Sanctions: Iran’s Struggle Under Global Pressure

In September 2025, international sanctions on Iran returned to the global spotlight. The European Union triggered the “snapback” mechanism which, under the 2015 nuclear deal, reinstated UN-mandated measures. Citing Iran’s “significant non-performance” on Joint Comprehensive Plan of Action (JCPOA) commitments, the EU reimposed restrictions on finance, trade, and transport to curb nuclear activity. These measures, however, carry economic, social, and environmental consequences.

Sanctions aim to raise the cost of non-compliance and incentivise negotiation, yet their impact extends far beyond headline targets. Companies, insurers, and banks face liability and market-access risks, while commercial relationships are reshaped to avoid exposure. Since the mid-2010s, Iran’s sanctions have expanded from sectoral limits to sweeping restrictions on finance, shipping, metals, and oil. Iran’s crude output and exports, which peaked in some years before 2018 at about 2.7 million barrels per day, fell in subsequent years and registered below 2 million barrels per day during the 2020 shock, amplifying fiscal stress.

The 2018 reimposition of U.S. sanctions triggered rapid currency depreciation, double-digit inflation, and GDP contraction. These pressures unfolded across 2018 to 2020 with little opportunity for stabilisation. Analyses published by the World Bank and IMF documented steep declines in output and significant losses to public revenue linked to the oil sector, warning that collapsing oil earnings and tightening banking channels would embed recessionary dynamics. Sanctions generate not only immediate cyclical disruption, but also deeper structural strains that weigh on an already vulnerable economy.

Figure SEQ Figure I ARABIC 1 Annual GDP at Market Prices: Iran vs. Saudi Arabia

From 2010 onward, Iran’s GDP shows the cumulative impact of intensified sanctions, including sharp contractions after the 2018 U.S. snapback and only limited gains following the 2015 nuclear deal. Saudi Arabia’s steadier growth reflects sustained oil revenues and global market integration, underscoring how sanctions have become a defining structural constraint on Iran’s economy.

Sanctions do more than disrupt trade flows - they reconfigure entire market ecosystems and governance norms. To maintain operations, firms and intermediaries construct alternative logistics chains, credit systems, and opaque trading networks, to bypass restrictions. Maritime activity increasingly relies on dark practices such as ship-to-ship transfers and disabling AIS signals, while non-Western financial corridors expand to support commerce. These adaptations erode transparency, weaken tax collection, and create governance vulnerabilities, including opaque ownership and higher corruption risk. Over time, they harden into a parallel economy that is difficult to unwind, posing long-term challenges for compliance, accountability, and sustainable development.

The social impacts are equally severe. Restricted access to medicine, food, and essential goods hits vulnerable populations hardest. Rising prices, unemployment, and shrinking real incomes erode the middle class, while those connected to sanctioned power centres exploit rents and arbitrage opportunities. Ethnographic research documents coping strategies such as delaying healthcare, reducing consumption, and turning to informal work, alongside spikes in petty crime and deepening precarity. These regressive effects raise ethical questions: do sanctions advance accountability or primarily punish the most vulnerable? 

Over time, hardship strengthens authoritarian narratives, fosters rally-round-the-flag effects, and redirects trade toward aligned partners, undermining intended leverage. Evidence suggests diminishing returns as states adapt - diversifying buyers, developing substitutes, and institutionalising grey-market networks. A sanction ecosystem emerges on both sides, involving shadow fleets, non-Western finance, compliance vendors, and insurers, creating vested interests that complicate unwinding. The result is persistent, low-intensity pressure that suppresses household consumption and investment without delivering strategic outcomes.

Environmentally, sanctions restrict access to clean technologies, locking economies into high-emission pathways and slowing progress on energy efficiency. Studies estimate CO₂ emissions could rise by 12–30% by 2028 compared to a no-sanctions scenario, largely because modernisation stalls without foreign technology and finance. Sanctions worsen Iran’s water crisis by limiting access to modern agricultural and monitoring tools, accelerating over-extraction and wetland loss. The dust storms and 2025 urban shortages show how sanctions and climate vulnerability combine to heighten social and environmental risk.

The renewed sanctions on Iran highlight the complexity of economic statecraft. While designed to enforce compliance, they can trigger economic strain, social hardship, and environmental setbacks. Adaptive networks reduce their effectiveness over time, raising questions about whether sanctions are an effective strategic tool at all.