Iran's Economy Enters 'Danger Zone' — Is Internal Explosion Imminent?

A source familiar with Iran's economic decision-making circles revealed that mounting financial pressures and increasing U.S. sanctions are pushing the Iranian economy into a more dangerous phase, noting that the government's ability to absorb the crisis and meet market needs is facing growing challenges.

The source told "Erm News" in a special statement that the coming period will be the most difficult for Iran's economy, especially as secondary sanctions expand to target vital sectors, shipping, financing, and trade networks, while the country's ability to use traditional financial channels declines—potentially directly affecting currency value, inflation levels, and living costs.

He pointed out that prolonged economic pressure could force the Iranian government into a difficult dilemma: either cutting spending and subsidies, increasing social burdens, or increasing expenditure and resorting to monetary tools that could further erode the rial's value and fuel inflation.

Severe blows to the economy

These warnings come as Iran's economy suffered severe setbacks last week, following U.S. President Donald Trump's announcement of an economic and financial war against Tehran, followed by U.S. Treasury Secretary Scott Bessent's declaration to expand secondary sanctions on Iran to include commercial partners, adding nearly 60 individuals, entities, and ships to sanction lists, and targeting personnel in aviation, digital assets, gold, shipping, and technology sectors.

Iran is currently experiencing one of its most precarious economic and political phases in recent decades, amid accumulated Western sanctions, deep-rooted structural issues, and intensifying geopolitical consequences—pushing the economy into a cycle of high inflation, declining growth, and reduced purchasing power.

The rial at the heart of the crisis

In this context, Pakistani political analyst Mian Hafeez Jaffar says the Iranian rial has plummeted to historic lows against the U.S. dollar, surpassing 1.8 million rials per dollar in the parallel market—a reflection of the widening gap between the local currency and actual economic needs.

Jaffar told "Erm News" that annual inflation has risen to levels ranging between 57% and 68%, while prices of food and essential goods have seen significantly higher inflation, particularly dairy products, meat, and grains.

Iran's economy after the war

He notes that real GDP growth has declined to very low levels, with forecasts predicting an economic contraction in Iran during 2026, while the International Monetary Fund estimates a decline of about 6.1%.

He adds that both domestic and international assessments indicate a growing scope of poverty and declining purchasing power, placing a broad segment of Iranians under increasing pressure to secure basic needs.

Jaffar emphasizes that the crisis is no longer just a temporary financial setback but has evolved into a test of Iran's state capacity to maintain social and economic stability, especially amid continued currency depreciation and rising prices.

Financial isolation and trade pressure

Iranian trade transaction costs have multiplied due to restrictions on the banking system, the exclusion of Iranian banks from the SWIFT network, and Iran's placement on the Financial Action Task Force's blacklist—prompting companies to rely increasingly on informal financial channels and intermediary banks.

This situation increases the cost of foreign trade, as Iran faces growing difficulties in acquiring hard currency and financing import operations, while the U.S. tightens oversight over shipping and trade networks linked to Iranian oil.

With declining oil revenues and pressure on foreign exchange sources, the Iranian government faces a funding dilemma for public spending, especially given the rising cost of subsidies and essential services.

An economic crisis turning into a social crisis

Meanwhile, Mohammad Mahir, researcher on Iranian affairs, says the internal crisis in Iran stems from a combination of economic, social, and political factors—not solely sanctions.

Maher told "Erm News" that rising inflation and falling purchasing power have pushed millions of fixed-income earners, employees, and teachers into more difficult living conditions, while informal activities and the shadow economy have become primary income sources for an expanding segment of society.

He points out that despite Iran possessing the world's second-largest natural gas reserves, it faces a structural energy crisis due to lack of investment and modern technology—leading to frequent electricity and gas outages that affect factories, services, and local production.

He adds that the state's declining ability to fund subsidy programs and stabilize prices of essential goods like fuel, bread, and medicine means a larger share of the crisis burden is being shifted onto citizens, potentially increasing social unrest in the coming phase.

Is Iran approaching a new wave of protests?

Observers believe the greatest risk for Tehran lies not only in rising inflation or currency depreciation but in the transformation of the economic crisis into a cumulative political and social pressure factor.

The more the government struggles to provide support and maintain price stability, the greater the likelihood of widening the gap between the state and society—especially if this coincides with ongoing sanctions, declining economic activity, and rising unemployment rates.

Current indicators suggest Iran's ability to overcome the crisis will depend largely on its capacity to maintain oil exports, secure alternative trade channels, obtain hard currency, and prevent further collapse in the rial's value.

Conversely, the continuation of financial blockade and expansion of sanctions to include commercial partners may gradually narrow Tehran's maneuvering space, making available economic options increasingly costly.

While the Iranian government bets on its historical ability to adapt to sanctions, the coming phase appears different—external pressures coincide with internal vulnerabilities in currency, energy, budget, and purchasing power.

Thus, the economic war led by Washington may evolve from a mere tool of pressure on Tehran into a true test of the Iranian regime's ability to preserve economic cohesion and prevent the crisis from spilling from markets into the streets.