April 2, 2020 | Policy Brief

Washington Targets Tehran’s Petrochemical Trade by Sanctioning Military Pension Fund

April 2, 2020 | Policy Brief

Washington Targets Tehran’s Petrochemical Trade by Sanctioning Military Pension Fund

The U.S. State Department recently designated a tranche of entities that are tied to, or directly engage in, the sale or supply of Iranian petrochemical products. Iran’s petrochemical sector accounts for roughly one-third of the country’s non-oil exports, making it a key source of revenue for the regime.

The most important entity in the batch of designations is Iran’s Armed Forces Social Security Investment Company (known by its Persian acronym, SHASTAN), which is a subsidiary of the country’s Armed Forces Social Security Organization (known by its Persian acronym, SATA). Washington targeted SHASTAN for ownership of an already sanctioned South African firm that trades Iranian petrochemical products. This designation expands financial pressure on institutions with ties to the Iranian military beyond the already sanctioned Islamic Revolutionary Guard Corps (IRGC).

SHASTAN was created in 2007 or 2008 to develop better profit margins for SATA. Over the years, SHASTAN has become intricately involved in Iran’s petrochemical industry, with reported ties to one-quarter of this key sector. Through nine holding companies and 200 subsidiaries, SHASTAN’s assets are reported to be worth just over $9 billion. Other estimates have put this figure as high as $15 billion.

SATA, on the other hand, was founded in 2002 as a subsidiary of the Ministry of Defense and Armed Forces Logistics (MODAFL). Its goal is to engage in business activities and generate revenue to provide pension, insurance, and welfare services to members of Iran’s armed forces, which is inclusive of the Army, the Police, and the IRGC.

Like other military pension funds around the world, SATA relies on three sources of funding: billions of dollars in annual allocations from the national government, premiums and fees paid by armed forces members, and lastly, income from its investments.

SATA holds a wide range of assets ranging from liquid to illiquid. Over the past few years, SATA’s portfolio of fully controlled companies on the Tehran Stock Exchange (TSE) has been worth 8 to 12 percent of the TSE’s total market capitalization. SATA’s TSE portfolio is heavily skewed toward the petrochemical, cement, and oil and gas sectors, all of which are strategic sources of revenue for Tehran.

The Trump administration designated the Armed Forces Social Security Investment Company pursuant to Executive Order 13846, which restored part of the penalties waived by the 2015 Iran nuclear deal. In November 2018, when Washington fully restored those penalties, the U.S. Treasury Department designated six TSE-listed companies controlled by Armed Forces Social Security Investment Company and its sister companies, all controlled by SATA.

Even in the face of sanctions, both U.S. adversaries and allies are purchasers of Iranian petrochemicals. This means that in addition to sanctions, strong diplomacy will be needed to help interested parties find alternative sources. That is not just good policy; it is also good business. In these discussions, Washington should be laying the groundwork for a complete ban on investment in the Iranian petrochemical sector, as well as restricting the import of goods relevant to the industry.

Simultaneously, Washington will need to dramatically increase the pace and number of designations related to Iran’s petrochemical industry. This means targeting more foreign companies that buy or facilitate the trade, as well as their Iranian counterparts that are enriched by it and have ties to the Iranian military establishment. Prospective Iranian targets for designation include SATA as well as its affiliates, the Armed Forces Pension Fund and the Armed Forces Insurance Fund.

With only seven months left before the U.S. presidential election, Iran is counting on illicit revenues from petrochemical sales to outlast Trump’s pressure campaign. Sanctioning SHASTAN was one step toward disabusing Tehran of that dream. But there are many more that still need to be taken.

Saeed Ghasseminejad is a senior Iran and financial economics advisor at the Foundation for Defense of Democracies (FDD), where Behnam Ben Taleblu is a senior fellow. They both contribute to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Saeed, Behnam, and CEFP, please 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.


Iran Iran Global Threat Network Iran Politics and Economy Iran Sanctions Sanctions and Illicit Finance