As a three-decade program of American sanctions against Iran nears its end, this is a close-up look at some of the hidden hazards in this evolving market.

Entering Iran’s holy Shah Cheragh shrine dazzles the senses. Mirror mosaics intensify the brightness, and it’s only when you step into the center of the “King of Light” mosque that you understand how each tiny piece plays its part in the grand-scale geometrical illusion.

In Iran, it’s easy to get blinded by the allure of the world’s last major market to emerge from pariah status. It’s a beautiful, highly-educated nation with one of the world’s richest histories – as large as Turkey, and with the additional benefit of its massive crude oil reserves. But even as optimism over Iran’s investment case begins to rise, it’s best to take a second look.

Like the tiles in the Shah Cheragh, it takes a myriad of interconnections between state and religious leaders for any company to shine. And if you’re investing, it pays to know with whom you’re connecting.

Despite President Hassan Rouhani’s promise to strengthen the private sector, it’s state and “quasi-state” organizations that dominate the economy.

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Even from a cursory look at the headline contracts signed with foreign players since the removal of nuclear-related sanctions, it’s clear that Iran is almost entirely represented by state-backed enterprises – Iran Air, the automakers Iran Khodro and Saipa, Iranian Mines, and the Mining Industries Development & Renovation Organization, to name but a few.

In all, the state probably controls between 70-80% of the economy.

Guards Everywhere



For investors wary of falling afoul of remaining US sanctions, the question of whether a private company might in fact be considered part of ‘the state’ is key. The US guidelines are all-encompassing. America considers the Iranian state to include any political subdivision, agency – or “instrumentality.” The category also lumps in any entity the government owns or controls – whether directly or indirectly.

Featuring prominently in the sanctions list is the Iran Revolutionary Guards Corp. The IRGC, as it’s also known, is referred to as a parallel military institution.

And in the so-called ‘private’ economy, the Revolutionary Guards are everywhere.

Supreme CEO

Iran’s state system is essentially a duality of overlapping religious and republican institutions.

The economy reflects this hierarchy. Patronage from Supreme Leader Ali Khamenei defines allegiances as much as ideology. Control is channeled through prominent figures heading loose but influential coalitions.

The IRGC and the rest of the religious and revolutionary foundations all come under Khamenei’s direct control. And it’s these parastatal organizations that dominate Iran’s economy, far more than those companies that investors might recognize as being directly state-owned.

While these institutions are diverse in their roles, they share one common function: they act as a key avenue for funneling resources between the elite. This is the primary mechanism of patronage between the regime and the population.

Mind the Bonyads

For investors, the most important parastatals are charitable foundations, or bonyads.

These already existed under the Shah before the revolution. They were re-established by the Islamic Republic, building on a tradition of religious philanthropy that focused particularly on the ‘downtrodden.’

Among the most prominent of the endless list of bonyads is the Foundation for the Oppressed, or Bonyad Mostazafan, and the Martyr’s Foundation, or Bonyad Shahid.

The status of the bonyads was further boosted by the need for reconstruction at the end of the Iran-Iraq war in 1988. Their influence went hand-in-hand with the machinery and experience provided by the Revolutionary Guards, which was needed to rebuild the country’s devastated post-war economy.

The IRGC’s engineering arm soon morphed into a business conglomerate called Khatam al-Anbia – an act of political expediency to foster employment opportunities for the demobilized war veterans.

Further expansion of the bonyads followed the death of Ayatollah Khomeini a year later, and the need for his successor, Khamenei, to consolidate his position in the economy. Since Khamenei appoints the heads of the key bonyads, their increased economic role became the cornerstone of a larger patronage network, rewarding the loyalty of his inner circle through economic participation.

Weakened by a lack of strong religious credentials, Khamenei has enrolled the support of the IRGC and the wider security apparatus to assert his rule. They include Mohammad Reyshahri, an old friend and trusted ally of Khamenei, who became custodian of the Abdol Azim Shrine in Shahr Rey, near Tehran, in 1990. The former intelligence minister has expanded his economic reach through the Rey Investment Company, which has mushroomed since 2002 into a $40 billion vehicle.

Who’s Who

The foundation for the oppressed, Bonyad Mostazafan, oversees more than 450 companies across finance, including Bank Sina, along with industrial, real estate, agriculture and cultural concerns.

Like most of the foundations, Bonyad Mostazafan is more than just a money-making machine for the elite. It provides employment to several thousand people, and facilitates social mobility among the lower classes, by easing university admission and access to various levels of managerial positions within the state administration. It also offers low-interest loans to the poor and the families of war veterans and martyrs.

Khamenei interweaves influential figures between the bonyads. Bonyad Mostazafan’s former transportation deputy, Mohammad Mokhber Dezfouli, became the CEO of another key bonyad – Setad Ejraye Farman Emam – in 2007. He also sits on the Board of Directors for Sina Bank.

Setad’s previous CEO, Mohammad Javad Iravani, was made head of the Inspection and Audit Department at the Supreme Leader’s Office.

Khamenei last year appointed Parviz Fattah, an ex-IRGC Commander and CEO of the IRGC Cooperative Foundation, as Chairman of the Imam Khomeini Relief Committee, or Bonyad Emdad. Another former IRGC General, Ahmad Vahid-Dastjerdi, became the IRGC Cooperative Chairman.