Sanya Abdelqader‏‏

The Iranian economy is now up against a range of challenges that reflect deep structural imbalances in its financial system, many of which have been exacerbated by current domestic and external pressures. <a href="https://fortune.com/2026/04/12/iran-economy-crisis-inflation-prices-payroll-unemployment-currency-collapse/" rel="noopener noreferrer" target="_blank">Reports</a> indicate that Iran’s economy was already under severe strain before the outbreak of the war launched by the United States and Israel. However, the recent conflict has accelerated the economic downturn, transforming chronic crises into unprecedented shocks that threaten both financial and social stability at a time when Iranian authorities are facing mounting difficulties in meeting public-sector salary obligations. Against this backdrop, the Iranian economy’s ability to withstand these complex pressures—and its prospects for recovery if they persist—remain in doubt.Key IndicatorsWorsening economic conditions had already sparked a broad wave of protests across Iran in January 2026, but the effects of the war have significantly deepened the crisis. The most important indicators of this deterioration include the following:1. Sharp Rise in Annual Inflation Rates: According to the <a href="https://alhurra.com/en/15108" rel="noopener noreferrer" target="_blank">Central Bank</a> of Iran and the Statistical Center of Iran, economic pressures had already intensified before the war began. Annual inflation reached 68.1% in February 2026, while monthly inflation stood at 9.4%, reflecting a rapid price increase over a short period.Total food costs rose by more than 110% compared with the previous year. Prices for bread and cereals increased by 142%, meat by 117%, dairy products, cheese, and eggs by 108%, fruit by 113%, and cooking oils by 207%. These increases sharply eroded the purchasing power of middle- and lower-income Iranian households.It is also noteworthy that <a href="https://fortune.com/2026/04/12/iran-economy-crisis-inflation-prices-payroll-unemployment-currency-collapse/" rel="noopener noreferrer" target="_blank">food inflation</a> had already reached 64% annually in October 2025 before climbing to 105% by February 2026, pushing overall inflation to approximately 47.5% on the eve of the war.2. Sharp Collapse in the Rial Amid Surging Inflation: Before the war, high inflation and the sharp decline of the Iranian rial had already triggered widespread protests that were met with severe repression. Living conditions have only deteriorated further during the current conflict, as the destruction of critical infrastructure—including factories, energy facilities, bridges, and railway networks—has pushed unemployment higher.Meanwhile, the Iranian rial has <a href="https://fortune.com/2026/04/12/iran-economy-crisis-inflation-prices-payroll-unemployment-currency-collapse/" rel="noopener noreferrer" target="_blank">fallen by approximately</a> 8% against the U.S. dollar in the parallel market since the war began, after already losing around 60% of its value during the months following the previous war with Israel in June 2025.3. Severe Damage to Iran’s Vital Economic Sectors: The impact of the war has been particularly visible across productive sectors. Mobarakeh Steel Company, Iran’s largest steel producer, has suspended operations <a href="https://www.dw.com/en/iran-sees-hundreds-of-thousands-of-jobs-lost-due-to-war/a-76794860" rel="noopener noreferrer" target="_blank">despite</a> the country previously ranking among the world’s ten largest steel-producing countries, with total exports reaching 31.8 million tons and revenues estimated at approximately $860 million.This has resulted in the dismissal of thousands of workers, <a href="https://www.dw.com/en/iran-sees-hundreds-of-thousands-of-jobs-lost-due-to-war/a-76794860" rel="noopener noreferrer" target="_blank">including</a> around 10,000 daily laborers, while the effects have spread across supply chains linked to the sector.The petrochemical sector has not been spared either, particularly in industrial zones like Mahshahr, which employs more than 30,000 workers. Estimates indicate that it might take at least two years to rehabilitate these facilities, amid continuing challenges related to sanctions, financing shortages, and limited access to technology.4. Collapse of Confidence in Financial Markets Before the War: The Tehran stock market witnessed a notable wave of capital flight prior to the outbreak of war, as rising geopolitical tensions undermined investor confidence. More than 107.8 trillion rials—equivalent to approximately $66.5 million—were <a href="https://www.iranintl.com/en/202602233492?source=share-linkhttps://www.iranintl.com/en/202602233492?source=share-link" rel="noopener noreferrer" target="_blank">withdrawn</a> by retail investors over the course of 24 trading sessions. Analysts described this as a new phase of liquidity erosion driven by political uncertainty and fears of military escalation.Between January 8 and February 21, the main stock index fell by 15%, while the price of 18-<a href="https://www.iranintl.com/en/202602233492?source=share-linkhttps://www.iranintl.com/en/202602233492?source=share-link" rel="noopener noreferrer" target="_blank">karat gold</a> rose by 33%. Gold-backed funds also recorded growth of approximately 20%, becoming the primary destination for capital exiting the equity market.Direct RepercussionsThe recent war has produced immediate consequences for the daily lives of Iranian citizens, reflected in declining purchasing power, worsening living conditions, and growing public concern over the weakening national currency. These developments can be outlined as follows:1. Continued Internet Disruptions Across Iran: <a href="https://www.nytimes.com/2026/04/13/world/middleeast/iran-internet-blackout.html" rel="noopener noreferrer" target="_blank">Iranian society</a> continues to face persistent internet outages, amid growing complaints over their deeply negative impact on economic activity. The disruptions are no longer viewed as merely technical or security measures, but as a direct obstacle to business operations—particularly enterprises that depend on digital platforms for their daily activities. This threatens income sources and further deepens the broader economic slowdown.At the same time, criticism has intensified within the Iranian public sphere regarding what is seen as official double standards. The authorities are accused of retaining normal internet access internet for themselves, while ordinary citizens are cut off. This disparity has fueled public resentment, as such practices are widely perceived as undermining trust between the state and society while raising broader concerns over fairness and transparency in crisis management.2. Erosion of Purchasing Power Amid Rising Living Costs: <a href="https://www.bbc.com/news/articles/cn5geplde0wo" rel="noopener noreferrer" target="_blank">Many Iranians</a> are facing mounting difficulties in meeting basic needs because of sharply rising inflation and the steep decline in the value of the national currency. These pressures have intensified following U.S. airstrikes on Iranian nuclear facilities and continued threats of further military escalation.The economic strain has directly affected everyday life through declining purchasing power and surging living costs. Some households have been forced to reduce consumption, including cutting back on purchases of red meat and branded consumer goods. Estimates indicate that the cost of a standard <a href="https://www.bbc.com/news/articles/cn5geplde0wo" rel="noopener noreferrer" target="_blank">food basket</a> for an average family is now eight times higher than it was five years ago, and more than thirty times higher than in 2016.3. Large-Scale Job Losses Caused by the War: More than 93 million people in Iran are <a href="https://www.dw.com/en/iran-sees-hundreds-of-thousands-of-jobs-lost-due-to-war/a-76794860" rel="noopener noreferrer" target="_blank">living</a> under the shadow of a war that could escalate again at any moment, amid worsening economic fallout. The most vulnerable groups—particularly workers and low-income earners—have borne the heaviest burden as large numbers of factories have shut down and economic activity has contracted, resulting in job losses and declining wages.The government has estimated initial losses at approximately €229 billion, or around $270 billion, at a time when the full extent of damage to the industrial sector remains unclear. <a href="https://responsiblestatecraft.org/us-war-iran-poverty/" rel="noopener noreferrer" target="_blank">Estimates</a> further suggest that roughly 50% of jobs are now at risk, while an additional 5% of the population could fall below the poverty line.4. Reduced Access to Essential Public Services: U.S. military operations reportedly <a href="https://responsiblestatecraft.org/us-war-iran-poverty/" rel="noopener noreferrer" target="_blank">destroyed more than</a> 125,000 residential and civilian buildings, in addition to thousands of factories and companies exceeding 23,000 facilities. Critical service infrastructure—including schools, universities, and emergency centers—was also heavily targeted, disrupting citizens’ access to basic services such as healthcare and policing because of destruction or evacuation of these facilities.Vital infrastructure such as ports and transport networks has likewise been damaged, obstructing the movement of essential goods including medicine and food. <a href="https://responsiblestatecraft.org/us-war-iran-poverty/" rel="noopener noreferrer" target="_blank">Significant damage</a> was also reported at several airports, while oil, refining, and petrochemical facilities were targeted—sectors that form the backbone of export revenues and industrial supply chains in the country.5. Negative Economic Impact of the Closure of the Strait of Hormuz: Following U.S. President Donald Trump’s announcement that the United States would impose a naval blockade on vessels heading to or departing from Iranian ports, Iran’s Islamic Revolutionary Guard Corps closed the Strait of Hormuz again, declaring its full control over navigation through the strait. This move is likely to entail major negative consequences for the Iranian economy, since Tehran depends heavily on the strait to export approximately two million barrels of oil per day, with estimates indicating that the closure has <a href="https://www.jpost.com/middle-east/iran-news/article-893114" rel="noopener noreferrer" target="_blank">left around</a> 158 million barrels of Iranian oil stranded at sea. If both oil and non-oil exports were to halt completely, the Iranian economy could incur <a href="https://www.jpost.com/middle-east/iran-news/article-893114" rel="noopener noreferrer" target="_blank">losses of roughly</a> $400 million per day, significantly intensifying fiscal pressures.6. Economic Reconstruction Is Expected to Take More Than a Decade: According to the Central Bank of Iran, the effects of the 40-day war with the United States and Israel—combined with the fragility of existing economic conditions—could require up to <a href="https://www.iranintl.com/en/202604139864" rel="noopener noreferrer" target="_blank">12 years</a> for full recovery. <a href="https://responsiblestatecraft.org/us-war-iran-poverty/" rel="noopener noreferrer" target="_blank">Estimates place reconstruction</a> costs at around $300 billion, amid disrupted supply chains and contracting economic activity.Officials have also warned that destruction of productive capacity could trigger a severe inflationary wave in the coming months. Inflation could reach <a href="https://www.israelhayom.com/2026/04/13/irans-central-bank-warned-the-regime-of-economic-collapse/" rel="noopener noreferrer" target="_blank">approximately</a> 180% if shortages of industrial inputs persist, while unemployment may rise to nearly two million people as factories, small businesses, and service providers continue to struggle to resume operations.Overall, current developments indicate that the war has had repercussions well beyond the military domain, causing a deep structural shock across Iran’s economy and society alike. Damage to infrastructure and loss of human life, coupled with collapsing production chains and unprecedented spikes in inflation and unemployment, have expanded poverty and eroded the middle class.The crisis has also exposed the fragility of an oil-dependent economy operating under sanctions and sustained external pressure, in a situation where the state has limited capacity to contain fallout or finance social protection programs. As tensions continue to simmer and the risk of renewed escalation persists, more complex scenarios loom on the horizon, which could drive further economic deterioration and social instability unless political settlements are reached to ease both domestic and external pressures.

The Iranian Economy at War