FOR THE first month of their war on Iran, America and Israel mostly spared civilian infrastructure. In March bombers painstakingly picked around oil terminals and ports while attacking Kharg Island, an energy entrepot. A week later Donald Trump told Israel to stand down after its strikes on South Pars, a gasfield, provoked Iranian retaliation against Qatari natural-gas facilities and shook markets.
The war’s second month began rather differently. On April 2nd, as families picnicked in a nearby valley, America damaged the B1, Iran’s tallest bridge. (Iranian drones struck a Kuwaiti oil refinery in response.) Three days later Mr Trump threatened to obliterate more bridges and power plants unless Iran eases its blockade on the Strait of Hormuz within 72 hours.
That threat reflects a wider shift. After destroying military outposts and navy vessels, weapons factories and what was left of Iran’s nuclear facilities, American and Israeli officials say they now plan to target the engines of Iran’s economy. The goal of such strikes is to disrupt daily life and reduce the regime’s tax revenues, which should hamper its ability to fight and, should it survive, ever rebuild its nuclear programme.
Strikes against civilian targets are controversial—and illegal in most circumstances under international law. They may also fail in their primary objective. That is because the Iranian regime and its elite fighting force, the Islamic Revolutionary Guard Corps (IRGC), draw little strength from the civilian economy, which has long been in a dire state. Their activities are funded by a commercial empire, and war has been good for business. Soaring oil prices are boosting revenues, as is the Guards’ ability to benefit from shipping and trade disruptions.
For ordinary Iranians, life was already painful owing to years of Western sanctions and, last June, 12 days of Israeli bombardment. The economy shrank last year and six in ten people of working age are thought to be out of work, which prompted protests against the regime in January. The 11,000 strikes carried out by America since late February have brought daily existence to a halt. Some projectiles destroyed university buildings, apartment blocks and banks next to military installations. An internet blackout administered by Iran to prevent further demonstrations has squeezed the services industry, which once employed half the workforce. The government claims that 7m people, or one in four workers, have volunteered for military service.
Foreign goods are becoming as scarce as employees and information. Iranian oil tankers are sailing freely through Hormuz, keeping energy exports flowing. But the flow of goods from Asia and the Gulf to Iran that had arisen despite the threat of American secondary sanctions has all but stopped. The United Arab Emirates (UAE), which was the source of nearly a third of Iranian imports in 2025, has not sent a single ship since it became the target of Iranian retaliation in the first days of the conflict. It has also closed its borders to most Iranians and stopped turning a blind eye to the thousands of shell companies in Dubai which helped Iran evade Western sanctions. Emirati authorities have arrested dozens on money-laundering charges and are said to be mulling freezing billions of dollars in Iranian assets.
The rial, already nearly worthless, has fallen by another 8% against the dollar on the black market since the war began. Annual inflation was just under 50% on the eve of war, and prices have since risen by another 6%, according to the central bank. The government has done little to cushion the impact of lost jobs or higher costs. Policymakers have printed cash to cover deficits for decades. Now the printing presses are whirring once again.
But the war runs on funds from the regime and the IRGC, whose income has been insulated from the vicissitudes of the broader Iranian economy. Fighting is financed thanks to a sprawling portfolio, with proceeds coming from three main areas: oil sales, domestic manufacturing and illicit trade. As Iran becomes locked away from the outside world, all three are booming.
The IRGC processed roughly half of Iran’s oil exports in 2025, worth at least $30bn. The government once allocated funding to the armed forces, but sent oil in lieu when the economy ran into trouble. As the rial has weakened, and other public spending has become nearly worthless, the value of the army’s oil bounty has grown—both in real terms and relative to the rest of the shrinking economy.
A slick machine has been built to deliver shipments, most of which go to China, and process payments while evading sanctions. Thousands of shell companies and money exchanges buried deep in banking systems in Russia and China make deals so complex that tracing them is nearly impossible. According to two people familiar with the matter, Iran’s central government has handed over more barrels than usual to the IRGC in the past month.
All that has helped the Guards become the chief Iranian profiteer from rising global oil prices. Despite the war, Iran is exporting at least as much as it was on average last year, and earning nearly twice as much. If the IRGC controls the same portion of oil it did a year ago, it could be capturing half of that revenue. That is probably enough to cover the costs of fighting for a few months.
Domestic firms are a second source of finance. Each of the IRGC’s five branches owns sprawling conglomerates that have stakes in roughly half of Iran’s firms, according to one official. These businesses do everything from constructing pipelines to selling houses. The Guards also control most of Iran’s diversified manufacturing industry. According to America’s officials, they are linked to Bahman, once the manufacturer of Mazda cars in Iran, Sina Food Industries Development, one of the country’s biggest producers of processed food, and several pharmaceutical companies.
The IRGC’s manufacturers are benefiting from the sudden absence of foreign competition and wartime price rises. Iranians normally favour higher-quality goods from Asia, the Gulf and Russia. Now they have no choice but to turn to homegrown products, stoking demand. Two Western officials expect IRGC-linked firms’ profits from cosmetics and processed food to have doubled in a month. Other firms are smelting steel and aluminium, and making mechanical parts, prices of which have also jumped in the past month. The IRGC’s aluminium facilities are now raking in more than before the war.
Rising prices have boosted the IRGC’s income from illicit trade, too. The Guards run ports, airports and border crossings, which gave it a near-monopoly over such trade. The weakening of Iran’s regional proxies such as Hamas and Hizbullah, which once helped run a network that smuggled cigarettes, drugs and food inside weapons shipments into and out of Iran, is a blow to supplies. But disruption to shipping has added a premium to smuggled goods, and given an advantage to Iranian traders, which can pass through the strait with relative ease. One Israeli official reckons that the IRGC’s smugglers will be earning more from its international narcotics business. The IRGC is also planning a formal toll of $2m for every ship passing through Hormuz. Even if traffic resumed to half of pre-war levels of about 140 vessels a day, this would add up to $50bn a year.
The Emirati crackdown is an inconvenience for the IRGC but not a big blow. Only a small share of the Iranian money stashed away in Dubai belongs to the regime, which has long been wary of the UAE’s closeness to America, according to two American officials. Oil and arms payments are mostly processed through China’s banking system, they say, which also stores the central bank’s reserves. And Iran’s domestic payment system, Shetab, is now linked to Russia’s Mir system, which means that banks have been able to make transactions without worrying about extra sanctions. “It shows that these basic [payment systems] work in a crisis,” says one of the officials, “even if they’re not changing the financial system.”
None of this is to say that the war comes without costs. Khatam al-Anbiya, the IRGC’s biggest conglomerate, controls factories that churn out goods deemed important for national security, some of which are exported to China and Russia. Its weapons factories have come under heavy fire since the start of March. Iran’s two biggest steel mills closed on April 2nd after strikes, knocking out nearly 70% of production capacity. An Israeli official reckons that the blackout in Tehran, which Iran blamed on Israeli strikes, may be the first instance of the regime saving power for its factories and oil infrastructure.
An American-Israeli assault on Iran’s civilian targets may wreck what is left of the economy and cut further into Iran’s ability to produce weaponry with which to fight on. But it will never completely eliminate the IRGC’s financial firepower unless it goes after Iran’s oil. The Iranian regime has threatened to respond by setting the Gulf’s energy infrastructure—and world markets—ablaze. It has also made it clear through its actions that, short of such a conflagration, it is prepared to let ordinary Iranians bear the brunt of the war’s economic pain.
