to cut consumption, sparking riots in 2007.

This week, Oil Minister Masoud Mirkazemi said the government was considering cutting the allotment of gas Iranians get at subsidized prices to 55 liters (14 gallons) a month, down from 100 liters (26 gallons), the ISNA news agency reported. Such a move would likely further anger Iranians, already struggling in a faltering economy.

RAND's Nader said fuel import sanctions "could seriously hurt Iran and its economy" but cast doubt on whether that would force the regime to back down.

"This is a government that has shown it can handle great pressure by resorting to intimidation and violence," he said, referring to the government's fierce postelection crackdown on opposition protests.

New financial restrictions would build on existing U.S. sanctions that seek to cut off Iran's access to outside financing and banks.

Those sanctions have so far been the most effective. The Iranian Labor News Agency reported last month that the debt of the country's 11 state-run banks to the Central Bank surged tenfold over the past four years, hitting over $32 billion. That indicates these banks, which include the Revolutionary Guard-linked Bank Melli, are being forced to shoulder a bigger burden as access to foreign capital grows tougher.

"The overall purpose is not to totally isolate Iran," said Michael Jacobsen, a sanctions expert at the Washington Institute for Near East Policy. "The overall purpose is to raise the costs of doing business. That's a more realistic goal, a more achievable goal."