The punitive damages awards are pragmatic forms of redress and intermediate sanctions against anti-social misconduct of the defendants. These kinds of awards do not have compensatory character, but extra-compensatory ones. They will be given, in addition to the punishment and tort compensation, to the claimant in order to deter the members of the society from creating further damages towards the others, especially when the case of wealthy and powerful individuals and entities who undertake such misconduct is in issue. The present article explains that the Iranian Legal System did not deploy punitive damages against the defendants (people, entities, and foreign states) before 1999, to punish their misconduct. It only used to confine itself to the application of criminal, civil and tort laws. In the first part, after introducing backgrounds of punitive damages in foreign countries, and how it might work in international scale, the article describes the reasons by which this theory came to the attention of Iranian government. In other parts, the article explains the structure of punitive damages and clarifies the comparative advantages or disadvantages of punitive damages vis-à-vis other remedies and mechanisms available in Iranian Legal System. Finally, not only the article analyses the verdicts of U.S. courts against Iranian government and vice versa, but also considers whether the awards of punitive damages make sense to be issued by one state against the other or not.