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.
Introduction
The 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.
In 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”.
For 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.
Literature Review
The existing studies on sanctions generally split between two schools, neither of which accounts for the unique structure of modern hybrid actors.
The “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.”
The “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.
The 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.
Parasitic Resilience
To 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.
To 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.
Measuring Sanctions Failure
To 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).
Figure 1. Income Diversification
Figure 2. Munition Stockpile Growth
Figure 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.
Case Study 1: Hezbollah and the Offshore Model
Following 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.
Hezbollah Adaptation
Rather 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.
Second, 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.
Deterrence Failure Against Hezbollah
The 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.
Case Study 2: The Houthis and the Onshore Model
The 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.
Houthis Adaptation
Unlike 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.
In 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.
Deterrence Failure Against Houthis
In 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.
Comparative Analysis and Counterarguments
Both 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.
Critics 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.
Another 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.
The 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.
Conclusion
The 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.
The 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.
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