Iran Activates Resistance Economy as Sanctions Bite

Lead

Iran has operationalised a decades-long policy playbook commonly described as a "resistance economy" to preserve strategic autonomy and macro-stability in the face of renewed international hostilities. The Financial Times reported on March 29, 2026, that these measures are now being run at scale across procurement, trade, and industrial policy (FT, Mar 29, 2026). The concept is not new: Tehran began intensifying import-substitution, barter arrangements, and bilateral local-currency trade after the US withdrew from the JCPOA in May 2018, a decision that precipitated a sharp drop in oil revenues that the International Energy Agency estimates reduced Iranian exports by roughly 60% from 2017 levels by 2019 (IEA, 2019). More recently, consumer-price inflation exceeded 40% in 2022 according to IMF estimates, reinforcing political incentives for a state-directed economic compact (IMF, 2023). These pressures have nudged Iran from reactive sanctions avoidance to an active, coordinated industrial policy designed to keep key sectors — energy, defence manufacturing, and food — functioning even under protracted external pressure.

Context

The resistance-economy doctrine reflects a blending of national security priorities with industrial economics. Official policy documents and public statements from senior Iranian ministers over the last five years have emphasised self-reliance in critical inputs, strategic stockpiling, and the development of domestic substitutes for imported technologies. The doctrine accelerated after May 2018, when the US reimposed broad sanctions; that date remains a structural breakpoint for external flows and policy direction. From a macro point of view, the shock manifested as a twin squeeze: export revenues fell materially while the currency depreciated, with the rial losing more than half of its nominal external value in the immediate post-2018 period, intensifying inflationary dynamics and balance-of-payments pressures (Central Bank reporting, 2019-2021).

Policy instruments have ranged from tariff and non-tariff barriers to the preferential allocation of foreign-exchange credits to state firms and sanctioned-adjacent conglomerates. To minimise exposure to dollar-clearing systems, Iran expanded barter arrangements and local-currency settlement mechanisms with trading partners in Asia and the Middle East. The state has also promoted domestic-content mandates and procurement rules that prioritise Iranian suppliers, reinforcing industrial capacity even where efficiencies are lower than international benchmarks. This is a deliberate tradeoff: maintain employment and critical capabilities at the cost of higher consumer prices and lower aggregate productivity.

The timeline matters. The current systemic orientation has been implemented in waves — initial emergency measures (2018–2020), institutionalisation (2021–2023), and now scaling and export substitution (2024–2026). The Financial Times' March 29, 2026 profile documents a step-change in how deeply the state is embedded in commercial decisions across the economy (FT, Mar 29, 2026). For analysts and investors, the critical question is whether these measures are stabilising or entrenching low-growth dynamics with long-term structural costs.

Data Deep Dive

Quantifying the resistance economy requires parsing macro aggregates and targeted sector metrics. First, energy: the IEA reported that Iranian oil exports declined materially after the reimposition of sanctions, falling by roughly 60% between the 2017 pre-sanctions baseline and the immediate post-sanctions trough in 2019 (IEA, 2019). While exports have shown episodic recoveries through clandestine shipping practices and re-routing, the fiscal baseline has permanently shifted; oil revenues that once comprised the lion's share of government receipts can no longer be counted on as a reliable income stream without major geopolitical change.

Second, prices and currency. IMF estimates place consumer-price inflation above 40% for 2022, a level associated with widespread purchasing-power loss and social discontent in middle-income countries (IMF, 2023). The rial's nominal depreciation — more than 50% in the immediate post-2018 years by official and market measures — increased the cost of imported capital goods and intermediate inputs, pressuring manufacturers and pushing the state to protect strategic lines through subsidies and credit allocation (Central Bank of Iran, 2019–2021). These interventions have fiscal and monetary consequences that ripple through debt dynamics and central-bank balance-sheet risks.

Third, trade diversification. Tehran has emphasised non-oil exports and bilateral trade with partners outside the traditional Western financial architecture. The conversion of some trade toward non-dollar corridors and local-currency settlements has provided partial alleviation for payments frictions but at the cost of smaller markets and more complex supply chains. Where once Iranian exporters targeted global commodity markets, they increasingly rely on regional demand and state-facilitated channels to move goods, a structural shift with implications for export price realisations and volatility.

Sector Implications

The resistance-economy model has uneven effects across sectors. Energy remains the strategic fulcrum: despite reduced export volumes, Iran retains substantial upstream capacity, platform knowledge, and the ability to prioritise domestic fuel supplies. That said, financing modern upstream projects depends on international capital and technology access that sanctions continue to constrain, limiting long-term production potential relative to peer producers in the Gulf.

Manufacturing and defence are immediate beneficiaries of protectionist procurement. State-led contracts have expanded local production of ostensibly high-value goods — from petrochemical inputs to defence-related electronics. However, the domestic supply chains that have been built or accelerated frequently lack the productivity and scale of global suppliers, implying higher unit costs and slower innovation cycles. The net effect is employment and capability preservation offset by weaker competitiveness versus global peers over time.

Agriculture and food security have rising prominence in policy. Iran has established strategic stockpiles and targeted subsidies to reduce import dependence for staples. While these measures mitigate acute shortages, they also increase fiscal transfer commitments. The trade-off is explicit: protect social stability and national resilience at the cost of budgetary strain and increased reliance on state distribution networks.

Risk Assessment

The immediate stabilisation benefits of the resistance economy are real: reduced exposure to sanctions-induced supply shocks, preserved industrial capacity, and maintained social order. But the risks are significant and multi-dimensional. First, fiscal sustainability: subsidy schemes, targeted credit allocations, and strategic stockpiling increase contingent liabilities and fiscal rigidity. If oil revenues fail to recover materially, the state faces difficult choices between debt accumulation, inflationary monetisation, or fiscal retrenchment.

Second, productivity and technical stagnation. Protectionist procurement and import substitution can create insulated domestic champions that lack competitive pressures, reducing incentives to innovate. Over a 5–10 year horizon, that can cumulatively reduce GDP growth relative to a more open model, particularly once demographic and capital-formation headwinds are included.

Third, geopolitical escalation risk. The rollback or circumvention of multilateral trade channels increases the salience of bilateral partners willing to engage under constrained circumstances. That realignment can provide short-term relief but raises medium-term dependency risks and limits strategic policy options.

These risks do not imply imminent collapse. Rather, they point to an economic trajectory where resilience is purchased with slower structural growth, higher fiscal burdens, and a reshaped external orientation.

Fazen Capital Perspective

Fazen Capital views the institutionalisation of a resistance economy as a rational, if costly, adaptation to prolonged external pressure. Policymakers in Tehran are buying time and preserving sovereignty by deliberately privileging continuity over efficiency. Our contrarian insight is that, paradoxically, certain asset classes and industries may derive long-term value from this model despite its inefficiencies. Defence-related manufacturing, domestic energy services, and logistics nodes re-oriented toward intra-regional trade corridors can become de facto national champions with durable revenue streams insulated from Western sanctions. Investors should therefore distinguish between short-term headline risk and long-duration structural winners within Iran's reconfigured economy.

However, the number and intensity of constraints mean that recoveries that depend on the swift re-opening of Western capital and technology are unlikely. A calibrated scenario analysis should treat a return to pre-2018 economic integration as low probability within a three-to-five-year window and emphasise cash-flow resilience, counterparty due diligence, and geopolitical risk overlays. For broader portfolios, the key takeaway is that resilience drives policy choices in Tehran; that calculus is now a major determinant of sectoral winners and losers.

For further thought leadership on how geopolitics reshapes sectoral returns, see our research on regional trade realignment and energy markets at topic.

Outlook

In the short term (12–18 months), Iran is likely to continue expanding domestic procurement, deepen barter and local-currency trade arrangements, and protect critical supply chains through subsidies and non-market allocations. These steps will maintain operational continuity for strategic sectors while creating fiscal and monetary pressures that will need to be managed through a mix of austerity and targeted revenue measures.

In the medium term (2–5 years), the balance will depend on three variables: oil price dynamics and the extent of export recovery; the willingness of regional partners to sustain non-dollar corridors; and internal political tolerance for fiscal consolidation. If oil revenue returns are muted, the state will progressively prioritise social spending and strategic industries and slow capital-intensive projects requiring foreign technology. Scenario planning should therefore stress-test portfolios against a range of oil-revenue trajectories and sanctions intensities.

Finally, commercial engagement with Iran will likely bifurcate: entities able to transact in non-traditional channels and accept concentrated counterparty risk may capture outsized returns, while mainstream global investors will remain constrained by compliance and reputational considerations. For further analysis on these scenarios and sector impacts, see our energy and trade briefs at topic.

Bottom Line

Iran's resistance economy is a deliberate, state-led recalibration prioritising sovereignty and continuity over open-market efficiency; the model stabilises key outputs today but risks slower structural growth and rising fiscal burdens tomorrow. Disclaimer: This article is for informational purposes only and does not constitute investment advice.

FAQ

Q: How have trade partners adjusted to Iran's resistance-economy tactics?

A: Regional partners have broadened non-dollar settlement mechanisms and increased barter and in-kind trade since May 2018, reducing immediate payment frictions but limiting export market depth and price discovery. This has shortened trade chains and concentrated trade flows toward a narrower set of buyers, which reduces volatility on one axis but increases concentration risk on another.

Q: Can the resistance economy be reversed if diplomatic conditions change?

A: Reversal is possible but costly. Decades of import-substitution and the reorientation of trade networks create lock-in effects; restoring global supply-chain integration requires capital, technology, and institutional reforms. Even with a favourable diplomatic reset, the pace of reintegration depends on external willingness to re-engage and the domestic capacity to absorb advanced inputs, which may take multiple years.

Q: What historical parallels are instructive?

A: Comparable episodes include Argentina's import-substitution phases in the mid-20th century and Russia's econom ic pivot after 2014; in each case, short-term resilience traded off against long-term productivity challenges. The Iranian case is distinct in its geopolitical intensity and energy endowment, but the macroeconomic trade-offs echo these historical precedents.