President Hassan Rouhani’s September 16, 2013 address to the commanders of the Islamic Revolutionary Guards Corps (IRGC) – his first post inaugural to the Guards – proposed a quid pro quo: The Guards should not intervene in politics, and in return, the Rouhani government would allow them to continue their lucrative economic enterprise.

Since then, neither party kept up their end of the deal. Leading IRGC commanders have criticized Rouhani’s diplomatic opening towards the United States, and the Rouhani government is actively working to purge the IRGC from the economy.

Rouhani’s first attacks were framed as criticism of outgoing President Mahmoud Ahmadinejad’s unfinished projects, such as the 15th and 16th phases of the South Pars gas field. Though Ahmadinejad touted the projects as achievements worthy of celebration, they lacked pipelines, platforms, wells, and refineries. The real target, of course, was the Khatam al-Anbia Construction Base, the contracting arm of the IRGC. The company’s director, Ebad-Allah Abdollahi, however, defended the work of his company as “peerless.”

Parliamentarian Ahmad Tavakoli launched the second round of attacks against the Guards, whom he accused of outcompeting the private sector on unequal terms – a justifiable complaint in light of the IRGC’s massive economic acquisitions in recent years. Tavakoli demanded forceful government action to redress this problem. The IRGC responded by mobilizing its parliamentary backers to attack Bizhan Namdar Zangeneh, Rouhani’s candidate for the Minister of Petroleum. After a pitched battle, Zangeneh not only managed to get a parliamentary vote of confidence, he also used the opportunity to disclose the Oriental Oil Company as yet another IRGC asset — a claim the IRGC denied.

Under fire, IRGC commanders felt compelled to appear on TV to explain that they do not compete with the private sector. They also pledged loyalty to and cooperation with the Rouhani cabinet.

But the battle continues. Rouhani has cancelled Khatam al-Anbia’s major road projects, and the IRGC was forced to give up ownership of the Iran Marine Industrial Company (Sadra). The IRGC is not pleased. The guards continue to grumble about being sidelined, and some believe they were responsible for the murder of Safdar Rahmatabadi, Rouhani’s deputy minister of industry and commerce.

The escalating conflict between Rouhani and the IRGC leaves little room for compromise. And while this may look like “inside baseball,” this domestic spat has real ramifications for the West. The winner will likely decide Iran’s nuclear path.

Ali Alfoneh is a senior fellow at the Foundation for Defense of Democracies.