Iran’s Underground Economy Is a Mafia State in Disguise Coming for the West 

In Iran, it is widely understood that the official government plays a secondary role in governance, while the real power lies with Supreme Leader Ali Khamenei. Ministers may change, elections may come and go, but the true decision-making apparatus remains untouched, unaccountable, and deeply entrenched. This dual structure raises a fundamental question that Western policymakers have consistently ignored: who truly controls Iran’s economy? The answer is as disturbing as it is consequential — because Iran’s economy is not simply broken or mismanaged. It is deliberately structured as a shadow state, a mafia-like financial machine, and a geopolitical weapon. According to official Iranian media, the underground economy, made up of unregistered or illegal economic activities, constitutes a staggering 26% of the country’s GDP. One study published in Economic Research, a journal at Tehran University, estimates that over 196 trillion tomans of Iran’s GDP now stem from informal or illicit activity. But the figures only tell part of the story. The real danger lies in what this underground economy enables — the entrenchment of a parallel regime that operates above the law, outside of formal institutions, and often in direct opposition to the interests of ordinary Iranians and the international community. 

The underground economy in Iran is not a temporary byproduct of sanctions or poor policy. It is the result of intentional design. The regime has built and nurtured a system where illegal trade, tax evasion, smuggling, and corruption are not aberrations but tools of power. The World Bank defines the informal economy as encompassing all activities not regulated or protected by the state. In many emerging markets and developing economies, this sector can account for about a third of GDP and up to 70% of employment. In Iran, the number is even more stark. As of 2019-2020, the informal sector accounted for 42% of national employment, a figure that reflects not just economic desperation but systemic exclusion. For millions of Iranians, survival depends on evading the very state that claims to represent them. And yet, this system is not chaotic — it is tightly controlled. At the top sits Khamenei and his inner circle, surrounded by a web of unaccountable institutions that dominate entire sectors of the economy. This is where the illusion of the Iranian state collapses. The Islamic Revolutionary Guard Corps, the Execution of Imam Khomeini’s Order, the Mostazafan Foundation, and Astan Quds Razavi — all directly tied to the Supreme Leader — control a vast empire of assets and front companies. These groups operate with impunity. They pay no taxes, face no audits, and answer to no one but the Supreme Leader himself. 

In 2019, Iranian politician Behzad Nabavi made a shocking admission that most Iranian economists already knew but few dared to say publicly: over 60% of Iran’s national wealth is controlled by these four organizations. This is not a country with a mafia problem. This is a mafia with a country. These institutions run ports, oil fields, construction firms, logistics networks, and even charities — all under the guise of religious or revolutionary duty, while functioning as economic cartels. Their operations stretch beyond Iran’s borders, with networks in Iraq, Lebanon, Venezuela, Turkey, and Malaysia. These aren’t just backdoor business dealings — they are the financial lifelines for terror groups, proxy militias, weapons programs, and cyber units targeting the West. 

The expansion of Iran’s underground economy didn’t happen in a vacuum. Between 2017 and 2021, U.S. sanctions targeting oil exports and banking channels forced the regime to adapt. But instead of weakening, it evolved. The result was a rise in maritime deception, smuggling operations, and the use of crypto currencies to move billions undetected. Ghost tankers shut off transponders, changed names mid-sea, and delivered Iranian crude oil to Asia under false flags. Iranian hackers set up crypto laundering hubs, while the IRGC tightened its grip on shipping companies and front firms abroad. This informal economy wasn’t simply a way to survive sanctions — it became a tool for financing Iran’s most aggressive activities: terrorism, ballistic missile development, and regional subversion. 

As the regime bled its own people dry through inflation and economic mismanagement, it doubled down on underground operations to preserve elite wealth and regime survival. Budget imbalances fueled more inflation, which pushed more people into informal work, which in turn weakened public services and government revenues. And every time the regime was cornered financially, it didn’t reform — it radicalized. It simply expanded the shadow economy, shielded its loyal institutions, and let ordinary Iranians carry the burden. Even as millions fell into poverty, the regime’s economic arms continued to thrive — immune to the rules, blind to the suffering around them. 

What does this mean for the United States? Everything. Iran’s underground economy is not an internal issue. It is a global threat. It is what allows the regime to sponsor terror groups that kill Americans, target U.S. allies, and destabilize the global order. Hezbollah’s weapons, Hamas’s tunnels, and the drones launched at U.S. bases in Iraq — all of these are funded in part by money that flows through Tehran’s shadow system. Iranian cyberattacks on American hospitals and infrastructure are powered by illicit crypto transactions and state-backed hackers on the IRGC payroll. Drug trafficking networks from Latin America to Europe have ties to Iranian operatives. These are not isolated criminal activities — they are strategic tools of warfare. The West may still be debating nuclear centrifuges, but the real power of the Islamic Republic lies in this informal empire that operates beneath the surface and beyond international reach. 

Iran’s shadow economy thrives on ambiguity. It survives because the West allows it to — by failing to track it, failing to disrupt it, and failing to prioritize it. This is no longer sustainable. If America wants to contain Iran’s ambitions, it must dismantle the financial scaffolding that holds the regime together. That means more than just sanctioning the central bank or the oil ministry. It means targeting the real arteries of power: the foundations, the IRGC-run conglomerates, the crypto laundering nodes, and the foreign banks and shipping companies that continue to do business with the regime in disguise. It means cutting off the regime’s lifelines, not just diplomatically but economically and digitally. Iran’s underground economy is not a sideshow to its nuclear program. It is the main event — the invisible war chest that funds visible aggression. 

Until the United States and its allies confront this reality head-on, they will continue to lose ground to a regime that has mastered the art of financial deception. Iran’s leaders aren’t simply evading the global system — they are manipulating it. Every dollar that flows through the underground economy is a bullet in the chamber of a state that dreams not of reform but of revolution. As long as the West treats this as a secondary issue, Iran will continue to grow bolder, richer, and more dangerous. The regime doesn’t fear collapse — it fears exposure. And that is exactly what it needs. Iran’s underground economy isn’t just a threat to the Iranian people. It’s a threat to every free society that still believes in accountability, transparency, and the rule of law.