The Economics of Repression: How the IRGC Profits from Sanctions

1. Introduction: Sanctions as a Double-Edged Sword

International sanctions aim to pressure the Islamic Republic by shrinking state revenues—especially from oil exports and financial transactions. Yet the Islamic Revolutionary Guard Corps (IRGC) has evolved to thrive under these conditions, exploiting the resulting economic turmoil to finance itself, its foreign operations, and its internal repression. Far from breaking the regime, sanctions have often expanded the IRGC’s power and revenues, turning economic isolation into a business opportunity for those in command  .

2. The IRGC’s Economic Ascent

Originally positioned as a military arm, the IRGC has systematically embedded itself in Iran’s economy. Its network, known as the “black economy,” spans industries like construction, energy, agriculture, and smuggling. Estimates suggest the IRGC controls 20–40% of Iran’s total economic activity, with much of that driven underground in the grey and black markets  . As businesses falter under sanctions, the IRGC adeptly filled those gaps, taking over profitable ventures with little competition  .

3. Pillars of the Shadow Economy

a) Oil Smuggling via the Ghost Fleet

Enforcing global sanctions triggered the rise of Iran’s “ghost fleet”—a covert network of aging tankers. These ships disable tracking systems, falsify documentation, and transfer oil in international waters through ship-to-ship operations. This complex system hides the true origin and destination of the oil, primarily sending it to China, while enriching the IRGC’s budget  .

By 2023, despite increasing sanctions, Tehran reportedly sold over $53 billion in oil—nearly triple its exports in 2020. Almost half of this trade appears to be under IRGC control, bypassing the National Iranian Oil Company’s channels  .

b) Fuel Smuggling & Subsidy Hijack

Another stream of illicit profit emerges from smuggling heavily subsidized gasoline across borders to places like Afghanistan, Pakistan, and Iraq. Conservative estimates report 12–30 million liters/day of Iranian fuel smuggled abroad, costing Iran $3–4 billion annually, while lining the pockets of IRGC-linked networks  .

c) Shadow Banking Networks

With formal banking channels shut off, the IRGC and its partners switched to informal systems—hawala networks—and offshore front companies in the UAE, Turkey, and Hong Kong. These networks funnel profits from oil sales into hard currency, circumventing official channels and funding military activities and proxies  .

4. Who Benefits—and Who Suffers?

a) IRGC Enrichment & Proxy Funding

A substantial portion of these profits goes directly into the IRGC’s coffers—coalitions of generals, frontmen, and contractors. These funds, alongside state oil allotments, finance missile programs, drone units, and proxy wars in Syria, Iraq, Lebanon, Gaza, and Yemen .

b) Ordinary Iranians: Economic Collateral

As the IRGC profits, Iranian citizens bear the cost through hyperinflation, job losses, and subsidy depletion. Government revenues that should sustain hospitals or schools end up funding military campaigns. The resource drain widens inequality and economic despair  .

5. Evidence of Profit Extraction

 • U.S. Treasury actions: In 2025, OFAC sanctioned over 30 individuals involved in laundering billions via shadow banking—highlighting how oil revenue enables Iran’s military ambitions  .

 • WASHINGTON: The Justice Department reported seizing over 500k barrels worth $108 million tied to Iranian oil trafficking that financed IRGC and proxy groups  .

• Black-Market Boom: CFR details IRGC dominance in illicit economies, noting how sanctions unintentionally benefited its wealth accumulation  .

6. Why Sanctions Helped the IRGC

Contrary to their purpose, sanctions inadvertently strengthened the IRGC. Scholars argue:

 • Its informal, decentralized operations remain undetectable and adaptable  .

 • State-affiliated banks and officials help launder money in defiance of sanctions  .

 • The removal of competitors during Iran’s crisis period bolstered the IRGC’s monopolistic position .

7. Policy Implications: Rethinking Sanctions

To reduce the IRGC’s grip:

 1. Target front companies: Sanctions must go beyond public IRGC entities to hidden subsidiaries and shell firms (like Haokun, Sepehr Energy)  .

 2. Track ghost fleet vessels: Coordinated tracking and freezing of tanker ships can disrupt illicit oil flows  .

 3. Sanction shadow banking hubs: Regulate and penalize informal banking in the UAE, Turkey, and Hong Kong  .

 4. Avoid collateral damage: Channel relief directly to Iranian citizens to avoid enriching the IRGC.

 5. Mandate transparency: Require global companies to conduct IRGC risk screening and beneficial ownership disclosure.

Conclusion: Economics as a Means of Power

The IRGC’s transformation into an economic behemoth has reshaped Iran’s society, politics, and foreign policy. By turning sanctions into opportunity—through systemic smuggling, opaque finance, and proxy strengthening—it has thwarted much of the international community’s punitive intent.

A strategic recalibration is necessary. Sanctions alone won’t dismantle the IRGC’s empire—smart sanctions combined with transparency measures and global coordination can. If sanctions are to serve their purpose, they must be wielded not just aggressively, but wisely: to weaken the oligarchy, not the people.