The Snapback Mechanism and Its Heavy Shadow over Iran’s “Shadow Economy” H. Soleimani ۱۴۰۴/۰۵/۲۲ A look at the likely economic consequences of the UN snapback sanctions on Iran, particularly for its shadow economy, sanctions-evasion networks, exchange rates, inflation and people’s livelihoods. H. Soleimani – On Tuesday, 12 August 2025 (21 Amordad 1404), three European countries—France, Germany and the United Kingdom—warned in an official letter to the UN Secretary-General and the Security Council that if the Islamic Republic did not return to the nuclear negotiating table by the end of August 2025 or make use of the opportunity for an extension, they would be ready to activate the “snapback mechanism”; a process that would automatically reinstate all UN Security Council sanctions. The Islamic Republic of Iran now has only a few weeks to choose one of four main scenarios: 1. A full or partial return to negotiations and acceptance of some of the JCPOA’s requirements. 2. Complete disregard for negotiations and continuation along the current path. 3. A limited, tactical return to delay the activation of the snapback mechanism. 4. An increase in nuclear activity and reduced cooperation with the IAEA as an aggressive response. So far, experts and the media have examined the political and diplomatic dimensions of these options many times. But today we intend to take a different perspective and examine the short- and long-term economic consequences of the most likely scenario—the limited, tactical return—and, more broadly, of the return of UN Security Council sanctions, particularly their impact on the “shadow economy”, sanctions-evasion networks, the exchange rate, inflation and, ultimately, people’s livelihoods. The scenario ahead: multilayered pressure on the formal and informal economy Activation of the snapback mechanism means the reinstatement of all Security Council resolutions that had been suspended, from bans on the export and import of key goods to restrictions on banking, finance and foreign investment. These sanctions are binding on all UN member states and, unlike unilateral US sanctions, also target Iran’s informal networks. The immediate consequences include: The weakening of covert transport and export networks, used mainly to sell oil and petrochemical products. The blocking of shell and intermediary companies registered in third countries. A sharp decline in oil and non-oil cooperation with Asian and regional customers. The impact on the shadow economy and sanctions-evasion routes Covert transport and export networks Once the sanctions become binding, international insurers and shipping lines will be forced to end their cooperation. Ships sailing under temporary flags or frequently changing names, which have so far transported some of Iran’s oil, will be monitored and seized more often. Current routes through Oman and Malaysia, and certain Chinese ports, will come under closer scrutiny. Shell and intermediary companies Iranian offices and companies in Africa, Central Asia or Latin America will face greater political and legal pressure. Host governments will be obliged to cut ties because of their international commitments. Cash-based and remittance economy Informal money-transfer networks will face severe restrictions, and the cost of transferring foreign currency is likely to double or triple. Effects on the domestic market Exchange rates The severing of foreign-exchange channels arising from oil and non-oil exports will reduce supply pressure to a minimum. The dollar exchange rate on the open market could surge by 30 to 50 per cent in the short term and, if the trend continues, cross new psychological thresholds. The gap between the official and open-market exchange rates will reach its highest level on record, while rent-seeking and corruption in the allocation of government foreign currency will intensify. Inflation Imports of essential goods and raw materials will be carried out at greater cost and risk. Inflation, currently estimated at between 45 and 50 per cent, could rise to between 60 and 70 per cent or even higher. Underground investment Capital flight will intensify, and domestic investors will move their funds into parallel markets such as gold, foreign currency, property and cryptocurrency. The formal economy will be weakened further, while the share of the unproductive economy grows. Trade and regional relations Because UN Security Council sanctions are binding, China and Russia cannot officially trade oil or conduct banking business with Iran, and will be forced to scale back their cooperation. Close neighbours such as Iraq, Turkey, the United Arab Emirates and Afghanistan, which are now vital trade routes for Iran, will be forced to restrict their dealings under Western diplomatic and economic pressure. Iran’s non-oil exports, particularly minerals, petrochemicals and agricultural products, will face a sharp decline as international banking and transport channels are cut off. Exchange-rate and inflation forecasts, and the consequences for people’s livelihoods With the snapback mechanism activated: The US dollar exchange rate on the open market is likely to quickly break through its current levels and reach new historic highs. Annual inflation could exceed 70 per cent, while in some consumer goods year-on-year inflation could surpass 100 per cent. Reduced purchasing power, worsening poverty, a growing population below the poverty line and widening social inequality will be inevitable consequences. Parts of the middle class will quickly fall into poverty, and the class divide will deepen. Conclusion The return of UN Security Council sanctions will target not only the structure of Iran’s formal economy, but also cut off the vital lifelines of the Islamic Republic’s shadow economy. In these circumstances, even if the Iranian regime seeks to continue some of its exports or transactions through unofficial channels, the costs and risks will be so high that profitability will fall sharply. The ultimate result will be mounting pressure on people’s livelihoods, a collapse in the value of the national currency and worsening social crises; if this situation persists, it could culminate in one of the greatest economic crises in Iran’s modern history. 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