Rising Parallel Economies in Iran, A Threat to the Power of Sanctions?

Hidden behind a Western world where economic sanctions are oftentimes used as weapons, a quiet revolution that threatens the power of sanctions is slowly bubbling to the surface. Nations such as Iran, who were made vulnerable to the expansion of the US dollar and forced into recession by sanctions over the last decade, are now retaliating with the creation of parallel economies.

Parallel economies refer to alternative economic systems that arise when countries find ways to bypass imposed sanctions or restrictions. These economies go against the global financial system, covertly operating through secretive alternative mechanisms for trade or investment. Since the implementation of a number of sanctions by the United States during Trump’s first term, Russia, Iran, and China have all developed alternative economic systems to try and combat these restrictions.

Iran was hit especially hard by sanctions implemented after the 2016 American election; the country fell into a two-year recession. In total, more than 960 sanctions were passed against Iran by the first Trump administration. This was only exacerbated by more limits imposed on Iranian banks, which essentially cut off the country’s financial sector from the global economy. As a result, annual inflation in Iran lies above 42 percent, the national currency consistently loses value, and oil exports have fallen tremendously.

In order to try and combat the negative effects of these sanctions on its economy, the Iranian government has attempted to bypass these regulations by creating parallel economies to continue oil exports and banking through third parties.

Iran has accomplished this through the creation of dozens of proxy companies connected to more than 28 foreign banks in Hong Kong, Singapore, Turkey, and China. Furthermore, some countries have even created alliances with Iran in order to strengthen these financial networks.

Former sanction officials and intelligence members have discovered that Iran’s financial channels encompass both oil platforms and central bank vaults. Iran hides transactions with the help of countries who buy its oil, such as China. Hundreds of companies exist within this secret network, and it is likely that banks and financial institutions play a role in the creation of this parallel economy without even realizing it.

Further, Iran has created its very own oil sales system to continue earning money. The National Iranian Oil Company (NICO) is an oil monopoly within Iran, and it utilizes its Swiss subsidiary and the Naftiran Intertrade Company to facilitate oversea oil marketing and trade. Through the help of allies and its secret financial channels that outsource sales abroad, Iran earned about 4 billion dollars selling crude oil in the last year alone, contributing to its national wealth, and subsequently, its power. A US investigation has found that Iran has used these funds to boost its nuclear program and support groups such as Hezbollah, the Houthis, and the Iraqi militia, as well as produce drones to sell to Russia to be used against Ukraine.

The creation of such parallel economies in Iran presents a double-edged sword for the United States. Iran is currently in possession of enough enriched uranium to build 6 nuclear weapons. Tehran wants to use the danger of nuclear weapons to threaten current US sanctions and create a fully functioning parallel economy that destabilizes the American-influenced world economy. In attempts to try and reduce these threats, the Biden administration adopted a more Tehran-friendly policy which allowed Iran’s financial and banking networks to expand. Regardless of Biden’s attempts to sway them, Iran has taken advantage of these changes. It has not decreased its use of parallel economies, which could eventually render US sanctions ineffective.

Iran, along with Russia and China, is swiftly working towards the long term goal to restructure the global order away from Western countries, especially the United States. Parallel economies are simply one step of this process, and if these institutions continue to succeed, they could have drastic consequences on the future of international affairs and economic relations for years to come.