Sanctions: The Root of All Evils

This brief summary introduces my book chapter, Sanctions: The Root of All Evils. It outlines the chapter’s central arguments and key concepts. The study is unprecedented and investigates a distinctive, previously unexplored dimension of sanctions policy.

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The Trigger: The Initial Economic Shock

1. Direct Revenue Loss: Comprehensive sanctions directly attack a country's main source of income. For Iran, this was oil exports, which accounted for up to 90% of its export (direct and indirect) revenue.

   • Mechanism: Sanctions cut off buyers, force sales at steep discounts, and add huge costs for secretive evasion schemes (e.g., using shadow tanker fleets, third-party intermediaries). The Iranian government itself estimated spending $30 billion annually just to circumvent sanctions.

     
     

The State's Reaction: "Criminalization of the State"

2. State-Sponsored Evasion: To survive, the state apparatus has no choice but to engage in illicit activities to get goods and money.

   • Mechanism: The government actively partners with organized crime networks, sanctions experts, and smugglers. It grants these actors special privileges and monopolies over illicit trade in exchange for their loyalty and service. This is referred to as "renting" these agents.

   • Example: Figures like Babak Zanjani became billionaires by acting as a third-party intermediary for the government, proudly calling himself an "economic Basiji."

     
     

The Economic Distortion: Birth of the Shadow Economy

3. Creation of a Black Market Premium: Sanctions cause a severe shortage of foreign currency (like US dollars).

   • Mechanism: The government tries to control the crisis by setting an artificial "official" exchange rate for essential imports (like medicine and food). However, the real market value of foreign currency skyrockets due to scarcity, creating a massive gap between the official rate and the black-market rate. This gap is the Black Market Premium (BMP).

     
     

4. Incentive for Massive Corruption: The BMP creates a golden opportunity for massive, quick profits for those with government connections.

   • Mechanism:

     • Over-invoicing: A connected importer is given access to subsidized dollars at the low official rate. They fake invoices to say they are importing $100 worth of goods (instead of $50), get the extra $50, and immediately sell it on the black market for a huge profit.

     • Misuse of Subsidies: Importers use subsidized dollars meant for essential goods to import luxury items (e.g., premium cars) instead, which they sell for massive profit.

     • Re-exporting: Importers bring in essential goods with cheap dollars and then immediately export them to neighboring countries to get hard currency, which is sold on the black market.

       
       

The Social and Political Spiral

5. Normalization of Illicit Activity: As the formal economy crumbles, everyone is forced to adapt.

   • Mechanism:

     • For Businesses: High taxes (the government's attempt to recoup lost oil revenue) and a lack of official financing force legitimate firms into the shadow economy to survive. They start hiding revenue and avoiding taxes.

     • For Citizens: Hyperinflation and poverty force ordinary people to rely on the black market for jobs and basic goods. Smuggling loses its social stigma and is even reframed as a patriotic act of "resistance."

       
       

6. Erosion of Governance: The need for secrecy to evade sanctions destroys transparency, which is the foundation of good governance.

   • Mechanism: You cannot evade sanctions transparently. The state must use front companies, bribery, and off-the-books deals. This same secrecy allows corruption to thrive undetected. Anti-corruption tools (like transparency laws) cannot be enforced because they would expose the sanctions-evasion tactics. The mechanism creates a corruption feedback loop that is nearly impossible to escape.

     
     

The Long-Term Poison

This cycle does not end when the sanctions are lifted. The new corrupt elites, the entrenched criminal networks, and the public's acceptance of the illicit economy become a permanent fixture, hindering reform and legitimate economic development for decades. The state becomes addicted to the very system that corrupts it.