Israel’s killing of Hezbollah commanders, including Hassan Nasrallah, along with recent airstrikes on its infrastructure, has significantly disrupted the group’s funding from Iran, according to a senior Israeli intelligence official.
The data shows that these entities were the primary recipients of foreign currencies from the Central Bank that is the repository of US dollars, euros and other stable currencies importers need to conduct business. As large-scale currency trading is controlled by the government, it has set up various rates. For essential imports it provides dollars at half the free market rate, subsidizing food and medicines.
Meanwhile, customs data reveals that the majority of the country's exports come from government-controlled petrochemical, steel, oil and gas products, indicating the gradual exclusion of the private sector from Iran's foreign trade.
The latest Central Bank statistics show that since the beginning of the current fiscal year (March 20), a total of $37.2 billion has been allocated for the import of goods.
On October 15, Mohammad Rezvani-Far, the head of Iran's Customs Administration, announced that during this period, non-oil exports reached $29.5 billion, while imports amounted to $37 billion.
The key point here is that the Central Bank recently reported that in the first half of the current fiscal year (March 20 to September 20), it allocated $32.4 billion to the ministries of Industry, Agriculture, and Health for imports. Customs data also shows that the total value of imports in the first six months of this fiscal year was $32.5 billion. In other words, the private sector has been effectively sidelined from the country’s import activities.
The Central Bank plans to allocate a total of $55 billion to the ministries of Industry, Agriculture, and Health for imports during this fiscal year. Last year, Iran imported $66.2 billion worth of goods, $1.9 billion of which was gold bullion. If Iran's imports remain at last year's level, 85% of the total imports will be handled by the three government ministries, leaving only 15% to be managed by other government and semi-governmental entities, including the Islamic Revolutionary Guard Corps (IRGC) and the real private sector.
Approximately, $8.13 billion of the foreign currency allocated by the Central Bank for the import of food and medicine was provided at the rate of 285,000 rials, or less than half of the free market rate. The rest was supplied at higher, but still preferential rates. The remaining imports were made at the free market exchange rate, which stood at around 600,000 rials per dollar.
Central Bank and customs data show that the real private sector lacks access to the government's subsidized currency at the rate of 285,000 rials and has very limited access to the higher preferential rate. As a result, the private sector must rely solely on the free market exchange rate to import goods, severely limiting its ability to compete.
$7 Billion Trade Deficit in the First Half of the Year
Iranian customs data indicates a $7 billion deficit in the country’s non-oil foreign trade during the first half of the current fiscal year.
Last fiscal year, Iran’s non-oil trade deficit also reached an unprecedented figure of $17 billion. Customs data shows that in the first half of the current year, non-oil exports amounted to $25.8 billion, while imports reached $32.5 billion.
Although Iran earns revenue from oil exports, capital flight from the country is also significant. Since 2018, coinciding with US sanctions, Iran's capital account has been negative.
For instance, last year, Iran exported $36 billion worth of oil and oil-related products, and the overall trade balance of the country was a positive $18 billion. However, the latest Central Bank report indicates that during the first nine months of last year, over $20 billion in capital fled the country.
Additionally, Central Bank data shows that Iran's service trade balance is consistently negative by around $7 to $8 billion each year.
It is unclear exactly what the state of Iran’s foreign currency reserves is, given the trade imbalance and widespread capital flight. However, in an effort to slow the decline of the rial, the Central Bank has been forced to inject large amounts of foreign currency into the market.
The Israeli military intensified its campaign against Hezbollah’s leadership with the July 30 assassination of Fuad Shukr, a key aide to Nasrallah, followed by multiple airstrikes over the next two months that culminated in the killing of the group’s leader on September 27.
The airstrikes targeting the group’s leaders and infrastructure have created new challenges in Hezbollah's financial operations, which could have far-reaching consequences for its military capabilities, an Israeli intelligence official told reporters in a briefing on Sunday.
Iran provides most of Hezbollah’s training, weapons, and funding, sending the group hundreds of millions of dollars each year, according to the US State Department.
"Every month around $50 million comes from Iran to Syria and in Syria, they're transferred to Hezbollah. Some of the money is actually physical dollars, some of it is transferred to Syria through an oil agreement that Iran gives oil to Syria, which is then changed into money in Syria," the Israeli official explained.
The official said the money is also transferred by diplomatic figures coming from Iran to Lebanon through the Beirut International Airport, carrying suitcases of dollars to fund Hezbollah.
“Until about a month ago, Hezbollah's economic situation was pretty steady, because they received the funding from Iran on a very, very clear way every month. It came at the right time over the past few months. After that, a few things changed. They aren't able to receive funding as easily," the senior official said.
'Extreme rise in Hezbollah's expenses'
Disruption in money transfer is not the only financial problem Hezbollah is facing. Israel says the recent campaign against the Lebanese group has extremely increased their payments, as Hezbollah now faces additional financial burdens, including paying for more operatives, weapons, and the damages caused by the airstrikes, according to the Israeli official.
The official warned that Iran could easily resume funding after the war unless Israel systematically targets Hezbollah’s financial network.
The intelligence official made the remarks in a briefing that was held ahead of IDF airstrikes against multiple branches of Qard al-Hasan, a financial institution linked to Hezbollah in Beirut, southern Lebanon, and the Bekaa Valley.
Al-Qard al-Hasan is officially a non-profit charity institution operating outside the Lebanese financial system, and one of the tools by which Hezbollah entrenches its support among the country’s Shia population.
The branches hit by Israeli airstrikes had been evacuated weeks ago, according to pro-Hezbollah media. Therefore, their destruction is not expected to hugely impact Hezbollah’s financial capabilities. However, the target seems to be the Shia community’s trust in Hezbollah.
“The main objective is to is to affect the trust between Hezbollah and a lot of the Shia community that uses this association as a banking system, because economically speaking, a lot of it is based on the fact that there are people using it,” the Israeli official said Sunday.
As Israeli airstrikes continue to target Hezbollah's financial and operational infrastructure, the long-term effects on Hezbollah’s economic stability and military capabilities remain uncertain. However, Israeli officials stress the importance of maintaining pressure to disrupt the group's funding pipeline.
“They are under pressure at this point, but obviously it's something that unless we harm it on a systematic level, it's something that they could recuperate with pretty easily if Iran just gives the funding on the day after war. And that's why it's something that we really have target at this point on it,” the Israeli intelligence official said.
While Hezbollah has lost almost all its commanders and senior leaders in the Israeli airstrikes and targeted assassinations over the past three months, it does not seem to be losing momentum, continuing its daily rocket, missile, and drone attacks against Israel, going as far as hitting the residence of Prime Minister Netanyahu.
