Can New US Sanctions Cripple Iran's Shadow Economy?

U.S. Treasury Secretary Scott Bessent announced a new round of economic sanctions against Iran, targeting five key sectors. These include digital assets, technology, gold, aviation, and shipping. Foreign entities involved in facilitating money laundering for Iran could face removal from the U.S. dollar-based financial system. The U.S. imposed sanctions on around 60 people and entities but refrained from targeting major Chinese banks.

Iran's economy has already been heavily sanctioned, and the latest measures aim to further strain its shadow economy.

Iran has long relied on informal networks such as exchange houses, gold, cryptocurrency, and shipping to bypass sanctions. Oil exports have dropped significantly, and food prices have surged by around 128% year-on-year. The currency is so devalued that many transactions are now conducted in US dollars. Inflation is so high that holding onto goods can sometimes be more profitable than selling them. This pressure is evident in various businesses, with employees being laid off and difficulty importing raw materials.

The sanctions are also affecting businesses abroad, with an Iranian businessman in Dubai struggling to maintain his cosmetics and hygiene brands due to import difficulties and raw material shortages. Iranian entrepreneurs are growing uncertain about the stability of the situation, leading to potential instability and polarization in the country.

While the new sanctions may make transactions more expensive for Tehran, the immediate burden is falling on companies, workers, and households already dealing with wartime disruption and extreme inflation. It remains uncertain whether the U.S. pressure will change Iran's leadership behavior.