Sanctions, Inflation, and Unemployment Hit Iran's Economy Amid Negotiations

Intensive negotiations between the United States and Iran over a memorandum of understanding that could end the ongoing war have raised some hopes among Iranians. However, observers describe the reality as a "triple threat" severely impacting Iran's economy.

The independent website "Droup Site" reported that despite signs of a slow and painful move toward a negotiated solution to the war, the economic and social damage suffered by ordinary Iranians due to the conflict and the longstanding US sanctions is expected to persist.

A Tehran-based journalist who prepared the report highlighted the broader economic consequences of the war on Iran, including rising inflation, widespread job losses, and an economic contraction that could push millions of ordinary citizens into poverty in the coming months.

According to the report, as the potential agreement approaches, Iranians are confronting economic devastation, corruption, and deep inequality across various social sectors.

In March, the Iranian government raised the country's monthly minimum wage to about 90 US dollars to help shield the population from inflation.

Despite extensive damage to infrastructure during the war and the urgent need for reconstruction, the lack of capital in the economy has resulted in few projects being carried out, even in areas with the greatest need.

The economic repercussions of the war have forced many educated Iranians to abandon their professions in a desperate attempt to secure livelihoods amid a collapsing economy.

Iran entered the war while its economy was already in crisis. The average per capita income fell from approximately 8,000 US dollars in 2012 to about 5,000 US dollars in 2024.

As a result of the war, the International Monetary Fund now projects an additional 6% contraction in Iran's GDP in 2026, while consumer prices are expected to rise by nearly 70% during the same period.

Joint attacks on vital infrastructure such as steel production plants, pharmaceutical companies, and factories have led to an estimated loss of around one million jobs, according to the Iranian Ministry of Labor, with millions more jobs indirectly affected.

Reflecting the pressure on the labor market, a major Iranian job search platform recorded a record 320,000 job applications in a single day in late April.

Due to damage to infrastructure, private companies, and displacement, the United Nations Development Programme estimates that up to 4.1 million Iranians could fall into poverty as a consequence of the war.

Following the outbreak of hostilities, the Iranian government imposed a retaliatory blockade on the Strait of Hormuz, disrupting the global economy and exerting significant pressure on Washington to end the conflict.

However, the subsequent US blockade, initiated in April, on Iranian ports also restricted Iran's ability to sell its oil and gas and limited maritime imports.

This blockade disrupted the energy export-dependent economic system, with revenue losses paralyzing government decision-making and halting corporate plans.

Iran currently requires extensive post-war reconstruction in addition to addressing years of infrastructure deterioration caused by sanctions.

Nevertheless, insufficient funding and uncertainty about future economic conditions hinder progress in planning new construction projects.

Internet Shutdown Deepens Economic Crisis

After the war began, the government imposed a broad internet shutdown citing national security concerns. This intermittent shutdown has severely damaged many Iranian businesses operating online.

Estimates indicate that the economic losses from the shutdown exceed 6 million US dollars daily, as companies relying on platforms like WhatsApp and Instagram for sales and communication were forced to use limited government platforms.

Although Iran has a significant local agricultural sector that supplies most of the population's food needs, prices have continued to rise sharply during the war, exacerbating an existing inflation spiral worsened by the collapse of the Iranian rial under US sanctions.

Prior to the joint US-Israeli war, Iran was already experiencing an annual inflation rate in food prices of nearly 90%.

Recent government statistical reports indicate that prices for basic food items such as cooking oil, rice, and chicken have tripled in the past few months of fighting and blockade compared to the previous year.

Economist Mohammad Radoui, a retired professor at Azad University in Tehran, expressed serious concern about the real pressure on the middle and lower classes, which have been the most affected, especially as many middle-class businesses suffered heavily in recent months.

He stated, "There has been much talk about inflation in America, or what the IMF or the European Central Bank say about inflation worldwide or in specific Western countries, but there is little attention to the ongoing inflation pressures here and the reconstruction costs that will affect this economy within two months."

Radoui added, "I want to emphasize that the economic situation in Iran during the summer will be extremely dangerous, and I see no solutions to alleviate the pressures the economy is facing."

Corruption and Inequality Amid Economic Damage

While the war has inflicted severe economic harm on civilians forced to adapt to life under sanctions, a small group has exploited corruption and political influence to seize a disproportionate share of the country's wealth.

Over decades of sanctions and war, a network of state-linked companies, semi-private firms, and security-related businesses has expanded in Iran, enriching itself from the sanctions regime that the United States touted as a means to strangle Iran's economy.

This network traces back to a prolonged partial privatization process in Iran starting in the 1980s, officially presented as a transition toward a market economy.

However, privatization often blurred the line between public and private ownership, creating a system of nominally private companies connected to the state, politically influential institutions, and security apparatus elements.

Over time, politically connected companies dominated key economic sectors by controlling bottlenecks in the sanctions-affected business ecosystem, making smaller independent firms more vulnerable to shocks from war, sanctions, and economic isolation.

Radoui commented, "When sanctions are imposed, and to revive the economy, certain influential individuals are granted exceptions and licenses that allow them to profit. This leads to favoritism, exploitation, monopolies, and an exploitable system."

This system extends across multiple sectors, including oil, telecommunications, and healthcare. Radoui explained, "Generally, special licenses are granted to various factions within the armed forces to sell oil, import telecommunications equipment, import medical supplies, and appoint trustees through the banking system in certain countries to manage and trade Iranian foreign currency assets outside Iran."

The Iranian economic analyst noted, "It is clear how this results in the transfer of billions of dollars without any transparency or oversight from the relevant authorities," according to his statement.

Economic Strain Limits Tehran's Options

The Iranian economy is under severe strain from ongoing depletion, with the costs of escalation narrowing Tehran's available choices amid the war and sanctions.