The underground financial system keeping Iran afloat amid war, sanctions

Ahmad Sharawi |May 14, 2026

Photo by Alexander Grey on Unsplash

A man walks into a Dubai currency exchange, intending to send money to Iran. He hands over $50,000 in cash, and provides a name and a location. Hours later, the money reaches a beneficiary in Tehran. No bank processes the transfer, no wire crosses a border, and no regulator signs off, yet the system worked as intended.

With a ceasefire in place and a military blockade in the Strait of Hormuz, the Trump administration is ramping up its economic warfare against the Islamic Republic of Iran. Even so, a parallel system continues to move cash beyond Washington’s reach, even as the White House leans harder on sanctions and financial isolation.

For more than a decade, Iran has been cut off from much of the global banking system. Sanctions made it harder to move money across borders, but it didn’t stop all of it. Iran has adapted: Rather than formal banking, it relies on exchange houses, brokers and informal networks across the Middle East, mostly in Gulf Arab states. This centuries-old system, called “hawala,” runs on trust, reputation and relationships.

Billions of dollars in Iran-linked funds move through the Arab Gulf states each year, much of it through hawala-style networks. Hawala relies on personal ties. Records, if kept, are informal and brief. The system endures even when banks are shut out or sanctioned. It is a durable financial lifeline when formal channels fail.

The term “hawala” comes from the Arabic for “transfer” or “change.” At its core, hawala transfers to Iran are simple. A sender hands cash to a broker in Dubai, Kuwait or Istanbul. That broker contacts a partner in Iran. Within hours, the partner pays the recipient the equivalent amount. No money crosses borders. Instead, brokers settle their accounts later through trade deals and other off-the-books arrangements.

Hawala has long served migrants across South and Southeast Asia and the Middle East, especially in the Gulf. It offers a fast, trusted way to send money home. Most of the time, hawala is used legally. But its efficiency and its opacity make it risky.

After the 9/11 attacks, U.S. intelligence found that Osama bin Laden had used Middle Eastern hawala, especially in Dubai, to move funds quickly and quietly. Using a few trusted brokers, al-Qaeda shifted money through shorthand ledgers and fleeting records, leaving little trace. Law enforcement efforts have had limited effect because these networks are fragmented, informal, and hard to infiltrate.

In November 2025, The Wall Street Journal reported that proceeds from Iranian sales of oil were being routed through exchange shops in Dubai and transferred onward to Hezbollah in Lebanon using hawala. The money reportedly helped the Lebanese terror group rearm and rebuild its military infrastructure, supporting Iran’s broader campaign against the U.S. and Israel. It is one example among many of how these networks undercut the pressure Washington is trying to apply.

But the real story is outside of Iran. Hawala works at scale because other countries allow it to. Clamping down on hawala matters now more than ever. As Washington ratchets up the economic phase of its war with Iran, these informal channels are the regime’s financial lifeline.

Hawala’s speed and low cost keep it alive and make it hard to disrupt. Transfers often settle in less than 48 hours, frequently faster than bank wires or services like Western Union and typically cost just 1 percent to 5 percent of the transferred sum. In Tehran’s Ferdowsi exchange district, brokers don’t hide what they do, openly advertising how easily money can be sent to and from Europe or the U.S. — all, of course, in violation of United Nations and U.S. sanctions.

Our analysis of Arabic and Persian social media channels shows how normalized these networks have become. Exchange houses openly advertise transfers from the Gulf to Iran, promising fast delivery and access to “all Iranian banks.” An Instagram account advertises money transfers from Dubai to Iran as fast and secure. Users are instructed to contact a WhatsApp number, after which a broker handles the transaction, including, in some cases, arranging hand-carry delivery of cash into Iran.

On applications like Telegram, entire channels are dedicated to tracking the daily rate of “hawala (Emirati) dirhams” between Dubai and Iran or Omani rials into Iranian accounts. Posts advertise “hawala from Oman to Iran,” list broker contact details, and direct users to WhatsApp for execution.

Individual corridors move hundreds of millions and — in some cases — more than a billion dollars, helping sustain the Islamic Republic and its web of proxy groups.

As long as these networks operate openly in the Gulf, Washington’s economic wall around Iran will remain incomplete. The Gulf states have tried to crack down on some of these exchange offices, but they can only do so much, especially since migrant communities depend on them for cheap remittances.

The lack of movement by these countries prevents the U.S. from fully isolating Iran, with consequences paid for in lives. Until Tehran feels the full weight of the world bearing down on it, its neighbors — even those farther away — are still in danger.

Ahmad Sharawi is a senior research analyst at the Foundation for Defense of Democracies.