This analysis argues that Western sanctions on Iran have often strengthened the Islamic Republic’s shadow economy, empowering the IRGC and politically connected institutions while weakening independent economic actors.
In our lead image: Shows Mohammad Reza Pahlavi, the Shah of Iran (left), and U.S. President Jimmy Carter (right) during a state visit to the White House in Washington, D.C., on November 15, 1977. Source: Facebook.
Támogatóink hozzájárulása nélkül ez a cikkünk sem készülhetett volna el. Ne csak olvassa, támogassa is lapunkat: kattintson ide.
Miklos K. Radvanyi, vice president of the Frontiers of Freedom Institute provided an analysis for Gulyáságyú Média. / Radványi Miklós, az egyesült államokbeli republikánus think-tank, a Frontiers of Freedom Institute alelnöke angol nyelvű elemzése a Gulyáságyú Média számára.
You can find all of Miklos K. Radvanyi’s opinion pieces on this link. Radványi Miklós összes írását ezen a linken találja.
The Islamic Republic of Iran is difficult to understand if it is viewed only through the Western lens of formal institutions because the real political, military, economic, financial, and cultural power lies in obscure as well as overlapping institutional networks. In reality, the Iranian Mullahcracy has never operated as a normal nation-state economy. Beneath the visible structure of ministries, central banks, state budgets, and licensed businesses lies a second system – deeply opaque, highly ideological, totally militarized, and inseparably tied to the survival of the Islamic Republic itself.
Two Economies, One Regime
To fully comprehend the real nature of the Islamic Republic and its Mullahcracy, one must understand that there are effectively two economies. The first is the official economy: the visible state sector, industrial firms, oil exports, legal commerce, and the everyday market, in which ordinary Iranians struggle against inflation, unemployment, and rapidly declining purchasing power. The second economy is the “shadow economy” controlled by the Islamic Revolutionary Guard Corps (IRGC), religious foundations known as BONYADS, and networks tied directly to the Office of the Supreme Leader.
Ironically, Western sanctions intended to weaken the Islamic Republic have often strengthened this second economy – and with it, the long-term durability of the Mullahcracy. To be clear, the Islamic Republic is not merely an isolated case. It illustrates a broader historical perspective: sanctions frequently reshape tyrannical systems in ways that consolidate these states, weaken independent civil societies, and empower rather than weaken political hardliners.
The Rise of the Shadow Economy
Yet, the Islamic Republic did not originally begin with such an extensive dual structure. After the 1979 Khomeini revolution, the Mullahcracy inherited a relatively diversified economy with a capable merchant class, educated technocrats, industrial firms, and vast oil revenues. On the other hand, this so-called revolution also brought mass confiscation of private wealth. Assets belonging to the Shah, industrial elites, and major businesses were absorbed into so-called revolutionary foundations as well as semi-state institutions. Over time, these business ventures evolved into enormous conglomerates operating outside normal governmental oversight. Organizations such as the Mostazafan Foundation, Astan Quds Razavi, and Setad have become economic empires controlling factories, ports, farms, hotels, banks, telecom firms, and real estate. Reuters once estimated the value of Setad’s holdings alone at roughly $95 billion. Officially, these entities existed to aid “the oppressed.” In reality, they have become pillars of political patronage and new elite wealth.
Alongside the BONYADS, the IRGC has transformed itself from a revolutionary militia into one of the largest economic as well as financial actors in the Middle East. The IRGC has expanded first through wartime logistics during the Iran-Iraq War, then through reconstruction contracts, and finally through sanctions-era smuggling and sanctions evasion. Presently, the IRGC exerts enormous influence over energy, construction, telecommunications, shipping, banking, and covert oil exports. Reuters recently described the IRGC as wielding “great sway” across the Islamic Republic’s politics as well as economy.
How Sanctions Strengthened the System
The critical turning point came with the intensification of sanctions in the mid-2000s. Western policymakers believed that sanctions would weaken the Mullahcracy by depriving it of resources. Economically, sanctions surely inflicted immense damage. They contributed to inflation, currency collapse, declining investment, technological stagnation, and much lower growth. Yet, sanctions also transformed the domestic structure of the Iranian economy in ways that empowered the Mullahcracy’s most opaque and coercive institutions. Surely, sanctions cripple normal commerce. They restrict legal banking, shipping, insurance, investment, and access to international finance. In such environments, transparent civilian businesses struggle to survive. But black markets thrive. Smuggling becomes economically and financially invaluable. And no institution in the Islamic Republic was better positioned to exploit that reality than the IRGC.
The IRGC controlled ports, border crossings, shipping infrastructure, intelligence networks, and coercive power. As legal trade became more difficult, the IRGC’s ability to move goods secretly became a strategic economic asset. Entire sanctions-busting ecosystems emerged involving shell companies, covert tanker fleets, intermediaries, hidden financial channels, and politically protected import-export networks. Reuters and other investigations have repeatedly documented how the IRGC expanded its role in oil exports and sanctions evasion. In effect, sanctions increased the economic value of operating outside the law – precisely the environment, in which the Mullahcracy excelled.
The Paradox of Economic Warfare
Meanwhile, the Islamic Republic’s ordinary private sector suffered profoundly. The result was not simply economic decline; it was the hollowing out of independent domestic and international economic actors who might otherwise have formed a more autonomous middle class. In this manner, sanctions have accelerated state consolidation around politically connected oligarchs and security structures. The real tragedy is that sanctions frequently damage the very social groups that are most inclined toward moderation and openness. The Islamic Republic demonstrated this clearly during the brief opening by the 2015 Joint Comprehensive Plan of Action (JCPOA), commonly referred to as the Iran nuclear agreement. European firms returned. Foreign investment discussions resumed. The Islamic Republic’s technocratic class gained influence. However, when sanctions returned after the collapse of the nuclear deal, the central paradox of the Mullahcracy has returned: the more isolated the Islamic Republic has become, the stronger the militarized shadow economy has grown.
The sanctions also strengthened the Mullahcracy ideologically. In this sense, the Supreme Leader announced “economic warfare” and „resistance economy” to justify tighter internal control and the doctrine of defending “national survival.” Consequently, the Mullahcracy has fused clerical authority, military power, commercial monopolies, ideological institutions, and patronage networks into a “military-BONYAD complex.”
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