Cash-Strapped Regime in Tehran Taps Sovereign Wealth Fund

Iran in late May announced that it would withdraw $1 billion from its foreign currency reserves, known as the National Development Fund (NDF), to help generate employment. The decision reflects the country’s mounting economic crisis in the wake of Washington’s re-imposition of sanctions last year.

Established in 2011 by Tehran, the NDF constitutes an investment and savings fund aimed at preserving revenue from Iran’s oil and gas industry for future generations. Over the past 18 months, however, Iran has repeatedly diverted money from the NDF to finance its military operations and basic economic and development needs.

In February 2019, BBC Persian reported, citing the Sovereign Wealth Fund Institute, that the NDF possesses $91 billion in assets. However, BBC Persian estimates that only $20 billion of the assets is currently in the form of cash or cash equivalents. Since its inception, the NDF has awarded almost $71 billion of its resources in the forms of loans to non-government entities and payments to the Iranian government.

In January 2018, media reports indicated that the regime had authorized the withdrawal of $4 billion from the NDF, with $2.5 billion going to the country’s defense sector, and the remainder allocated to Iran’s state-run broadcaster and certain development projects. In January 2019, Tehran authorized the withdrawal of another $1.5 billion to finance Iran’s military ambitions. In April 2019, the regime authorized the further withdrawal of $2 billion from the NDF to help pay for an estimated $2.5 billion in damages caused by flooding.

These expenditures have occurred as U.S. sanctions continue to drain oil and gas revenue that would normally go to the NDF. When the United States re-imposed sanctions on Iran’s energy sector last year, it provided six-month waivers to eight countries. However, the waivers required Iran to receive most of its oil revenue in non-convertible currencies – such as the Indian rupee and Turkish lira – and deposit them in escrow accounts, thereby preventing Tehran from allocating them to the NDF.

Thus, in early 2019, the Iranian Parliament’s Research Center announced that Tehran would add no new money to the fund in the next budget year, which began in March. The budget also reduced the planned allocation of Iran’s oil and gas revenues to the NDF from 34 percent of total revenues to 20 percent. With the termination of the U.S. sanctions waivers in May, Iran’s oil exports have continued to plummet. Additional sanctions on Iran’s petrochemical sector earlier this month threaten to reduce Iranian revenues even further, increasing the likelihood that Iran will draw additional funds from the NDF.

The highest levels of Iran’s regime play a key role in guiding the NDF’s decisions. The 10 voting members of the NDF’s board of trustees include Iran’s president, attorney general, and oil minister, as well as the governor of Iran’s Central Bank. Iran’s president likely appoints members of the executive board, who include veterans of Iran’s financial industry and government. For example, the executive board’s chairman, Morteza Shahidzadeh, previously served in a leadership a position in Bank Keshavarzi, which is sanctioned by the United States.

The Trump administration should make clear that it will target any entity in Iran that funds the regime’s malign conduct. It should sanction the NDF, the board of trustees, and the executive board, thereby cutting off a critical lifeline for the regime. Moreover, the administration should state explicitly that it will only lift sanctions against the NDF when the fund ceases to utilize its resources to support terrorism and Iran’s military programs.

Matthew Zweig is a senior fellow at the Foundation for Defense of Democracies, where Saeed Ghasseminejad is a senior Iran and financial economics advisor. Both contribute to FDD’s Center on Economic and Financial Power (CEFP). Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based nonpartisan research institute focusing on national security and foreign policy.