February 03, 2015

Iran Tracker Blog: Are Iran and Hezbollah on the same page?

This blog series analyzes the most important Iran news events of the past week and provides an outlook of the regime’s strategic calculus.


Lebanese Hezbollah does not want to escalate its confrontation with Israel while the group focuses on its main fight in Syria. The bigger question may be whether Iran does. Hezbollah’s January 28 attack on the Israeli Defense Forces was retaliation for a January 18 Israeli strike that killed senior IRGC Commander Mohammad Ali Allah Dadi and six Hezbollah fighters. Jihad Mughniyeh, the son of Hezbollah’s late military chief Imad Mughniyeh, was also among the dead. The attack was an unusually rapid response for Hezbollah, indicating it was likely a re-purposed operation aimed at breaking Israel’s pressure on Hezbollah in southern Syria. The Islamic Revolutionary Guards Corps (IRGC) praised Hezbollah’s attack, but appears to be pushing for a more severe response in the future.

IRGC Quds Force Commander Qassem Soleimani lost a trusted commander in Allah Dadi and an adopted son in Jihad Mughniyeh. He is likely angrier and more eager for revenge against Israel than even Hezbollah Secretary-General Hassan Nasrallah or Supreme Leader Khamenei. On the domestic front, President Rouhani continues to focus on the country’s economic policies. Among these policies is Rouhani’s proposed removal of the tax-exempt status for certain religious foundations and for enterprises controlled by the IRGC and the Office of the Supreme Leader (OSL). These efforts bring funds from Iran’s ‘gray’ economy under the direct control of the Parliament, underscoring Iran’s severe financial constraints. The proposal also indicates Khamenei’s continuing support for Rouhani’s campaign to re-balance the IRGC’s role in the economy and politics, address corruption, and strengthen the country’s fiscal position. The potential budget decision may face backlash from the patronage networks associated with the IRGC and OSL, but will strengthen the Parliament and its powerful Speaker Ali Larijani, who has recently found political common ground with Rouhani.

Iran threatens further retaliation against Israel:

IRGC Commander Major General Mohammad Ali Jafari said Lebanese Hezbollah’ s attack against an Israeli convoy was a “minimal” response to Israel’s airstrike that killed an IRGC Commander and six Hezbollah members. IRGC Deputy Commander Hossein Salami echoed Jafari’s comments and warned “no page will be closed, and the time and place to respond to them is not specific.” Hezbollah Secretary-General Hassan Nasrallah implied their retaliation was complete for now, however, and dismissed claims that Iran’s nuclear negotiations with the P5+1 limited Hezbollah’s response. As argued previously, Nasrallah is focused on supporting Bashar al Assad in Syria where he has deployed thousands of fighters. Escalating the confrontation with Israel would detract from that broader mission.

New checks and balances for this year’s budget:

President Rouhani is navigating declining oil revenues, uncertainty about sanctions relief, and the need to realign the regime’s fiscal and economic priorities in Iran’s proposed new budget. The president also asked for the removal of the tax exempt status for some conservative religious foundations and for major conglomerates such as the Khatam al Anbia, owned by the IRGC, and Setad, owned by the Office of the Supreme Leader. This bold move would aid Rouhani’s goal of expanding tax revenues by 23% while bringing greater financial transparency to major enterprises tied to senior regime officials. Khatam al Anbia is the largest engineering and construction company in Iran, while Setad has vast holdings in the petrochemical, oil, finance, telecommunications, and other industries. Both enterprises are under US and international sanctions. Parliament passed the proposed budget in December 2014, but it has yet to be approved by Iran’s Guardian Council.

Still no clear progress on nuclear talks:

Deputy Iranian Foreign Minister Abbas Araghchi expressed Tehran’s desire to resolve remaining disagreements as quickly as possible after meeting with European officials in Istanbul last week. Iranian Foreign Minister Javad Zarif reiterated the regime’s support for the negotiations even as he weathered domestic criticism for taking a walk with US Secretary of State John Kerry in Geneva, Switzerland. Zarif says only some details need to be resolved before the parties can reach an agreement.

J. Matthew McInnis is a resident fellow at the American Enterprise Institute. This report was produced in cooperation with the Iran Team of the Critical Threats Project. It analyzes the most important Iran news events of the past week and provides an outlook of the regime’s strategic calculus.