Iranian Companies’ Shares Plummeted after Treasury Designations

On October 16, the U.S. Treasury designated 20 Iranian entities. Using the anti-terrorism authorities under Executive Order 13224, Treasury designated companies connected to the Basij Resistance Force, a volunteer paramilitary organization subordinate to Iran’s Islamic Revolutionary Guard Corps (IRGC). In line with previous studies and expectations, the designation caused measurable economic loss to the target firms.

Of the designated companies, nine were publicly traded on the Tehran Stock Exchange (TSE). Supreme Leader Ayatollah Ali Khamenei controls two of these firms – Sina Bank and Parsian Bank – while the IRGC controls another four firms – Iran Tractor Manufacturing, Technotar, Calcimin, and Iran Zinc Mines. Bahman Group, another one of the publicly traded companies, had also been IRGC-controlled until 2016. The other two firms are Isfahan Mobarakeh Steel and Mellat Bank.

The day after the designations, all of these companies except Mellat Bank saw their share values drop. On average, these companies experienced a 3.2 percent drop in their stock values, though six of them saw above a 4 percent negative return. The IRGC-controlled companies faced an average 3.8 percent drop in their stock value, while the Khamenei-controlled firms faced a 4.54 percent negative return. The eight companies lost a combined total of 12.3 trillion rial, or $293 million, in market value.

The downward pressure has persisted since then on many of the designated firms. For example, between October 16 and October 30, Sina Bank lost 18 percent of its value, Parsian Bank and Iran Tractor Manufacturing each lost 5 percent, Isfahan Mobarakeh Steel lost 4 percent, and Bahman Group and Iran Zinc Mines each lost 3 percent. These numbers are consistent with the author’s previous study on the earlier round of U.S. sanctions, from 2006 to 2013, on Iran’s publicly traded firms. This study showed that economic sanctions cause negative abnormal returns, which persist in the long run.

Designating the publicly traded firms owned by malign actors such as the IRGC and the supreme leader is one of the most effective ways to pressure them. In most cases, these are large companies in lucrative sectors and are a major source of revenue. By targeting them, the U.S. government can use the stock market forces to pressure and isolate these malign actors and force them to divest from these companies. As the firms owned by malign actors become toxic, other shareholders in those companies can pressure the malign actors to sell their shares. In a move to avoid further sanctions, the IRGC has already announced it will sell its shares in two non-designated TSE-listed companies. The sanctions also create the possibility of a selloff by private-sector shareholders, which would put downward pressure on share value. Policymakers can also quickly see and measure the effect of these sanctions.

On Monday, November 5, the United States will add 700 entities and individuals, including 300 ones, to its designation list. As part of the maximum pressure strategy, the United States should intensify its designation campaign of publicly traded Iranian firms controlled by malign actors, using the market forces to pressure and isolate them.

Saeed Ghasseminejad is senior Iran and financial economics advisor at the Foundation for Defense of Democracies (FDD). Follow him on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.