September 7, 2016

Saeed Ghasseminejad

A debate has raged in recent weeks over whether the Obama administration’s $400-million payment to Iran in January – part of a $1.7-billion settlement over a decades-old arms deal – constituted “ransom” for five U.S. hostages. The Wall Street Journal reported on August 3rd that the United States had sent the $400 million in cash on an unmarked cargo plane, and that Tehran did not receive the money until it released the hostages. After being pressed over the suspicious timing of the exchange, the administration conceded that the money had been used as “leverage” to secure the hostages’ release, but rejected the accusation of ransom. Lost in the debate, however, is the purpose the money will ultimately serve.

Last week, Tehran finalized its 2016-17 budget, ending months of back-and-forth within the Iranian government over how the money would be used. Back in April, Iranian media reported that parliament had passed Article 22 of the budget, which required the executive branch to transfer to the military the funds it receives from settling legal disputes with foreign countries and companies. The following month, a member of the parliament’s presiding board confirmed that the legislature had indeed allocated $1.7 billion from legal settlements to the defense budget. AsBloomberg’s Eli Lake subsequently reported, the U.S. was “inadvertently paying” for a portion of Tehran’s military expenditures.

But in June, the government of President Hassan Rouhani requested that parliament eliminate Article 22 – a request parliament rejected. One parliamentarian argued that the Central Bank must allocate 50,000 billion rial (roughly equivalent to $1.7 billion) to the defense budget, saying this money belongs to the armed forces and that the executive branch’s excuse that it had already spent the money is unacceptable. He also revealed that Supreme Leader Ali Khamenei had approved the allocation to the military. In August, the executive branch yielded to parliament, keeping Article 22 in the final budget. Parliament passed the new amendment last week, and the Guardian Council – which must approve all legislation – ratified it a few days later.

There is no longer any doubt that the money the United States has paid to Iran will go to the Islamic Republic’s armed forces. It remains unclear how the military will spend it – potentially to prop up the Syrian regime, Hezbollah, Shiite militias in Iraq, or Houthi rebels in Yemen, or to buy heavy weaponry from Russia in contravention of the UN arms embargo.

What is clear are the benefits the regime draws from receiving these funds in cash. It would be far easier for Tehran to procure advanced weaponry from Russia and China, for example, if it can pay for it with hard currency rather than through the formal financial system, having to circumvent the UN arms embargo and U.S. financial sanctions. With bags of untraceable hard currency, Iran can more easily support its allies or illicitly procure missile and nuclear parts. Ultimately, the $400 million in cash that the U.S. has delivered to Iran – and the wider $1.7-billion settlement – will help finance Tehran’s overriding objectives: spreading its revolution and further destabilizing the Middle East.

Foundation for Defense of Democracies

About Track Persia

Track PersiaTrack Persia is a Platform run by dedicated analysts who spend much of their time researching the Middle East, in due process we fall upon many indications of growing expansionary ambitions on the part of Iran in the MENA region and the wider Islamic world. These ambitions commonly increase tensions and undermine stability.