With a potential $150 billion in immediate sanctions relief to spend—and billions more on new business and energy profits to be made in the years to come—Iran is facing a welcome problem of how to use all this money. Tehran’s list of economic investment and energy infrastructure projects is undoubtedly long and will consume the majority of the new dollars. Iran will still have plenty of sanctions relief funds though to put towards its partners and proxies under its Islamic Revolutionary Guard Corps (IRGC). And it will need to.
The IRGC oversees political, paramilitary, and covert operations worldwide, but four arenas dominate Iran’s attention. Maintaining President Bashar al Assad’s government in Syria could now be costing Iran as much as $25 to $35 billion a year, according to United Nations officials. Tehran’s premier proxy group, Lebanese Hezbollah, is in constant need of new recruits, cash, and weapons as their fighters are increasingly the primary force holding Assad’s front lines. Iran’s Islamic Revolutionary Guard Corps’ (IRGC) has a massive, stalled effort to help lead and assist the Iraqi security forces and Shia militia groups in their fight against ISIS. Finally, Tehran provides support for Yemen’s Houthi rebels, despite the logistical challenges of moving any large amount of resources to the southwest corner of the Arabian Peninsula under threat of a naval blockade.
These are, with the exception of Yemen, fights Iran must win. Tehran likely underwrites them through additional off-the-books budgetary sources (implicitly estimated by the White House to be at around $15 billion) on top of Iran’s $16 billion or so in official defense spending. Then, there are the profits of the major multi-billion dollar industrial conglomerates and holding companies owned by the IRGC or Supreme Leader Ali Khamenei, from which most of Assad’s survival money likely originates.
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Iran’s military also needs a massive modernization of its conventional air, ground, and naval forces to catch up to its regional competitors (acknowledging, of course, the Iranians are usually more proficient with their equipment no matter how old it is). IHS Janes estimates Iran may need $40 billion for a military “refresh.” Khamenei recognizes this problem and has asked for increased spending on the armed forces, including ballistic missile and cyber capabilities, in his latest Five-Year economic plan.
The nuclear deal will go a long way in helping to pay these huge bills. Only a small portion of the direct and indirect sanctions relief can alleviate much of this immediate budgetary pressure. The apparent removal of many of the international financial restrictions on the IRGC’s organizations and personnel will also be a huge boon to these operations. But the IRGC is knee-deep in Syria and Iraq, and struggling to keep Yemen from becoming another resource black hole. In tandem with broader national budget pressures, these regional challenges mean Iran is currently unlikely to undertake major new initiatives to expand its influence or further destabilize the region.
But what of the future? Reports indicate the conventional arms embargo will be lifted within five years, and restrictions on ballistic missiles within eight. Assuming ISIS has been defanged by that time, what happens if Iran is able to get the situation under relative control with Damascus and Baghdad? Longer-term, what will the world look like after 2020, when all the restrictions have been lifted?
A largely unshackled Iranian military will be able to more rapidly modernize. Equipped with new Russian and Chinese weaponry, Iran could freely send munitions and equipment to its partner forces throughout the region. This would dramatically escalate the proxy wars and conventional arms race between Iran and the Arab states of the Gulf Cooperation Council (GCC).
Iran will almost certainly have a new supreme leader by then, but it is not a safe bet to expect a moderate foreign policy from Tehran. Most likely, a modified version of Khamenei will lead Iran. Even under the optimistic scenarios where Iran’s government shifts away from its harder core anti-American, anti-Zionist, and Islamic ideological underpinnings, the regime will likely be driven by nationalistic impulses. The Arab states will still be facing, at best, a prickly Iran seeking a dominant position in the region and closely aligned with these states’ minority Shia populations. Undermining Saudi Arabia’s leadership role in the Muslim world and amongst the Gulf states will remain central to Tehran’s calculations and planning.
Iran will also have a battle-hardened expeditionary army of Shia proxies and militias stretching from Lebanon to Iraq at its disposal. The full overhaul of Iran’s conventional forces will take some time. However, smart acquisition of new generations of advanced over-the-horizon radars, air defense systems, cruise missiles, torpedoes, and precision guidance technologies for its ballistic missiles could have a dramatic effect on Iran’s ability to target and deter U.S. and Gulf forces. Iran’s capability to expand its offensive and defensive cyber capabilities will likely surpass any other regional power. Tehran will watch the Gulf states for any reaction to Iran’s growing conventional position and its willingness to take military action, and Iran will adjust then accordingly. The GCC countries will be focused on shoring-up their immediate security while ensuring that they are not over-stretched regionally.
Saudi Arabia views Iran as both an internal threat to its rule and an external threat to its regional leadership. The Kingdom will push for event further domestic security integration within the GCC, beyond the already deepening political and economic ties. While the UAE may feel uncomfortable with Riyadh’s perceived expansiveness in its domestic affairs, the precarious threat environment will dampen such resistance. The GCC’s porous borders with Yemen and Oman’s fragility after the passing of Sultan Qaboos will re-enforce this need for expanded domestic security cooperation.
The GCC will also consolidate its collective external security posture by moving toward integrated and collective defense responses in view of a more assertive Iran and a less active United States. Such integration will re-enforce Riyadh’s heightened willingness to take risks and the GCC’s willingness to take aggressive action to counter-regional threats. If the U.S. navy pulls back, insecurity in the Persian Gulf may force these states to develop more naval capacities. Such capabilities will further contribute to the GCC’s inevitably defensive, scaled-back security posture, leaving fewer resources to pursue as many expeditionary operations as they once did in Libya and recently, in Syria to counter-ISIS.
In this Middle East of the 2020s, likely flash-points include:
Challenge to U.S. naval power: Tehran will likely continue to assert that Middle East security should be left to local powers and that the U.S. navy should not be in the Persian Gulf. As Iran modernizes its cruise missile and naval arsenals during the next decade, Tehran will test U.S. military vulnerabilities and willingness to remain in the region.
Arab-Iranian conflict in the Persian Gulf: The Gulf states may feel compelled to contest Iran’s ability to control the Persian Gulf and Strait of Hormuz if America’s presence decreases. This contestation could include the Arab States amassing the latest generation anti-ship cruise missiles and mines in addition to becoming more proficient in surface naval operations. Backed up by growing ballistic missiles arsenals on both sides of the Gulf, this is an environment rife for miscalculation and escalation.
Proxy war in the Levant: The civil war in Syria may not end for another decade. When it does end, it may leave a balkanized Levant. Saudi Arabia is unlikely to tolerate a Shia proxy force under Iran’s control directing the affairs of both Syria and Lebanon, especially if this includes a long-term deployment of IRGC combat troops. Riyadh could seek through covert actions to disrupt and degrade Iran’s operations in the region, perhaps even through a new Saudi-led Arab paramilitary force.
Power contest in Iraq: The Gulf States have already shown some willingness to finally compete for influence in Baghdad. Saudi Arabia will not tolerate an Iranian-directed proxy and Shia militia army on its northern border, especially if it becomes integrated with the Iraqi army. The GCC states may invest in Sunni proxy forces of their own to undermine Iranian activities in Iraq, further fueling sectarian conflict
Oman: Sultan Qaboos’ death may lead to instability in Oman. The country’s strategic position in the Strait of Hormuz will invite Saudi, Emirati, and Iranian competition for dominant influence. The Arab states may escalate to using force if they think Tehran is gaining the upper hand.
Iranian efforts to destabilize Saudi Arabia: The Gulf states see the IRGC’s covert activities in Bahrain, Jordan, Yemen and Saudi Arabia’s majority Shia Eastern Province as an attempt by Iran to surround and strangle Riyadh. Unless there is significant change in the regime in Tehran, these fears will only increase as Iran puts even more resources towards its proxies with the aim of sowing discord within the Kingdom.
All of these scenarios will take on a more ominous tone as we approach 2030, when Iran will likely achieve a threshold capability to produce a decent size nuclear arsenal if it choses to do so.
This is a future the United States can certainly shape. The announced nuclear deal will gradually withdraw important international authorities to sanction the IRGC and its associated finance, procurement and logistics networks. In defending the deal, President Obama has taken great pains to assert that Washington will continue its unilateral and multilateral efforts to target Iran’s support to proxy and terrorist groups. Enhanced commitment to help the Gulf State to find better ways to roll back Iran’s disruptive activities could prevent most of these outcomes.
Similarly, the United States needs to actively develop strategies to constrain Iran’s ability to acquire the weapons systems most threatening to the U.S. navy and air force—or be able to mitigate them if unsuccessful. The continued U.S. presence in the Gulf will also be essential to prevent the escalation of GCC-Iran conflicts.
If Iran does not cheat, the nuclear agreement may have made war over Iran’s nuclear program less likely. But the United States cannot afford to rest on its laurels. The comprehensive nuclear agreement will have its own second order effects. Other wars may now have become more likely.
The views expressed in this article are those of the author and do not reflect the official policy or position of the Department of Defense or the U.S. Government.
