How the Iranian Economy Actually Works

Iran's Islamic Republic came to power in 1979 promising social justice, free electricity, free buses, and housing for the poor, with Khomeini co-opting leftist rhetoric to build a broad coalition. What emerged instead, according to Buzorghmehr Sharifadein, is a mafia-like state that distributes resources based on loyalty rather than citizenship, to the point where a Hezbollah member in Lebanon or a Houthi fighter in Yemen is treated as more deserving of state support than a Tehran professor. The government has funded regional proxies for decades while being unable to afford free milk in schools.

The revolution began with massive nationalization of shipping, mining, and banking, and subsequent privatization transferred assets to people close to centers of power at very low prices. Many privatized factories never returned to production, with machinery sold off and land converted to residential use. Control over major industries shifted from the formal state to a shadow state linked to security forces and clerics who are unaccountable to elected government. Successful private businesses face pressure from security forces demanding a share of profits, and startup founders who built companies after returning from abroad were targeted and forced to surrender their firms.

Bonyads, religious foundations established at the revolution's start, were originally intended to distribute wealth to the poor and support war veterans. Mehdi Karoubi established in the 1980s that these foundations are above the law and receive special dispensations unavailable to private companies. One bonyad head passed legislation allowing foundations to import goods without government supervision or audit, effectively creating invisible ports. Karoubi later attempted in the late 1990s and early 2000s to impose transparency standards on bonyads and institutions answering to the supreme leader, but those efforts failed because the bonyads and the supreme leader were too powerful for the elected government to check.

The airport episode from 2004 illustrates how this power operates in practice. On the opening day of Iran's new major airport, Revolutionary Guards drove armored vehicles onto the runway and prevented the first plane from landing. The Guards had wanted the operating contract but had not submitted the best price, so the government awarded it to a Turkish-Austrian firm. The Guards scrambled a fighter jet to divert a second incoming plane south to Esfahan, shut the airport down for months, and it reopened with state firms running it. A parliamentary report produced no accountability because the military and bonyads report only to the supreme leader, whose authority is framed as divinely derived.

Iran was the second country in the Middle East after Israel to gain internet access, and the Rouhani government's rollout of 3G and 4G across a population of roughly 85 million spurred a domestic tech ecosystem. The 2015 nuclear deal, which took effect in early 2016, barred American companies from operating in Iran, creating a protected market. Foreign investors compared the opportunity to early-stage Russia or China. Iran's Amazon equivalent is called Digikala and its Uber equivalent is called Snap. Both became associated with the Rouhani government and were subsequently targeted by conservative factions. Middlemen with ties to the security state approached founders offering roughly 5 percent of shares in exchange for protection. Snap sold a large portion of its shares to a bonyad, and Digikala sold 40 percent to a telecom partly owned by a bonyad. Snap also disguised its app as a music streaming service to gain Apple App Store access, revealing ride-hailing functionality only to users with Iranian IP addresses before Apple banned it.

Iranian government actors were not coordinated, with some officials actively promoting tech startups while others ran disinformation campaigns and made threats against the same companies. This incoherence is described as more damaging to business than corruption or authoritarianism alone, because business requires certainty. Unlike China, where a deal with the Communist Party provides a stable counterparty, Iran's multi-faction structure resembles competing underbosses whose relative power shifts daily, making any agreement unreliable.

After the 2016 sanctions relief, money that entered Iran was directed toward military development rather than reducing unemployment or inflation, disproving the Western assumption that economic integration produces political liberalization. Iran's inflation rate is near three figures and unemployment is very high, yet the Islamic Republic has never treated the economy as an end goal but as a means to self-sufficiency and ideological ends. The Islamic Republic is described as fighting for its survival while the Trump administration is fighting at best for its legacy, creating asymmetric pain thresholds. Trump is trying to keep oil prices below one hundred dollars per barrel, and prices approaching that level have triggered negotiation signals from the U.S. side. Iran's future economic orientation is directed heavily toward China, and the speaker of parliament has stated publicly that Iran wants investment from China rather than the West.