Mobarakeh Steel, reportedly targeted by both the US and Israel, plays an outsize role in Iran’s corruption-riddled economy.
The targeting of major Iranian steel plants by Israeli and US forces is threatening the future of Mobarakeh Steel, one of the largest producers in the MENA region and responsible for as much as 50 percent of Iran’s total steel production. By government estimates, Mobarakeh’s revenues in recent years have been equivalent to almost one-sixth of the national budget.
A crucial source of income for the Iranian industrial-military complex that controls it, Mobarakeh Steel facilities were struck in attacks days apart over the past week. Company representatives have reported extensive damage and a near-total shutdown of the massive operation. Mobarakeh’s bombing—and the risk of additional strikes—may have a significant economic impact on ordinary Iranians, already under severe duress.
On the night of March 31, according to Iranian state-controlled news sources, Israel and the United States launched a joint attack on the sprawling Mobarakeh Steel complex in Isfahan, as well as the smaller, affiliated Sefid-Dasht plant in Chaharmahal.
Four days earlier, Mobarakeh was hit by strikes, similarly attributed to both Israel and the US, that reportedly led to partial shutdowns at the Isfahan facility. Structures suffering damage included a substation, alloy steel production line, and power plants key to the steel facilities’ electrical supply. In southwest Iran, Israeli planes also targeted Khuzestan Steel, the country’s second-largest producer, where the damage was reportedly limited to two storage silos.
Steel has been a pillar of Iran’s non-oil industry since the 1970s. Given Mobarakeh’s central position, as well as the role it plays in the web of semi-private conglomerates that finance the regime, the threat of its destruction was already sending ripples through the domestic market after the first wave of strikes.
“Bombing doesn’t stop our work,” Bahram, a Tehran resident employed in construction, told Resanegar, Tehran Bureau’s economic unit. “What stops us is the absence of materials in the market.”
While supplies of construction materials held up during the first weeks of the war, they tightened considerably following the March 27 steel-plant attacks. Bahram remarked that even prepurchased materials were not being delivered as vendors pull back stock in anticipation of price rises. “No one is willing to sell something they know will soon become completely unavailable,” he said.
Ownership and ties to Sepah Cooperative Foundation
Mobarakeh Steel is partially owned by the Sepah Cooperative Foundation (Bonyad Taavon Sepah, or BTS), among the largest of the many quasi-governmental “charitable” institutions, or bonyads, whose economic activities enrich the Islamic Revolution Guard Corps (IRGC) and the country’s ruling elite.
A 2022 Iranian parliamentary report found that, between 2018 and 2021, the company generated revenue equivalent to roughly 15 percent of the country’s national budget. The US government, in 2020, assessed that Mobarakeh was responsible for one percent of Iranian GDP.
Though Mobarakeh’s owners have changed over the years amid various opaque privatization schemes, documents suggest that BTS has maintained beneficial ownership of the steel complex since its privatization in the 2000s. Tehran Bureau’s reporting has shown that even a relatively low percentage of ownership by BTS or another bonyad allows regime-linked actors to exercise effective control over a company’s finances and operations. Among the other entities that have had a stake in Mobarakeh Steel is Omid Investment Management Company, a subsidiary of the IRGC’s Bank Sepah.
According to publicly available business registry documents analyzed by Tehran Bureau in 2020, Mobarakeh was connected to two companies related to the bonyads via its board members: Andishe Mehvaran Investment Company and Sadr Tamin Investment.
Andishe Mehvaran Investment Company, in turn, had Iran Zinc Mines Development among its board members. (It is common for regime-linked companies to be listed as “members” of each other’s boards in business registry documents to obscure the identities of the individuals who control them.) Iran Zinc Mines Development was partially owned by Mehr Eqtesad Iranian Investment Company and Ofoq Nili Khalij Fars, subsidiaries of Bank Mehr Eqtesad, co-owned by BTS and the Basij militia.
Mobarakeh Steel is also tied to the Tamin Investment Fund (Shasta) via its subsidiary Sadr Tamin Investments. Shasta, aka Social Security Investment Co. (SSIC), has a stake in 36 of Iran’s top 100 companies, as well as 27 of Iran’s top 59 oil companies. Government-owned, Shasta in turn co-owns companies along with the armed forces, BTS, and EIKO, among other bonyads. As such, it is a vehicle for corruption in its own right—a significant link in the chain of complex ownership structures that keeps money flowing from public coffers into the private hands of the IRI aristocracy.
Endemic corruption
As one of the most profitable businesses in Iran’s slow-moving economy, Mobarakeh has long been a cash cow for its owners and managers.
In May 2020, the value of Mobarakeh Steel’s shares on the Tehran Stock Exchange (TSE) surged to record highs on the back of a rushed sell-off of state-owned consortia after COVID-19. The TSE’s main index surpassed one million points for the first time in its 32-year history, driven largely by industrial, petrochemical, and mining stocks. The firms involved in the transactions were linked to Shasta, the IRGC, the armed forces, and major bonyads, with these largely unaccountable entities capturing much of the profits.
In 2022, the Tehran Stock Exchange suspended Mobarakeh Steel trading following a 297-page Majles report claiming the company’s managers had abused their positions to defraud the government and shareholders of billions of dollars. A government investigation into the company uncovered widespread fraud and cronyism causing losses of hundreds of billions to trillions of rials. The investigation’s findings included mismanaged and fraudulent contracts, below-market deals with automakers, and profiteering from steel surpluses. Executives also inflated payrolls by hiring relatives and even concocting fictitious employees while awarding themselves exorbitant salaries.
The IRITEC connection and US sanctions
The industry know-how that led to the creation of Mobarakeh Steel dates back to before the Islamic Revolution. In 1975, several state-owned Iranian industrial concerns entered a joint venture with an Italian company to found the Iran International Engineering Company (IRITEC). The firm introduced direct reduction technology, a leap forward in Iran’s industrial development, leveraging natural gas rather than the emissions-heavy coke traditionally used in steel production. Following the 1979 revolution, IRITEC was instrumental in the founding of Mobarakeh Steel and the later construction of its massive Isfahan complex. With more than two dozen plants spread out across 35 square kilometers, the complex became operational in 1992.
In the early 2000s, privatization led by President Hashemi Rafsanjani transferred the ownership of the country’s largest companies to conglomerates controlled by the IRGC and the bonyads, which are formally accountable to the Office of the Supreme Leader (Beyt-e Rahbari). While Mobarakeh came under the effective control of BTS, IRITEC was taken over by the government-controlled privatization organization, which claimed IRITEC was unable to sustain itself financially. This is a tactic frequently used by regime actors to gain control of profitable companies.
IRITEC subsequently featured in sanctions litigation involving the Italian bank Intesa Sanpaolo. In 2013, the bank agreed to a $2.95 million settlement with US authorities for processing transactions linked to Irasco S.r.l., a Genoa-based company co-owned by IRITEC, in violation of sanctions. The case highlighted compliance failures involving dealings with Iran, Tehran Bureau’s reporting has shown.
Five years later, in October 2018, Mobarakeh was sanctioned by the US Treasury Department’s Office of Foreign Assets Control (OFAC) for funneling millions of dollars annually to Mehr Eqtesad Iranian Investment Company, which helps finance the Basij militia—and collaborates on multiple projects with IRITEC. In January 2020, OFAC announced further sanctions on Mobarakeh as part of sweeping penalties on Iran’s “steel, aluminum, copper, and iron manufacturers” for funding and enabling the nation’s regime. That June, five Mobarakeh subsidiaries—one wholly owned, the others majority-controlled—were also designated for sanctions by OFAC.