Officials from the Iranian Justice Ministry confirmed that they arrested and temporarily held one of Iran’s leading negotiators of the P5+1 deal, on charges that he was spying for the British. Although Abdol Rasul Dori Esfahani was released soon after his arrest, the incident highlights the recent intensification of the faction fight that has been raging inside Iran since the elections to the Majlis and the Assembly of Experts early this year, in which a coalition of moderates and reformers made significant gains.
Esfahani’s portfolio during the lengthy P5+1 talks included economic and banking negotiations. He has close ties to some of Iran’s largest banks, as well as foreign financial institutions, and he reportedly earns more than $10,000 per month from his consulting work with those financial institutions. This has caused some skepticism about the charges that he took $7,500 from a British entity to provide information on Iranian policy.
Esfahani was one of the most important of the Iranian P5+1 negotiators, managing the technical talks that were ongoing. Even after his arrest and release, he was publicly seen in the company of Foreign Minister Javed Zarif, a further indication of the powerful position he holds among the pro-reform faction of the government.
One of the biggest issues at stake in the ongoing fight between hardliners, centered in the Iranian Revolutionary Guard Corps, the judiciary, and the Office of Supreme Leader Ali Khamenei, and reformers in the government of President Hassan Rouhani, is control over the Iranian economy. Since the previous presidency of Ahmadinejad, the IRGC has maintained a vise-grip over much of the Iranian economy, and they fear that the kind of international opening to foreign direct investment being pursued by Rouhani and Foreign Minister Zarif could strip them of that power. That struggle will continue to intensify going into presidential elections, scheduled to take place in ten months.
Despite the fact that the US continues to maintain sanctions on Iran as it remains on the State Department list of State Sponsors of Terrorism, Iran has received a substantial amount of frozen funds following the conclusion of the P5+1 agreement. Recently, the United States shipped $400 million in cash to Iran, and a total of $1.3 billion in funds have been recently paid to Iran, as part of the American purchase of Iranian enriched uranium, under the P5+1 terms.
But most of those funds have gone into bank bailouts and little has yet to “trickle down” into the Iranian real economy. Outside of Tehran there have been a wave of bank failures, largely as the result of unpaid loans to IRGC-controlled companies. This has been kept quiet, but the efforts by Rouhani to enact banking reforms have been stymied, and could impact the upcoming elections, if the population feels that they have not seen the benefits of the P5+1 deal and put the blame on Rouhani and the moderates. He has made some progress in introducing greater accountability and transparency in the Central Bank, but there is a long way to go before the population enjoys the economic benefits of his efforts.
Another issue that has intensified the factional battle inside Iran is the deals between Tehran and Moscow, including the recent Russian use of the Nojeh Airbase near Hamedan. Although that basing arrangement was curtailed after Russian officials went public with the August bombing raids, the differences between Moscow and Tehran over the base access were described as differences in “public diplomacy,” while Iran and Russia are agreed that they share a common objective of keeping the United States out of a dominant position in the region.
In November 2015, Supreme Leader Khamenei met with Russian President Vladimir Putin and the two men agreed that Iran and Russia should “harmonize their stances” on regional matters. That meeting took place just weeks after Russia began its bombing campaign in Syria on September 30. Since the Putin-Khamenei meeting, Russian fighter planes have fired cruise missiles over Iranian air space against targets in Syria, another element of the “harmonization” agreements. To be sure, significant differences exist between Russia and Iran, but both countries have their own strong vested interests in preserving the Syrian state and the reign of President Bashar Assad. Based on those common interests, Russia and Iran can be expected to reach temporary tactical agreements. The use of the Nojeh air base, for example, came after Syrian rebels launched an offensive to break the siege of Aleppo, even though Russian fighter planes had been allowed to refuel at the base for months.
The Nojeh base deal was negotiated between the Supreme Leader and the IRGC, bypassing the Majlis, the President, and the Foreign Ministry. This reflected the fact that the Russian leadership see greater benefit to working with the IRGC and other hardliners, rather than with the Rouhani government. For the IRGC, the US presence is an obstacle to the further takeover of the Iraq Armed Forces, via the Shia militias that are intended to form an IRGC-modeled structure that can ultimately take over control of the Iraq military. The recent appointment of an IRGC General to head Iran’s armed forces is a further indication of the gains being made by the IRGC hardliners within Iran.
While Supreme Leader Khamenei intends to give the appearance of neutrality in the struggle between the hardliners and the moderates, he is in fact fully allied with the IRGC. It can be expected in the coming weeks and months that the IRGC, with the quiet consent of Khamenei, will intensify the harassment of moderates and reformers, including President Rouhani, in the outside hope that they can convince him to drop out of the re-election race, boosting chances for a more hardline-backed populist candidate to win the presidency. Given recent voting patterns, that is not likely.
The IRGC also worries, given the new composition of the Assembly of Experts, that they could lose a crucial ally if Khamenei either dies or takes ill and a more moderate replacement is chosen.
One consequence of the power struggle and the desperate efforts by the IRGC to sabotage economic reforms and maintain their grip over the economy is that some foreign investors are being turned off and are slowing down their plans for major investments in Iran. China has taken steps back from a major high-speed rail deal, after IRGC-run companies were inserted recently as sub-contractors. French and German economic deals are also being slowed down in response to the IRGC interference with the government negotiations.
Recent statements by top IRGC officials warn of the threat of a “Velvet Revolution” sponsored by Western powers. This, too, will slow the enthusiasm of foreign investors.
One economic deal that the IRGC hardline faction is interested in is the possibility of a major petroleum deal with Iraq. If negotiations between the Baghdad government and the Kurdish Regional Government fail in the coming weeks, Prime Minister Haider al-Abadi has indicated he would consider reaching a barter deal with Iran, to export Iraqi oil via Iran to the world market. That would play into the IRGC/Khamenei agenda of tightening the already strong Iranian ties to the Iraqi economy via its vital oil sector — at the potential expense of the Washington-Baghdad axis.