Key Points and Summary – Western sanctions and even military strikes are failing to stop Iran’s nuclear program for one key reason: it’s not funded by the official economy.
-Instead, a “secretive commercial empire” run by the Islamic Revolutionary Guard Corps (IRGC) finances the effort.
-The IRGC uses a shadowy conglomerate, a complex network of oil-trading shell companies, and illicit black markets for everything from drugs to iPhones.
-This parallel system means that sanctions, which cripple the mainstream Iranian economy and hurt its people, have little effect on the nuclear program’s funding and may even strengthen the IRGC’s power.
How Iran Successfully Evades Sanctions
Last month, Iran fought a 12-day war against Israel, which also included a U.S. strike on Iran’s nuclear facilities.
This week, The Economist looked at what that war, and its aftermath, did to Iran’s economy.
According to the analysis, things weren’t exactly great for Iran’s economy even before the war.
“Even before the bombs began to fall, Iran’s economy was in a bad way. Six in ten working-age people were unemployed. Prices had risen by 35% in the past year. Some 18% of the population was living below the World Bank’s poverty threshold,” The Economist said.
“Despite exporting gas and oil, Iranian officials had to burn mazut, a low-grade refining byproduct, to keep the lights on. Binyamin Netanyahu, Israel’s leader, then went after economic targets. Amid attacks on military bases and nuclear facilities, Israeli planes bombed at least two gas fields, a few oil fields, and a car factory.”
Now, after the war, Iran is once again in talks with Western nations, with those countries threatening to reinstate U.N. sanctions should Iran not agree to a new nuclear deal.
However, per the report, the war effort might not achieve the goal of eliminating Iran’s nuclear capability, because the economy that supports it is largely kept separate from Iran’s main economy.
“The idea behind the airstrikes was similar to the thinking behind international sanctions already applied to Iran. Hitting the economy will in time reduce the regime’s tax revenues, which should be a blow to its nuclear ambitions,” the Economist said.
“The problem is that the Islamic Revolutionary Guard Corps, the country’s security service, plays a crucial role in the development of Iran’s nuclear programme. And the irgc’s financiers have nurtured a secretive commercial empire, which benefits from measures that hammer the wider economy.”
A History of Sanctions
Iran has long faced sanctions over its purported nuclear ambitions, some of which were eased following the JCPOA agreement in 2015, although further sanctions were put in place both due to Iran’s support for Russia and following Trump’s return to the White House. The sanctions are on products, companies and individuals.
“The result is that next to no business is done between the West and Iran. Iranian firms, cut off from the international banking system, which often settles transactions in dollars using swift, a Europe-based payment system, must resort to subterfuge to pay trade partners even in China and Russia,” the Economist analysis says. “This distorts Iran’s economy, which is set to shrink by 1.6% in the next 12 months, according to the World Bank. Unable to export, new companies mostly sell services to the domestic market.”
Lots of Black Markets
However, per the report, very little of the money that funds either Supreme Leader Ayatollah Ali Khamenei or the IRGC comes from “official” sources.
The IRGC is mainly funded by “a range of local companies and foundations,” a shadowy conglomerate called Khatam al-Anbiya, and a scheme in which it trades oil directly. The IRGC acquires oil and then sells it, through what the Economist calls “ a fiendishly complex network of exchanges and shell companies,” many of which are Chinese.
Also supplying income to the Revolutionary Guard? “A line in illicit imports and exports,” which is thought to include drugs, as well as “cigarettes, consumer electronics and food.” Apple, for instance, does not due business in Iran, but the iPhone, entirely underground, has a “$1 billion market” in that country, according to one report.
“The recent history of oil sanctions has demonstrated that tighter restrictions do not prevent Iranian trade—they only temporarily slow shipments until exporters find a way around them (see chart). And as inflation spirals and shortages abound, the Iranian population will continue to pay the price for their security service’s misadventures,” the Economist concludes.
About the Author
Stephen Silver is an award-winning journalist, essayist, and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review, and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, national security, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
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