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IRGC explores oil potential

March 22, 2019 | Expert Insights

Iran’s Revolutionary Guards are looking to fill a vacuum in the energy sector created by western companies that pulled out of the Islamic republic following the reimposition of US sanctions.

Background

The Islamic Revolutionary Guard Corps (IRGC) is a branch of Iran's Armed Forces founded after 1979 Revolution on 22 April 1979 by order of Ayatollah Khomeini. Whereas the regular military defends Iran's borders and maintains internal order, according to the Iranian constitution, the Revolutionary Guard (pasdaran) is intended to protect the country's Islamic Republic system. The Revolutionary Guards state that their role in protecting the Islamic system is preventing foreign interference as well as coups by the military or "deviant movements".

Since its origin as an ideologically driven militia, the Army of the Guardians of the Islamic Revolution has taken a greater role in nearly every aspect of Iranian society. Its expanded social, political, military and economic role under President Mahmoud Ahmadinejad's administration—especially during the 2009 presidential election and post-election suppression of protest—has led many Western analysts to argue that its political power has surpassed even that of the Shia clerical system.

Iran's economy has been hit hard since the US sanctions that came to effect in mid-2018 and as a result, nearly half of its imports and exports have halted with an estimate of 600,000 barrels of oil being slashed.

Analysis

The construction arm of the elite IRGC force has said that the organisation was ready to replace Total, the French company, in the development of phase 11 of the South Pars gas field, the republic’s flagship hydrocarbons project.

“The Islamic Revolutionary Guard Corps stands by the dedicated government against this fierce economic war and is in the frontline of [foiling] economic conspiracies of the [US],” he said in a speech at the launch of new projects at South Pars this week.

The guards’ involvement in the project would signal a shift in the government’s energy policy that analysts said had been forced on it by Donald Trump’s decision to withdraw from the nuclear accord last year and hit Iran with crippling sanctions. It underlined how regime hardliners have been emboldened by the US president’s aggressive stance towards the republic and were exploiting the pressure on President Hassan Rouhani’s government to consolidate their power.

The guards boast a sprawling business empire but they had been prevented from expanding into the energy sector mainly by the efforts of Bijan Namdar Zanganeh, the oil minister.

After Tehran sealed the nuclear deal with world powers in 2015, Mr Zanganeh refused to give the guards any additional projects in oil and gas. The government wanted to lure western majors back to the Islamic Republic to help expand production and revitalise ageing infrastructure.

South Pars was one of the government’s biggest successes. In July 2017, Total signed a multibillion-dollar deal to develop the giant gas field, Tehran’s first important energy contract with a European oil company in more than a decade. But a year later, the French group announced it would pull out of the country because of US sanctions.

Under the previous agreement, Total owned just over half of the South Pars project while CNPC had a 30 per cent stake. The remainder was held by Petropars, an Iranian company.

The development of South Pars is central to the republic’s energy and industrial plans. It is home to the world’s largest natural gas field, which Iran shares with Qatar, the largest exporter of liquefied natural gas. Western sanctions have meant Tehran has never been able to exploit its full potential.

The guards were involved in projects at South Pars before Mr Rouhani was elected in 2013. The president sought to curb the economic influence of the guards and some of its senior members and business associates were arrested in 2017. The push against the guards’ business interests was seen as an attempt to tackle corruption and attract much-needed foreign investment.

Assessment

Our assessment is that the US sanctions are starting to cripple the Iranian economy and the IRGC is scrambling to produce oil from one of the country’s largest oil well. We believe that there is a greater chance the IRGC will utilise the revenues from the oil well to strengthen their grip on the Iranian society by concentrating wealth within the elite force. 

Image Courtesy: Tasnim News Agency (https://commons.wikimedia.org/wiki/File:South_Pars_Onshore_Facilities_(4).jpg), https://creativecommons.org/licenses/by/4.0/legalcode