Resource Curse under Sanctions: The Mediating Role of the Shadow Economy in Corruption, Institutional Erosion, and Sustainable Governance in Iran

Authors

  • Seyyedeh Negar Nourbakhsh Department of Environmental Governance, University of Tehran, Tehran, Iran.
  • Mohammad Habibpour Fatideh * Department of Economics, School of Governance, University of Tehran, Tehran, Iran. https://orcid.org/0000-0002-9197-1907

https://doi.org/10.48313/iee.v1i3.62

Abstract

This study examines the resource curse under sanctions in the context of Iran as a resource-dependent economy characterized by oil rent volatility, institutional fragility, and expanding shadow economic activities. The paper argues that international sanctions reshape "effective oil rents" by affecting production capacity, export prices, and transaction costs, thereby increasing incentives for rent-seeking and informal economic arrangements. Within this framework, the shadow economy functions as a key transmission mechanism through which oil rent shocks contribute to corruption, weakened accountability, and institutional erosion. Building on the institutional resource curse and rentier state literature, the study develops a conceptual framework linking sanctions, oil rent shocks, the shadow economy, corruption, and governance deterioration. The analysis further highlights how opaque economic structures may weaken sustainable governance and long-term institutional resilience. Drawing on Iran-centered Evidence, the paper shows that oil rent shocks are associated with higher corruption, inflationary pressures, and declining institutional quality. The study proposes a "tax–citizen contract" as a policy framework for strengthening fiscal transparency, public accountability, and institutional sustainability. By reducing dependence on opaque rents and reinforcing the taxation–representation relationship, such a framework may help weaken the cycle of rent-seeking, shadow economic expansion, and institutional deterioration in sanctioned resource-dependent economies.

Keywords:

Resource curse, Shadow economy, Oil rent shocks, Corruption, Sustainable governance, Iran sanctions

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Published

2025-09-03

Issue

Vol. 1 No. 3 (2025): Innovations in Environmental Economics

Section

Articles

How to Cite

Resource Curse under Sanctions: The Mediating Role of the Shadow Economy in Corruption, Institutional Erosion, and Sustainable Governance in Iran. (2025). Innovations in Environmental Economics , 1(3), 222-235. https://doi.org/10.48313/iee.v1i3.62