Can new US sanctions cripple Iran's shadow economy?

US Treasury Secretary Scott Bessent unveiled a new phase of U.S. economic sanctions against Iran, targeting five key economic channels: digital assets, technology, gold, aviation, and shipping. Bessent also warned foreign entities involved in illicit money transfers to Iran would face removal from the U.S. dollar-based financial system.

The strategy aims to weaken Iran's shadow economy by increasing the cost for foreign intermediaries, particularly those facilitating money laundering. The sanctions impact businesses reliant on networks outside the formal banking system, such as exchange houses, gold, cryptocurrency, front companies, and shipping networks. Iran is experiencing severe economic strain, with food prices rising by around 128% year-on-year and oil exports falling due to U.S. efforts to disrupt shipments.

The pressure on ordinary businesses is evident, with building materials sellers reporting severe inflation, leading to increased profit margins for holding goods instead of selling them. The sanctions also disrupt payment processes for private companies, making it difficult to import raw materials and maintain employment. For those living abroad, the restrictions have made transactions more challenging, with Iranian entrepreneurs expressing uncertainty about account maintenance and potential tightening of residency rules.

While the sanctions may intensify inflationary expectations, their broader impact remains uncertain, potentially leading to an even larger and less controlled underground economy.