Executive summary

On 17 June 2026, at the G7 summit in Évian, the United States and Iran signed the Islamabad Memorandum of Understanding, a preliminary accord ending four months of war, opening a sixty-day negotiating window for a final settlement, and committing to reopen the Strait of Hormuz.^21,22 A French-British-led multinational mission began clearing mines and escorting tankers through the strait in the weeks that followed, with more than ten European navies contributing.²³ Five weeks on from Évian, one thing has not changed: no European institution has consolidated what the Islamic Republic costs the European Union each year, across the six channels this report documents in full, financial-sector evasion, maritime disruption, military asymmetry, narcotics trafficking, regional destabilisation and covert infiltration.

The Iranian dossier has followed the same pattern for two decades. Each entry, diplomacy, the nuclear file, sanctions, security, is discussed in its own directorate, funded from its own budget line, reported on its own calendar. The war of February to April 2026 and the blockade of Hormuz compressed into a few weeks what independent analysis had already established as structural: European exposure to the Islamic Republic is measurable, cumulative and largely uncosted. The Évian summit addressed the nuclear file and the strait. It left the other four channels untouched, and even on the two it addressed, the settlement it produced is preliminary, weeks from the expiry of its own negotiating window as this report goes to press, and reversible.

The bill extends beyond direct expenditure into opportunity costs, insurance premiums, compliance costs and the cost of social absorption. Considered separately, each remains a line in a national budget, illegible as a European fact. Aggregated across the six channels this report documents, the order of magnitude runs into the tens of billions of euros a year, most likely toward the upper end of that range, before counting the $300 billion reconstruction commitment Europe is now expected to help underwrite. At that scale the Iranian dossier changes register. It stops being only a foreign-policy question and becomes a politico-economic one, with diplomatic ramifications that belong on the same table as the Islamabad Memorandum itself.

This report sets out the six channels in turn, assesses what has and has not moved since Évian, proposes the order of magnitude the six channels yield in aggregate, and closes with DORNA's position, the risks a hasty reconstruction-financing round would carry, and the recommendations DORNA addresses to European and allied institutions during the sixty-day window the Memorandum opened.

I. Context: Évian, the Islamabad Memorandum, and an unfinished ledger

The 52nd G7 summit convened in Évian-les-Bains from 15 to 17 June 2026, under the French presidency.²¹ On its margins, at the Château de Versailles, the United States and Iran signed the Islamabad Memorandum of Understanding: an end to direct hostilities, a commitment by Iran not to procure or develop nuclear weapons, provisions for the down-blending of stockpiled enriched material under IAEA supervision, and a sixty-day window, extendable by mutual agreement, to negotiate a final deal.²² The G7's own communiqué welcomed the Memorandum and endorsed a French-British-led multinational initiative to secure the Strait of Hormuz.²¹ That initiative launched in early July, with more than ten European navies clearing mines and escorting tankers, over a hundred of which had been waiting to transit.²³

These are real developments, and this report does not discount them. They address, partially and provisionally, one of the six channels documented below: the Hormuz chokepoint. They leave the other five untouched. The Memorandum says nothing about the European banking system's continued function as a clearing house for sanctions evasion, nothing about the drone-versus-interceptor asymmetry that continues to draw down European air-defence stocks, nothing about the narcotics infrastructure that survived Syria's collapse, nothing about the migratory pressure building behind Iran's economic collapse, and nothing about the intelligence and cyber activity eight European services have documented on their own soil. Its nuclear provisions are themselves preliminary: Iran retains the current status quo of its programme pending a final deal due within sixty days of 17 June, and the United States has committed in the interim to no new sanctions and no additional force deployments.²²

The absence of a consolidated European accounting is a policy choice with consequences, not a technical gap, and Évian has made those consequences sharper rather than resolving them. The Memorandum's own terms reportedly include a $300 billion reconstruction package for Iran,²² a sum European institutions and taxpayers will, in practice, be asked to help underwrite through EU and bilateral channels, before any of them has published what the status quo already cost. This report sets out that accounting, channel by channel, and then assesses it against the sequence opened at Évian.

II. Six points that no one has added up

a) Bank evasion and the compliance bill

In August 2024, U.S. authorities designated Zedcex, a UK-registered platform, after determining that it had processed more than $94 billion in transactions linked to sanctioned Iranian entities over the course of its operation.¹ Zedcex is the visible face of an architecture built from hundreds of intermediaries operating within or from the jurisdictions of the European Economic Area, post-Brexit United Kingdom, and their immediate partners in the Gulf and Asia.

The European financial system functions, in practice, as a central node in the Islamic Republic's evasion of Western sanctions. That role carries two measurable costs. The first is the compliance cost absorbed by European banks and commercial operators, which have built enhanced due-diligence procedures, transaction-filtering systems and dedicated teams to manage exposure. The second is the fines imposed by U.S. authorities for breaches of Iran-related sanctions. Over the past decade, four major European banks paid a cumulative total above €12 billion for such breaches.² These sums leave the European financial system and do not return to the European economy. They constitute a net fiscal externality that has never been consolidated as such, either in the banks' annual reports or in the balance sheets of European regulators.

b) The maritime chokepoints: Hormuz, Bab-el-Mandeb, a permanent premium

The Strait of Hormuz carries 21 million barrels of oil a day, 30 % of global seaborne crude trade and 25 % of liquefied natural gas.³ At the other end of the Arabian Peninsula, the Bab-el-Mandeb Strait handles a comparable share of Asia-Europe container traffic. Since 2024, the campaign led by Yemen's Houthis, whose arming and training by the Islamic Revolutionary Guard Corps has been documented by several Western research centres,⁴ has forced European shipping companies to reroute a substantial share of cargo via the Cape of Good Hope, adding ten to fourteen days to Asia-Europe routes and raising freight costs by roughly 30 % on that axis.⁵

The simultaneous activation of Hormuz and Bab-el-Mandeb during the 2026 Iran war lifted these costs to a new and durable level. Brent crude passed $100 a barrel, Dutch TTF gas prices doubled to above €60 per megawatt-hour by mid-March 2026, and the European Central Bank delayed its rate-cut forecasts while raising its inflation projection for the year by more than one percentage point.⁶

Beyond the acute phase, the demonstration that dual maritime disruption is now operational has introduced a permanent risk premium into every maritime contract tied to the region, a premium that weighs disproportionately on European operators, more exposed than their American or Asian counterparts on these routes.

c) Military asymmetry: a $50,000 drone against a million-dollar interceptor

The deepening integration of the Islamic Republic into the trilateral axis with Russia and China has, between 2022 and 2026, produced one of the most legible economic asymmetries of the current conflict landscape. A Shahed-136 drone, manufactured in Iran and supplied to Russia for use against Ukrainian targets, costs approximately $50,000 a unit.⁷ The Patriot missile required to intercept it over Odesa costs just over $1 million.⁸

The asymmetry carries beyond its technical dimension. Every Patriot or IRIS-T battery that European democracies deploy for missions tied to Iran's posture in the Gulf and to its allies is a battery unavailable for defence on other fronts, and every Iranian drone intercepted consumes twenty times its own value in Western munitions. This structural asymmetry accounts for a meaningful share of the rise in European military spending. In 2024, European NATO members collectively spent $454 billion on defence, and Europe's military expenditure as a whole rose by 27 % that year, the sharpest regional increase since the end of the Cold War.⁹

d) The narco-state: heroin, Captagon and the post-Assad relocation

On 1 July 2020, Italian customs officers seized a shipment at the port of Salerno containing 84 million Captagon tablets concealed inside rolls of industrial paper. The market value of the seizure exceeded €1 billion, at the time the largest synthetic-drug bust ever recorded in Europe.¹⁰ The cargo traced to Syrian production facilities controlled since 2014 by the Islamic Revolutionary Guard Corps and their Lebanese Hezbollah partners. Sixty percent of Afghan heroin and morphine destined for the European market transits through Iranian territory,¹¹ a route operated by the IRGC and its criminal affiliates that functions independently of Syria's political situation and will persist as long as the regime that maintains it remains in place.

The Captagon production infrastructure underwent a marked geographic shift in 2024–2025 without disappearing, as the fall of the Assad regime might have suggested. Syria's transitional government dismantled production facilities embedded in military bases, and in the months following Assad's collapse seized more than 200 million tablets, twenty times the volume Assad's forces confiscated across all of 2024.¹² Production relocated rather than disappeared. In Sudan, at civil war since 2023, new facilities emerged under actors aligned with the former Syrian regime; in February 2025 Sudanese authorities dismantled a plant in northern Khartoum capable of producing 100,000 tablets an hour. Libya, another institutional void, now hosts new facilities, documented in a June 2025 UN panel report.¹³ The infrastructure survived Syria's collapse because its architects retained industrial expertise, logistical networks and commercial outlets. The European market, the second largest after the Gulf, continues to face sustained supply pressure through alternative routes.

Over the past decade, the aggregated European cost of drug flows tied to the Iranian ecosystem, opioids via the Iranian route, reconfigured Captagon, and Hezbollah-linked laundering, has reached an estimated €100 billion or more in public-health, security and judicial expenditure. Post-Assad fragmentation has redistributed these costs across new jurisdictions rather than reducing them. A regime militarily weakened but structurally intact should be expected to lean further on illicit revenue to offset the loss of other income streams.

e) Regional destabilisation and the migratory bill ahead

This point requires a clarification stated at the outset. The migratory flows the Islamic Republic has helped generate are not, in this reading, a cost to attribute to the people who compose them. The reception costs borne by European public budgets over three decades are the result of the Iranian regime's strategic choices, and they end only when the forces driving them are politically transformed. Any restriction on reception would shift the burden onto the people displaced by those choices, not onto the regime that caused them.

The military, political and economic support the Islamic Republic gave Bashar al-Assad's regime between 2011 and 2024 was a primary driver of the Syrian war, which produced more than 500,000 deaths and 12 million displaced people.¹⁴ Europe absorbed more than a million Syrian refugees, Germany bearing the largest share, and the cumulated reception and integration costs recorded by national statistical agencies reached tens of billions of euros a year at the height of the crisis,¹⁵ on top of the more than €60 billion the European Commission allocated in humanitarian aid to Syria over the period.¹⁶ Lebanon's collapse, shaped by Hezbollah's de facto control of the state, produced a second wave that European capitals are financing again, directly through reconstruction appeals and indirectly through migration management.

Beyond the burden already absorbed, the heavier migration bill still lies ahead, and it is Iranian. The Islamic Republic has a population of 90 million, four times pre-war Syria's. Its economic collapse, marked by the rial's unprecedented depreciation, double-digit inflation since 2018, and youth unemployment among the educated estimated between 25 % and 40 %, has driven fifteen years of skilled emigration toward North America and Europe.¹⁷ A prolonged deterioration under a weakened but structurally intact Islamic Republic would mechanically accelerate that pressure. The potential cost to Europe would no longer be measured in tens but in hundreds of billions of euros over a decade. Behind the costs already borne lies the bill European capitals will pay if the Iranian situation worsens without having been anticipated.

f) Infiltration: eight services, one diagnosis

Between 2023 and 2026, eight European intelligence agencies published converging reports on the activities of the Islamic Republic within the European Union and the United Kingdom.¹⁸ Their convergence documents five distinct mechanisms operated from Tehran: transnational repression against Iranian dissidents in exile, intelligence-gathering targeting European institutions, political influence through associative and academic proxies, cyber operations attributed to groups linked to the IRGC, and the use of criminal intermediaries for covert operations.

The defensive costs these activities impose on European institutions have not been subject to any public budgetary consolidation. A cautious estimate, built from national intelligence budgets, counter-terrorism measures, Europe-wide cyber-defence expenditure¹⁹ and the cost of protecting threatened individuals, places the annual burden at a minimum of several billion euros. The EU's designation of the IRGC as a terrorist entity has stabilised certain responses without translating them into aggregated accounting.

III. Since Évian: a channel-by-channel account

Six weeks separate the Islamabad Memorandum from this report. The table below synthesises, channel by channel, whether the settlement reached at Évian has changed the cost architecture documented in Section II.

One channel out of six shows genuine movement, and its outcome is not yet secured. The other five stand exactly where they stood when the war ended in April, while a $300 billion reconstruction figure has already entered the diplomatic conversation. The gap between what has been costed for Iran's reconstruction and what has been costed for Europe's own two-decade exposure is itself the finding this section adds to the report.

IV. Order of magnitude

The aggregation of the six channels set out above, together with secondary dimensions this report does not detail for reasons of space, the uncaptured sectoral leverage over European industries tied to the energy relationship, and unaccounted technology transfers through academic cooperation prior to Iran's March 2019 decree, yields an order of magnitude whose exact precision will remain uncertain until a European institution undertakes a comprehensive consolidation exercise. Based on public sources and the six primary cost lines identified here, that order of magnitude is measured in the tens of billions of euros a year, most likely toward the upper end of that range.

An entirely independent methodology arrives at a convergent estimate. According to a March 2026 study conducted for INSM by the Vienna Institute for International Economic Studies (wiiw) and the Austrian Institute of Economic Research (WIFO), Europe's annual economic gain from a political transformation in Iran would range between €54 billion and €120 billion, depending on assumptions about productivity and trade reintegration.²⁰ The convergence between a bottom-up cost accounting and a top-down counterfactual model is itself a finding. Two independent methods, applied to the same question from opposite directions, locate the European stake in the same order of magnitude.

Independent trackers of the February-April 2026 war itself illustrate how widely cost estimates can range even for a single, bounded conflict, and how quickly institutions can nonetheless converge on a documented figure. The U.S. Department of Defense reported operational costs of $29 billion; independent tracking placed the 108-day total at $113.3 billion; other estimates incorporating indirect costs placed it closer to $200 billion.²⁴ The Institute for Economics and Peace and the World Bank estimated the war's drag on global output at approximately $1.3 trillion in 2026, roughly 0.6 percent of world GDP, with Gulf economies alone seeing growth forecasts cut from 4.5 to 1.3 percent and the global travel and tourism sector losing an estimated $600 million a day during the acute phase.^25,26 These figures are global, not European, and they measure a single four-month war, not two decades of structural exposure. They are cited here for one purpose: within weeks of the war's end, multiple institutions had produced bounded, documented cost estimates for it. No comparable exercise has ever been undertaken for the six-channel, two-decade European exposure this report documents.

V. What the Memorandum does not cost

The Islamabad Memorandum commits Europe, in practice if not in name, to a role in a $300 billion reconstruction package for Iran.²² European institutions will face requests for co-financing, guarantees and trade-normalisation measures during the sixty-day window and beyond, decisions that carry real budgetary weight and that will be made, absent the exercise this report recommends, without reference to what the status quo already cost the European Union.

DORNA's position is not that reconstruction financing is wrong in principle. Financing tied to a verified, monitored final settlement, one that closes the nuclear file, ends the maritime threat durably, and is calibrated to Iran's genuine reconstruction needs, can serve European interests directly, including by reducing several of the cost lines this report documents. DORNA's position is that no reconstruction commitment should be finalised before the European institutions asked to fund it have published what the alternative, continuation of the status quo, has cost and continues to cost them. A $300 billion pledge decided without that reference figure inverts the normal order of a budgetary decision: the number requested arrives before the number it should be measured against.

VI. DORNA's position

DORNA holds that the absence of a consolidated European accounting of the Islamic Republic's cost is a policy choice with consequences, not a technical gap, and that the Islamabad Memorandum has sharpened rather than resolved that choice. Costs that remain fragmented across separate ministries and separate budget lines stay outside the calculus European decision-makers apply to every other file of comparable weight, including, now, the calculus behind a $300 billion reconstruction commitment. Consolidating them does not prejudge the diplomatic method Europe should adopt toward Tehran, nor the merits of the Memorandum itself. It gives European decision-makers the information they already require before any comparable arbitration, on sanctions, on defence posture, on migration policy, on counter-narcotics cooperation, and now on reconstruction financing.

The convergence documented in this report, between a bottom-up accounting of six cost channels and an independent top-down estimate of the gain from political transformation, places the Iranian dossier on a footing European institutions already use elsewhere: the opportunity cost of inaction measured against the cost of a structured policy response. DORNA proposes that European and G7 institutions treat the Iranian dossier accordingly, as a European budgetary question standing alongside its foreign-policy, non-proliferation and security dimensions, not apart from them and not superseded by a single bilateral memorandum.

DORNA is an independent, non-partisan organisation working to structure Iran's democratic transition. This dossier does not prejudge that transition's internal arrangements, nor the outcome of the negotiation opened at Évian. It addresses a narrower and more immediate question: whether the institutions that manage Europe's Iran policy possess, in a single consolidated figure, the information their own decision rules already require, before their next financial commitment rather than after it.

VII. Risks and safeguards

Three risks attach specifically to the sequence opened at Évian, and DORNA flags them as safeguards a consolidated accounting would help manage, not as objections to diplomacy itself.

The first is temporal. The Memorandum's negotiating window closes, absent extension, in mid-August 2026. Reconstruction and financing decisions taken under that deadline pressure are structurally more likely to proceed without the costing exercise this report recommends than decisions taken on a calmer calendar. A published European Iran Cost Report, even a preliminary one, would give negotiators a reference figure before the window closes rather than after.

The second is conditionality. Five of the six channels this report documents, financial evasion, military asymmetry, narcotics, migration risk and infiltration, are untouched by the Memorandum's nuclear and maritime provisions. Reconstruction financing that does not condition disbursement on progress across those five channels would fund the regime's rehabilitation while leaving its extractive architecture, documented at length in DORNA's companion report on Iran's domestic economy, structurally intact.²⁷

The third is the distinction between regime and society that runs through all of DORNA's work. A costing exercise, and the conditionality it should inform, must fall on the political-security apparatus that generates these costs, not on the Iranian population that already bears the cost of the same regime at even greater scale at home. Reconstruction aid channelled through transparent, monitored mechanisms that bypass the IRGC-bonyad complex documented in DORNA's prior research serves this distinction. Aid that does not risks reinforcing the very structure this report, and DORNA's wider body of research, identifies as the source of both Iran's internal collapse and Europe's external cost.

VIII. Recommendations

DORNA addresses the following recommendations to the institutions positioned to close the accounting gap this report identifies, several of them now made more urgent by the sixty-day window the Islamabad Memorandum opened on 17 June 2026.

1. European Commission (DG ECFIN and the European External Action Service) · before any European financial commitment to Iran's reconstruction, and in any case before the Memorandum's negotiating window closes

   Commission a joint costing exercise consolidating the six categories identified in this report into a recurring annual European Iran Cost Report, published and updated on a fixed calendar.

2. European Central Bank and national banking supervisors · within twelve months

   Standardise disclosure requirements for Iran-sanctions compliance costs and related fines across EU-domiciled banks, so the compliance bill becomes visible in aggregate rather than institution by institution.

3. European Council and member states' maritime and naval authorities · standing basis

   Treat the dual Hormuz–Bab-el-Mandeb chokepoint risk as a permanent line of the EU Maritime Security Strategy rather than an episodic response to acute crises, and require the France-UK mission command to publish a public after-action costing once the mission's opening phase concludes.

4. G7 finance track, via the follow-up process agreed at Évian · before the next ministerial meeting

   Integrate the wiiw–WIFO transformation-gain estimate into the follow-up economic-security agenda as the counterfactual baseline against which the current cost of inaction is measured.

5. Europol, coordinating member states' interior and justice ministries · within the next budget cycle

   Consolidate counter-infiltration and counter-narcotics expenditure tied to Iran-linked networks into a shared reporting line, closing the estimation gap this report can currently only approximate from public sources.

6. European Parliament committees with an Iran mandate · earliest legislative opportunity

   Hold a hearing formally requesting that the Commission and the European External Action Service undertake the consolidation exercise recommended above.

7. European Council, the Commission and the European Investment Bank, together with any bilateral development agency contributing to the Islamabad Memorandum's reconstruction package · before first disbursement

   Condition European participation in the $300 billion reconstruction package on (i) publication of the European Iran Cost Report recommended above, and (ii) verified, monitored disbursement channels that bypass Iran's IRGC-bonyad economic complex.

None of these recommendations prejudges the diplomatic posture Europe should adopt toward the Islamic Republic, nor the ultimate merits of the settlement negotiated at Évian. Each addresses a narrower and more tractable question: whether Europe knows, in a single figure updated on a fixed calendar, what its current posture already costs, and whether its next financial commitment will be made with or without that figure in hand. DORNA stands ready to support this consolidation exercise with the research and coalition-building capacity described throughout its work.