U.S. Maximum Pressure Campaign Should Target Tehran Stock Exchange and Khamenei’s Business Empire

The office of Supreme Leader Ali Khamenei announced last week that additional entities under its control would go public on the Tehran Stock Exchange (TSE), enabling them to access capital more effectively. This move illustrates how key regime-controlled enterprises maintain freedom of action despite the U.S. goal of exerting maximum pressure on Iran.

The listing of additional companies within Khamenei’s network will increase the share of TSE’s market capitalization under his control. This in turn will deepen his influence over the TSE, one of the critical barometers of Iran’s economy.

The TSE has become a primary resting place for wandering capital in Iran, which the Supreme Leader’s companies will now be in a better position to attract. The combination of a deep recession and tight currency controls has left many traditionally active markets in the doldrums, including real estate, precious metals, and foreign currency. The banking system has also become a less desirable destination to park money and generate income, because of its structural troubles and a sharp rise in inflation. All this makes the TSE more attractive.

Khamenei’s business empire has a $200 billion portfolio of assets that the United States has not yet subjected to substantial pressure. Khamenei’s most valuable holdings are the Execution of Imam Khomeini’s Order (EIKO), the Mostazafan Foundation, and the Astan Quds Razavi, whose economic arm is the Razavi Economic Organization. Of the three, the United States has sanctioned only EIKO and some of its subsidiaries, but neither extensively nor comprehensively. The U.S. Treasury Department has yet to designate Mostazafan or Astan Quds.

Treasury has not designated TSE either, although it has ample grounds to do so given that TSE provides financial services to entities controlled by designated institutions, such as EIKO and the Islamic Revolutionary Guards Corps (IRGC), and to entities designated for the proliferation of weapons of mass destruction. Together, the Supreme Leader and IRGC control 20 to 25 percent of the market value of listed companies on the TSE. The initial public offerings of Khamenei-controlled companies will increase their share even further.

TSE plays a significant role in Iran’s economy by absorbing capital and directing it to the companies that need it. Additionally, to remedy the budget deficit created by falling oil exports, Tehran has decided to sell state assets over the next two years, mainly through the TSE. To exert true maximum pressure on Iran, Treasury should designate TSE and its top managers.

Washington’s maximum pressure campaign has been extremely successful so far in terms of creating macroeconomic and fiscal hardship for the clerical regime. Tehran has experienced two consecutive years of recession, double-digit inflation, and major losses of oil revenue. But Washington can still do much more, in particular by targeting Khamenei’s business empire and the TSE.

As Washington increases the pressure on every front – economic, diplomatic, and military – the Islamist regime in Tehran will have to decide whether its nuclear ambitions and bid for regional hegemony are worth the growing risk of a collapse on the home front.

Saeed Ghasseminejad is a senior Iran and financial economics advisor at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Saeed and CEFP, subscribe here. 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.