How Is Iran Still Sustaining Itself Under Sanctions? Shadow Trade, Informal Networks and Economic Adaptation 

For more than a decade, international sanctions have sought to constrain the economic and geopolitical influence of Iran by targeting its financial system, oil exports and international trade. These restrictions were designed to weaken the country’s economic capacity and limit its ability to finance strategic and military programs. Yet despite prolonged economic pressure, the Iranian economy has continued to function. 

This raises a critical question: how has Iran managed to sustain economic activity under such constraints, and how does it continue to fund state expenditures, including its defence infrastructure?

While official statistics highlight inflation, currency depreciation and restricted investment, a less visible but increasingly significant system operates beneath the surface. This system, often described as a shadow economy, consists of informal trade networks, sanctions-evasion mechanisms and clandestine energy exports. Together, these elements have become central to Iran’s economic resilience.

Sanctions and Economic Pressure 

Sanctions intensified after the collapse of the Joint Comprehensive Plan of Action in 2018, when the United States reimposed extensive restrictions on Iran’s energy sector, banking system and international trade (Rathbone et al, 2018). These measures were intended to significantly reduce the country’s oil revenues and isolate it from the global financial system.

Economic indicators following the reintroduction of sanctions showed clear signs of strain. Inflation increased sharply and the Iranian Rial experienced substantial depreciation against major currencies. According to economic assessments, these developments significantly reduced household purchasing power and limited foreign investment (Ture and Khazei, 2022, p.15).

Clandestine Oil Exports and Maritime Evasion 

Crude oil, condensate, natural gas, and a range of petroleum and petrochemical products serve as essential export commodities for Iran, constituting a major source of foreign currency and, despite restrictions and sanctions, energy remains the backbone of Iran’s economy. (Khajehpour, 2020, p.6).

To circumvent sanctions, the country has developed complex logistical strategies that allow oil shipments to reach international markets through indirect routes.

These strategies often involve ship-to-ship transfers at sea, the use of intermediary shipping companies and the temporary disabling of tanker tracking systems (Dutta, 2025). Such practices make it difficult for regulators to trace the origin of oil cargoes or monitor their final destination.

A considerable amount of these indirect exports is believed to reach markets in China, often sold at reduced prices via intermediary trading companies. These discounted sales lead to a notable loss of revenue for Iran, yet they have facilitated ongoing trade, allowing Iran’s energy sector to persist despite sanctions (Lockwood, 2026)

Cross-Border Informal Trade Networks 

Another pillar sustaining Iran’s economy is informal cross-border trade. The country shares extensive land borders with states including Iraq, Turkey and Pakistan, which facilitate regional commercial exchanges. Across these borders, traders move goods such as fuel, food products, electronics and construction materials. Many of these transactions occur outside formal customs frameworks and are conducted through informal payment arrangements. Although individual exchanges are often small in scale, their combined volume contributes significantly to economic circulation and supply chains (Global Initiative Against Transnational Organized Crime, 2020).

Alternative Financial Systems 

Financial sanctions have also limited Iran’s access to global banking networks, particularly those associated with the Society for Worldwide Interbank Financial Telecommunication (Cipriani, Goldberg and La Spada, 2023). As a result, Iranian businesses have developed alternative methods to facilitate international trade.

Barter arrangements allow exporters to exchange commodities directly for goods or services without relying on international financial systems. Additionally, it employs a sophisticated, multijurisdictional “shadow banking” system consisting of financial intermediaries, including exchange houses, trading firms, and front companies, to market oil and finance its proxies (Timm, 2026).

Informal financial transfer systems resembling hawala networks also enable traders to move funds across borders through trusted intermediaries, while technological revolutions like AI, cryptocurrency and blockchain (Timm, 2026) have made these transactions untraceable. These mechanisms reduce reliance on formal banking institutions and help maintain cross border trade despite sanctions.

Structural Challenges of the Shadow Economy 

Despite its role in sustaining economic activity, reliance on shadow economic systems introduces significant structural challenges. Informal trade networks operate largely outside regulatory oversight, reducing tax revenues and increase in corruption have been a major source of unrest and uprising against the ideologues in Iran (Salami, 2025). Furthermore, businesses operating within uncertain regulatory environments may prioritize short-term survival strategies rather than long-term investment. This can limit productivity growth and hinder broader economic development.

Conclusion 

Iran’s experience highlights the complex dynamics surrounding economic sanctions. While sanctions impose significant economic costs, they rarely eliminate economic activity entirely. Instead, they often encourage the emergence of alternative trade networks that adapt to restrictions (Laudati and Pesaran, 2023). These networks are decentralized and flexible, making them difficult to monitor or regulate effectively. As a result and as we see with Iran, sanctions frequently reshape economic behavior rather than fully achieving their intended policy outcomes.

The Iranian economy demonstrates a notable capacity for adaptation under prolonged external pressure. Through clandestine oil exports, cross-border informal trade and alternative financial systems, Iran has developed a parallel economic infrastructure that partially mitigates the impact of sanctions.

Although this shadow economy does not eliminate economic hardship, it provides sufficient economic continuity to sustain state operations and domestic markets. For policymakers and analysts, understanding these hidden economic networks is essential for evaluating the broader effectiveness of sanctions and the resilience of sanctioned economies.

Bibliography 

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https://www.acams.org/en/opinion/fragmented-world-irans-exploitation-geopolitical-and-technological-gaps-ill icit-activity

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