This analysis highlights the ineffectiveness of conventional economic statecraft when applied to hybrid militant organizations such as Hezbollah and the Houthis (Ansar-Allah), introducing the concept of “Parasitic Resilience” to explain their endurance. These groups have evolved beyond reliance on external sponsorship by developing self-sustaining illicit economies that thrive amid state collapse and international sanctions. Rather than weakening under financial pressure, they exploit economic turmoil to consolidate control over black markets and public services, turning sanctions into tools for recruitment and legitimacy.
Historically, Western foreign policy has leaned heavily on sanctions as a non-kinetic method of coercion, based on the assumption that economic hardship will compel rational actors to change behavior. However, this logic fails when confronting ideologically driven non-state entities that do not prioritize GDP or public welfare in decision-making. For instance, Hezbollah and the Houthis have maintained and even expanded their military capabilities despite decades of severe restrictions.
The “Pain-Gain” model, which presumes economic costs lead to compliance, does not apply to groups that frame sanctions as foreign aggression and use them to rally civilian support. Similarly, the “Authoritarian Resilience” framework—where dictators shield elites by sacrificing the general population—falls short in explaining how sub-state actors parasitize weakened governments to build autonomous power structures.
Instead, the theory of Parasitic Resilience argues that sanctions erode formal state institutions, displace the middle class, and create vacuums filled by armed groups who monopolize informal economies. Two case studies illustrate this adaptation.
In Lebanon, after the U.S. withdrawal from the JCPOA in 2018, Iranian funding to Hezbollah dropped sharply from $700 million annually. Concurrently, the Lebanese lira lost over 90% of its value in 2019. Yet, rather than collapse, Hezbollah transitioned into a transnational criminal network. It expanded operations through Al-Qard Al-Hasan (AQAH), an alternative financial system outside SWIFT, which by 2020 held nearly $500 million in deposits and issued over $3.5 billion in loans. This system, backed by tangible assets, remained stable during hyperinflation, attracting users from the Shia community affected by banking sector failures.
Additionally, Hezbollah industrialized Captagon production along the Syrian-Lebanese border, generating an estimated $5.7 billion annually. It also partnered with South American cartels in the Tri-Border Area, providing security for cocaine operations and laundering between $300 million and $500 million each year via trade-based schemes. These activities insulated the group from financial shocks originating in Iran or Syria.
In Yemen, the Houthis adopted a different strategy—direct control of state infrastructure. Following UN Resolution 2216 and Saudi-led blockades, they seized Hodeidah port, the entry point for 70% of the country’s food and fuel. By imposing customs and transit fees, they generated over $1.8 billion in 2019 alone. They further institutionalized extraction through the “Khums” tax—a 20% levy on natural resource revenues—disguised as a religious obligation, enabling systematic exploitation of the national economy.
They also taxed Sana’a-based telecom operators, extracting more than $100 million per year. This onshore model allowed them to fund military operations independently. During the Red Sea crisis from 2023 to 2024, they launched over 190 maritime attacks using low-cost precision weapons to disrupt global shipping, spending only a fraction of their monthly port income. Their decline began only after sustained kinetic strikes by U.S.-aligned forces targeted key military installations.
Both Hezbollah and the Houthis eventually reduced their radical rhetoric, repositioning themselves as legitimate political or governing entities. This shift reflects a broader trend: hybrid actors are transforming into proto-states capable of withstanding traditional economic pressure.
Critics argue sanctions still limit growth, but data shows Hezbollah’s arsenal grew to an estimated 150,000 rockets and anti-tank guided missiles by 2024, despite increasing sanction intensity. Others suggest diversified revenue streams create new vulnerabilities, yet enforcement efforts remain hampered by local complicity and bureaucratic inertia.
The implications extend beyond the Middle East. In the Sahel, JNIM has adopted Houthi-style taxation of transport routes. IS and AQ affiliates, along with groups like M23 in Central Africa, are establishing internal borders and governance systems, undermining the effectiveness of international financial controls.
Ultimately, the decline of these groups in late 2025 was not due to economic isolation but to targeted military actions—leadership decapitation and infrastructure degradation. This underscores a strategic shift: financial tools alone cannot dismantle resilient hybrid networks. The era where money acted as a lever of coercion has ended; today, it functions as a weapon mastered by adversaries.
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Failure of Economic Statecraft Against Parasitic Hybrid Actors in the MENA Region
This article argues that traditional economic statecraft fails against hybrid actors such as Hezbollah and the Houthis (Ansar-Allah) due to the concept of “Parasitic Resilience.” It demonstrates how these groups adapt to sanctions and blockades by creating new forms of illicit revenue network, requiring a shift from economic statecraft to kinetic degradation. n nIntroduction n nThe reliance on economic statecraft has long been a staple of Western foreign policy, serving as the primary non-kinetic tool to deter hostile actors. To understand the recent failures of these measures, one must first understand the logic that sustained them: the belief that economic deprivation will compel rational actors to alter their behavior to avoid further cost. Historical cases suggest that the conventional application of sanctions often failed for a variety of reasons, ranging from a lack of cooperation from sanctioning states to stubborn leadership that views concessions as a loss of reputation. Despite this, sanctions remained as the only coercive action that was both active enough to be effective, and passive enough to prevent escalation. n nIn the modern security landscape, sanctions fail because hostile actors have adapted to the liberal international order, able to create their own insulated economies that external forces cannot feasibly damage. While conventional groups in the Middle East and North Africa (MENA) regions, such as the Islamic State of Iraq and Syria (ISIS) and al-Qaeda (AQ) have been considerably weakened, groups such as Hezbollah and the Houthis remain potent. They persist not because of economic and political support from their sponsors, but because they have evolved into modernized “hybrid actors”. n nFor over two decades, despite being the most heavily sanctioned entities on Earth, Hezbollah and the Houthis have managed to expand their arsenals and project regional power until their gradual decline starting late 2024. Sanctions did not achieve any major deterrence against Hezbollah’s operations, nor did they stop Houthi attacks in the Red Sea. Rather, it was the surgical paramilitary operations and political overturning of their allies that started their decline. n nLiterature Review n nThe existing studies on sanctions generally split between two schools, neither of which accounts for the unique structure of modern hybrid actors. n nThe “Pain-Gain” model, led by Hufbauer, Schott, and Elliot, posits that sanctions succeed when economic costs force the target to comply. This model assumes that the target is a “rational state” that would concern itself with its GDP and public welfare. However, this framework disintegrates when applied to ideological non-state actors, where core security interests are rarely conceded due to economic pain. For hybrid actors like the Houthis, economic pain is merely used as a rallying tool for the civilian population against “foreign aggression.” n nThe “Authoritarian Resilience” model, led by Peksen and Drezner, focuses on how autocratic regimes survive sanctions. They argue that dictators, through control over the state’s logistical hubs, can redistribute exposed resources to their inner circles, using the general population as an insulative shield. This is seen as the most common reason sanctions against aggressive terror sponsor states fail, especially seen from the Saddam Hussein regime and the Assad regime. However, this framework fails to explain the cases in which a subsection of the state can feed off the weakened government and expand its internal proxy network. n nThe core gap in current literature is the separation of terrorist financing and state sanctions. There is extensive documentation on how groups like Hezbollah launder money, but these are often framed as individual tactical deviations rather than structural adaptations to economic statecraft. There is also a theoretical gap regarding how sanctions on host states strengthen the parasite. n nParasitic Resilience n nTo answer the question of how these groups survive, this paper proposes the theory of “Parasitic Resilience,” suggesting that when conventional sanctions weaken the host state’s formal economy, they destabilize the legitimate middle class, granting advantages to illicit paramilitary actors. These actors utilize extreme wealth and military force to monopolise the black market, and with no other safe or stable platform to interact economically, the general population turns to the black market. In this scenario, I argue that sanctions do not degrade the target, instead destroying the host and leaving the target as the sole controller of public goods. n nTo test the hypothesis of Parasitic Resilience, I utilize a comparative analysis of two primary cases: Hezbollah in Lebanon and the Houthis (Ansar-Allah) in Yemen. These cases are chosen due to their two distinct evolutionary paths of sanction-proofing. n nMeasuring Sanctions Failure n nTo measure the failure of sanctions, this analysis tracks operational tempo and revenue diversification. The data is drawn from official international sources such as the United Nations Panel of Experts on Yemen, the United States Treasury Department (OFAC), the Washington Institute, Center for Strategic and International Studies (CSIS), and Armed Conflict Location and Event Data Service (ACLED). n nFigure 1. Income Diversification n nFigure 2. Munition Stockpile Growth n nFigure 3. Operational Tempo vs. Sanctions: vertical lines indicate sanctions to each group; escalation scores are measured relatively in accordance to volume, threat, and consistency of attacks. n nCase Study 1: Hezbollah and the Offshore Model n nFollowing the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Iran’s funding to the group got sharply cut from $700 million USD annually. This shock was compounded by the Lebanese Lira crash of 2019, which led to the currency losing over 90% of its value. According to the Pain-Gain model, this sequence of economic devastations should have choked Hezbollah’s operational capability, but this was not the case. n nHezbollah Adaptation n nRather than capitulating, Hezbollah rapidly shifted from a state-subsidized model to a transnational criminal enterprise. As illustrated in Figure 1 (Income Diversification), this adaptation occurred in two primary vectors. First, Al-Qard Al-Hasan (AQAH). Hezbollah increased the movement of its illicit finance through their central banking system, which operates outside of the SWIFT network and effectively immunizes the group’s finances from US banking sanctions. The SpiderZ hack in 2020 revealed that AQAH held nearly $500 million in deposits and had issued over $3.5 billion in loans, functioning as a gold-backed cash economy immune to the Lira’s hyperinflation. When the Lebanese banking sector froze depositor accounts, AQAH maintained liquidity, drawing in users from the Shia community affected by these sanctions. This created a cycle where pressure on Lebanese banks drove the general population back into the influence of the sanctioned entity. n nSecond, the industrialization of drug trafficking. Hezbollah streamlined the Captagon production and distribution process along the Syrian-Lebanese border. By 2021, this industry alone generated an estimated $5.7 billion in net revenue annually, in which Hezbollah plays a major role. Hezbollah also capitalizes on South American drug rings in the Tri-Border Area, assisting cartels in evading crackdowns by providing security on cocaine operations and laundering an estimated $300-$500 million annually through trade-based schemes. Through these means, they are effectively shielded from financial strains put on Iran and Syria. n nDeterrence Failure Against Hezbollah n nThe failure of sanctions against Hezbollah was demonstrated in the 2023-2024 conflict against Israel. Despite decades of severe sanctions, Hezbollah expanded its arsenal to an estimated 150,000 rockets and anti-tank guided missile systems. The group’s ability to sustain high intensity strikes against northern Israel throughout 2024 proved that financial isolation did not equate to military degradation. The eventual decline in such capability came not as a result of economic statecraft, but of kinetic decapitation and the loss of its political allies. Furthermore, the strengthening of the Lebanese Armed Forces (LAF) with US aid has begun to challenge Hezbollah’s narrative as the sole defender of Lebanon, forcing a political pivot where the group increasingly seeks to present itself as a legitimate political party rather than a radical Islamist militia to maintain survival. n nCase Study 2: The Houthis and the Onshore Model n nThe Houthis were targeted by severe sanctions and blockades through UN Resolution 2216. Their primary regional rival, Saudi Arabia, emplaced strict inspections on imports, attempting to cut the group off from arms trades. Additionally, the Central Bank of Yemen was relocated to Aden to deny the Houthis access to state foreign reserves. n nHouthis Adaptation n nUnlike Hezbollah, the Houthis focused on seizing and controlling the previously state-controlled income systems. As detailed in Figure 1, by controlling the Hodeidah port, the entry point for 70% of Yemen’s food and fuel, the Houthis monetized the humanitarian crisis. The annual income from customs duties and transit fees exceeded $1.8 billion USD in 2019, and this continues to increase as other sea-based entry points remain dangerous and costly. n nIn 2020, the Houthis introduced the “Khums” tax, which grants 20% of all Yemen-born natural resource wealth for the “Ahl al-Bayt” (Hashemite elites). Disguised as a religious tax, this predatory system enabled the group to legally feed on the country’s economy, effectively using the general population as an economic insulation. They also extracted over $100 million annually from the telecom sector by taxing Sana’a-based mobile networks. n nDeterrence Failure Against Houthis n nIn the Houthis’ case, the failure of sanctions was displayed by the increase in attack frequency during the Red Sea crisis of 2023 to 2024. As shown in Figure 2. Munitions Stockpile Growth, despite facing multiple designations, including the Specially Designated Global Terrorist (SDGT) relisting in 2024, the group launched over 190 maritime denial operations that disrupted global trade. Utilizing cheap precision guided munitions to intercept multi-billion dollar shipment networks proved to be incredibly effective, allowing the Houthis to sustain this campaign for just a fraction of their monthly port revenue. Their eventual degradation only came as a result of multiple US-aligned kinetic strikes against military infrastructure. Similar to Hezbollah, the Houthis have also pulled back from purely radical Islamist rhetoric, increasingly positioning themselves as the legitimate state representative. n nComparative Analysis and Counterarguments n nBoth groups defeated sanctions through distinct mechanisms. Hezbollah adopted an Offshore model, relying on the agility of global illicit networks. On the other hand, the Houthis utilized an Onshore model, capturing state infrastructure to shield themselves. n nCritics often raise counterarguments against the ineffectiveness of sanctions, and the strengths of the structure that the two groups formed. Supporters of economic statecraft argue that while sanctions may fail to completely defeat these groups, they are effective in limiting their expansion rate. However, as seen in Figure 2, Hezbollah’s operational capability increased alongside sanction intensity. The continuous development and proliferation of cheap long-range guided munitions, as well as lack of enforcement on their overseas revenue greatly undermine sanctions as weakening solutions. n nAnother argument often brought up is how dispersing sources of revenue open up vulnerabilities in a wider range of sectors, especially in the case of international networks. While there are continuing efforts to track and shut such proxies down in the form of drug enforcement agencies and Interpol, local bureaucracies and apologetic sentiments often deem such efforts ineffective. n nThe success of these models is now influencing other groups. In the Sahel, Jama’at Nusrat al-Islam wal-Muslimin (JNIM) is utilizing the Houthi’s strategy of capturing roads and taxing logistics to generate significant illicit revenue. Local branches of IS, AQ, as well as central African groups such as the M23 are moving to create their own states and internal borders, disrupting the effects pipeline of international economic statecraft. This suggests a dangerous trend where non-state actors are evolving into sanction-proof proto states, rendering traditional statecraft obsolete. n nConclusion n nThe trajectory of Hezbollah and the Houthi movement between 1990 and 2025 offers a stark rebuttal to the prevailing neoliberal confidence in economic statecraft. The international community has operated under the assumption that financial isolation was a reasonable substitute for kinetic engagement, that if the state-level sponsors could be pressured, their proxies would wither. This research demonstrates that such assumptions are not only outdated but could be dangerous when applied to modern Hybrid Actors. n nThe eventual degradation of Hezbollah and the Houthis in late 2025 was not achieved by bankers, but by soldiers. It required the repeated decapitation of leadership entities and saturation attacks to achieve what twenty years of economic statecraft could not. This finding serves as a critical warning for future conflicts against groups like JNIM and M23. While once moderately useful against conventional state actors, the continued usage of conventional economic tactics will only serve to destabilize the host states and allow the actual offenders to prosper. The era of passive financial warfare is over; money is no longer a vulnerability to exploit, but a weapon that the entire world has learnt to use.