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How Iran Finances Militant Groups in the Middle East

Iran has consistently invested hundreds of millions of dollars annually in supporting extremist movements across the Middle East, despite facing severe economic sanctions. According to the investigation by The Insider, the funds flowing to groups like Hezbollah, Hamas, and Houthi rebels are primarily sourced from Iran's oil and caviar sales, shadowy financial maneuvers, and even collaboration with Russia, as revealed in a detailed investigation. Hezbollah, a Lebanese militant group, openly acknowledges its financial dependence on Iran, with estimates suggesting an annual allocation of around $700 million. Other beneficiaries, such as Palestinian groups like Hamas and Islamic Jihad, receive approximately $100 million collectively. Additionally, Iranian military aid extends to Houthi rebels in Yemen and various Shiite armed factions in Iraq, constituting an annual expenditure of nearly a billion dollars or more.

Iran faces significant budgetary challenges, exacerbated by Western sanctions hindering foreign investments in its oil and gas sector. The real military budget in 2022, even with the official exchange rate, fell short of $7 billion. Despite economic hardships, the Iranian government, led by the ayatollahs, prioritises its global Islamic revolution over domestic concerns, continuing to allocate substantial funds to proxies, even as ordinary Iranians struggle. To circumvent sanctions and finance its proxies, Iran has constructed a complex system involving legal, semi-legal, and outright illegal structures. Fictitious companies, particularly those selling sanctioned Iranian goods, proliferate in the United Arab Emirates (UAE). Liberal economic legislation in the UAE allows Iran to register these companies under proxy individuals, facilitating the sale of sanctioned goods as legal products produced outside Iran. Recent investigations have identified over $160 million flowing into these companies within a few months in 2022-2023. The United States has urged the UAE to tighten its laws to curb these money-laundering activities.

One crucial player in Iran's financial dealings with militant groups is the Islamic Revolutionary Guard Corps (IRGC), specifically its Quds Force responsible for international collaboration. The Quds Force employs various methods, including cash transfers, gold transactions, and cryptocurrency, to support its clients like Hezbollah and Hamas. The IRGC's financial endeavours extend beyond military budgets. Companies affiliated with the IRGC, such as Khatam al-Anbiya, engage in construction, transportation, and oil extraction. Khatam al-Anbiya, with up to 170,000 employees, earns billions of dollars for its military-related projects but remains off the official defence budget.

Iran has also exploited joint ventures with foreign entities, including Japanese businessmen. Notably, the IRGC holds a stake in Bahman, an Iranian company that, until 2018, assembled licensed Mazda cars. The IRGC's influence in companies like Kerman Khodro, which owns Hyundai, highlights the intertwining of economic interests and military objectives. Charitable foundations with close ties to the IRGC, like Mostazafan, operate successful businesses while ostensibly supporting the needy. These foundations, managing extensive assets, including airlines like Mahan Air, are vital sources of income for Hezbollah and similar groups. Iran's strategy includes expropriating property, especially from religious minorities and political dissidents. Confiscated assets often end up under the control of foundations supposedly dedicated to aiding Iranians but, in reality, serve as financial hubs for groups hostile to Iran's adversaries.

In the face of a growing budget deficit and reduced military spending, Iran remains adept at generating revenue from various sources to sustain proxy armies throughout the Middle East. These proxies, in turn, are becoming increasingly skilled in managing the millions they receive annually from Tehran. Recent discoveries, such as a network of illicit financial companies linked to Hamas, underscore the depth and complexity of Iran's financial support for militant groups, with funds exceeding $500 million. Iran's ability to navigate economic challenges, evade sanctions, and sustain proxy forces illuminates a multifaceted financial strategy that continues to have profound implications for regional stability.

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