The collapse of the temporary Iran-US understanding announced in mid-June 2026 and the return of military tensions in July once again demonstrated that, even after months of conflict, de-escalation still depends on a ceasefire, negotiations, and a credible path toward sanctions relief.
When economic pressure is combined with military threats and no credible political solution exists, resolving a crisis becomes far more difficult. The central question for governments that use sanctions is this: Can sanctions weaken an adversary enough to make military action appear less costly?
This possibility can be described as the "sanctions paradox." Sanctions do not send soldiers across borders, immediately destroy cities, or produce graphic images of civilian casualties. Their costs are typically gradual, dispersed, and less visible. That makes sanctions an attractive policy tool for governments seeking to exert pressure without formally going to war. Yet Iran's experience suggests that prolonged economic pressure can produce unintended security consequences. When sanctions become detached from a clear and credible path to negotiations and sanctions relief, they may erode the conventional military capabilities of the sanctioned country and alter the opposing side's assessment of the costs of military escalation.
What does the evidence show?
In a study examining the impact of sanctions on Iran's military spending, I analyzed how the sweeping economic sanctions imposed in 2012 affected the country's defense budget. To answer this question, I compared Iran's actual military spending with that of a "synthetic Iran", an estimate of the country's likely military spending trajectory in the absence of the 2012 sanctions shock, constructed using data from comparable countries.
The estimates showed that after 2012, Iran's military spending fell sharply compared with the hypothetical no-sanctions scenario. Between 2013 and 2015, Iran spent roughly $117 less per capita annually on military affairs than would have been expected without sanctions. Given Iran's population during that period, this amounted to an annual reduction of approximately $9 billion in military spending.
These findings indicate that sanctions reduced Iran's military expenditures. However, this does not automatically mean they reduced the risk of war. The security implications of lower defense spending depend on how it affects defensive capabilities, deterrence, and the adversary's perception of Iran's vulnerability.
The sanctions imposed in and after 2012 were particularly consequential because they targeted Iran's oil exports and access to the international banking system. During the five years preceding the 2012 oil and banking sanctions, oil revenues accounted for roughly 77% of Iran's export earnings. By 2011, immediately before the sanctions shock, that share had risen to about 88%.
The study suggests that the fiscal pressure created by declining oil revenues outweighed the government's incentive to increase defense spending in response to external threats. Iran may have perceived greater security threats, yet had fewer financial resources to expand its conventional military capabilities.
Supporters of sanctions may view this as evidence of success: government revenues declined, oil exports were restricted, banking channels were blocked, investment and imports fell, leaving fewer resources for the military budget. The key question, however, is what this meant for Iran's security and deterrence.
How do sanctions affect deterrence?
A country's military strength depends on maintaining, modernizing, and expanding its defense equipment and infrastructure. Operational readiness of aircraft, upgrades to air defense systems, procurement of spare parts, modernization of radar networks, expansion of naval fleets, and access to engines, software, training, communications, logistics, and foreign technology are all essential components of military capability. Long-term sanctions can constrain both the financial resources and access needed to invest in these areas.
Iran adapted to sanctions. Military development did not stop but shifted toward capabilities that could be expanded at lower cost and with greater reliance on domestic production. Drones, missiles, asymmetric naval tactics, dispersed facilities, and regional networks in Yemen, Lebanon, Syria, and Iraq became part of that adaptation. These capabilities provided Iran with additional tools of deterrence.
At the same time, sanctions likely deepened Iran's relative weaknesses in areas that depend on sustained access to advanced technology and global supply chains, including modern air power, advanced air defense, naval modernization, and sophisticated conventional weapons systems. These capabilities are particularly important against adversaries possessing air superiority, intelligence and cyber advantages, and precision-guided weapons.
This is where the concern begins. Reduced military spending can constrain the sanctioned country's defense capabilities while simultaneously making it appear more vulnerable to its rivals. If a country is financially weakened for years, excluded from advanced arms markets, and denied access to critical technologies, opposing military planners may conclude that the costs and risks of military action have declined. Such perceptions increase the risk of miscalculation and military escalation.
Sanctions are, of course, only one factor influencing the outbreak of war. Competition over resources, ideological objectives, domestic politics, regional rivalries, alliance commitments, distrust, and strategic miscalculations also play important roles.
The argument here is narrower: sanctions can alter the military balance and both sides' perceptions of the costs of escalation. That is the essence of the sanctions paradox. A policy presented as an alternative to war may, over time, lower the threshold for the use of military force.
This argument extends beyond Iran. Sanctions are generally viewed as a means of exerting pressure without direct military action. In practice, prolonged sanctions can become one link in a chain of pressure: economic isolation, technological deprivation, erosion of financial resources, and, if diplomacy fails, increased military pressure on a country left in a weaker position.
For that reason, declining military expenditures alone should not be regarded as proof that sanctions have succeeded. The sanctioning country may see a smaller defense budget as evidence of military containment, while military rivals may interpret the same development as weakened deterrence and increased vulnerability.
The security consequences of sanctions extend well beyond the military sphere. In Iran, sanctions have harmed the middle class, universities, the healthcare system, private businesses, and household purchasing power, while simultaneously increasing the role of informal trade and politically connected intermediaries. In such an environment, security actors may gain greater influence even as government revenues decline. Civil institutions weaken, public trust erodes, and the sense of encirclement deepens.
Why does a credible diplomatic path matter?
The 2015 Joint Comprehensive Plan of Action (JCPOA) linked restrictions on Iran's nuclear program to sanctions relief. It established a political framework for economic pressure and demonstrated that sanctions relief was possible in exchange for specific, verifiable actions.
The US withdrawal from the agreement in 2018 and the return of the maximum pressure campaign severely weakened that framework. Sanctions continued and intensified, but no clear, credible, or attainable conditions for their removal remained. As a result, economic pressure persisted while both the opportunity and incentives for compromise diminished.
The temporary understanding reached in June 2026 briefly restored the link between de-escalation, negotiations, and sanctions relief. Its collapse in July once again exposed the underlying problem: economic pressure, without a sustainable diplomatic process, limits both sides' ability to contain the crisis and prevent renewed conflict.
Sanctions become more dangerous when they gradually erode the sanctioned country's economic and military capacity without leaving a credible path toward an agreement and sanctions relief.
How should sanctions policy change?
Governments that use sanctions as a policy tool should clearly define their political objectives. They should also specify precisely which verifiable actions could lead to phased or complete sanctions relief.
Sanctions should be regularly evaluated for unintended security consequences. Such assessments should not focus solely on reducing the sanctioned government's revenues. They should also examine the impact on conventional deterrence, societal resilience, and the growing influence of intermediaries and networks linked to security institutions.
Diplomatic channels should remain open even during periods of intense pressure. Promises of sanctions relief must also be credible and actionable to create genuine incentives for cooperation. Open-ended sanctions combined with vague or continually expanding demands reduce incentives for compromise and may encourage both sides to prepare for confrontation.
In Iran's case, breaking the cycle of pressure and escalation requires a gradual and credible process linking specific, verifiable Iranian actions to proportional and time-bound sanctions relief by the other side. Such a process would not eliminate the risk of conflict, but it could help prevent economic pressure from gradually replacing diplomacy and becoming a catalyst for military escalation.
From Iran's side, preserving negotiating channels, presenting phased and verifiable proposals, and strengthening economic resilience could expand diplomatic flexibility. When economic pressure erodes a country's conventional military capabilities while simultaneously closing diplomatic avenues, rivals may conclude that the costs of military action have fallen, while the sanctioned country may perceive fewer non-military options.
War cannot be explained by sanctions alone. But sanctions can lower the threshold for the use of military force. That paradox shows that economic pressure is not always a barrier to war; under certain conditions, it can make war appear a more conceivable option.
Mohammad Reza Farzanegan is Professor of Middle East Economics at Philipps University Marburg, Germany.
NOURNEWS