This paper investigates the propagation mechanism of sanction shocks across the Iranian economy and assesses the evolution of its structural responsiveness. For this purpose, grounded in geopolitical and legal developments from 1990 to 2023, a Weighted Sanctions Intensity (WSI) index capturing four dimensions—oil, financial, trade, and technological restrictions—is constructed. Utilizing a Vector Error Correction Model (VECM) supported by cointegration and diagnostic tests, we evaluate the impact of these shocks on oil export revenues, the nominal exchange rate, consumer price inflation, and real GDP growth. Empirical findings reveal that exogenous sanction shocks, by directly disrupting oil export revenues and weakening the national currency, exacerbate the surge in the nominal exchange rate, whereas their effects on inflation and output propagate primarily through indirect channels. Impulse response functions and forecast error variance decompositions identify the nominal exchange rate as the most immediate transmission channel. Nevertheless, sub-sample analyses demonstrate an attenuation in the exchange rate’s relative responsiveness in recent years, signaling the emergence of endogenous structural and institutional adjustments; however, disentangling the exact contribution of policy interventions from endogenous adjustment lies beyond aggregate macro data. Ultimately, institutional exchange rate stabilization, reducing fiscal sensitivity to oil revenues, and building a resilient trade architecture are recommended as key policy priorities.