Iran International
Iran is sliding into stagflation that could spark unrest, economists warn, as official data reveal the first economic contraction in four years on the eve of the UN sanctions returning.
Several Iranian economists say the downturn is already entrenched and that officials are underestimating the severity of the crisis.
Tehran University professor Albert Boghozian argued last week that Iran now shows the classic symptoms of stagflation—negative growth, high inflation, and rising unemployment.
“Officials must not ignore the danger of deepening stagflation, which is likely to intensify if the snapback proposed by the UK, France, and Germany is implemented,” he cautioned.
The Statistical Center of Iran reported that GDP shrank by 0.1% in the spring.
Excluding the petroleum sector, the contraction deepened to -0.4%. Agriculture was the hardest hit, with output falling 2.7%. This downturn marks the first time since 2021 that Iran’s economy has posted negative quarterly growth.
'Worse to come’
The reversal is striking given the 3.0% expansion recorded in the last full calendar year ending March 2025. That period, supported by high oil revenues and relative stability, allowed for modest but steady growth.
Ali Ghanbari, a macroeconomist and former deputy agriculture minister, predicted conditions will deteriorate further in the coming months.
“Iran is heading toward a more difficult economic period in the second half of the Iranian year (September 2025 to March 2026),” he told reporters in Tehran.
He forecast a contraction of 1–2% by March 2026 and inflation climbing above 54%.
“The downturn had been anticipated due to sanctions and political tensions,” he added, “but the scale of inflation will place even greater strain on household budgets.”
Such levels of inflation would erode real incomes and fuel social discontent — a sensitive issue for the government as it braces for renewed sanctions.
‘Sanctions hinder development’
The Majles Research Center has argued that renewed UN sanctions would be less damaging than existing US restrictions, which already limit Iran’s access to global markets and financial channels.
But economists such as Boghozian believe Tehran has few tools left to cushion the blow.
“The Iranian government cannot do much about the UN sanctions,”he warned. “Continued stubbornness will only deepen the suffering.”
Sweeping UN sanctions are set to be reimposed on September 27 following the end of the 30-day snapback period.
Boghozian warned that their return could have consequences far beyond economic hardship, setting the scene for more confrontation with Iran’s foes.
“With the threat of war, Iran cannot realistically pursue development,” he said. “War and sanctions will rob the country of opportunities. If we fail to take initiative, the other side will dictate the terms.”
Customs data show 2.7 million tons of Indonesian crude -- around 630,000 barrels per day -- arrived in August, far exceeding Indonesia’s average output of 580,000 bpd in 2024, most of which was consumed domestically. The flows followed a sharp jump in July.
China, the biggest buyer of Iranian oil, officially reported no imports from Tehran since mid-2022. In the meantime, it buys more oil from Malaysia than the country produces. In the past two months, shipments from Malaysia -- often used for ship-to-ship transfers and rebranded cargoes -- have dropped more than 30%.
Analysts say operators are now shifting tactics.
“This is just part of a continuing evolution of the operators’ tactics, hiding what they’re doing,” said Charlie Brown, a senior adviser at United Against Nuclear Iran. “They’re still doing ship-to-ship transfers in the same area off Malaysia; the basic trade pattern remains the same.”
Vessel-tracking data show tankers including the Aquaris, Yuhan, Pola and Pix signaled calls at Indonesia’s Kabil port near Singapore -- a hub not connected to crude exports but close to established transfer zones off Malaysia. These tankers later discharged cargoes in Chinese ports such as Qingdao, Rizhao and Dalian.
Bloomberg cited the Aquaris as receiving Iranian crude from the sanctioned Sorion tanker before unloading in Qingdao in June. The Yuhan and Pola followed similar patterns, according to data from Vortexa and Kpler.
Queries to Indonesia’s energy ministry, Pertamina, Kabil port, and China’s foreign ministry went unanswered, Bloomberg reported.
China’s reliance on Iranian oil has provided Tehran with a crucial economic lifeline as US sanctions continue to target the trade.
The looming return of UN sanctions on Iran is unlikely to curb its oil exports but could boost China’s refiners, who already take nearly 80% of Tehran’s 1.6 million barrels per day at steep discounts, Reuters reported on Wednesday.
Exports of handmade rugs, which stood at more than $400 million in 2017, fell to just $41.7 million in the year to March 2025, according to customs data -- a drop of over 95% from their peak in the early 1990s, AFPreported.
The collapse followed Washington’s 2018 reimposition of sanctions, cutting off the US market that once bought more than 70% of Iranian carpets.
“During the unkind and cruel US sanctions, we lost our biggest buyer,” said Zahra Kamani, head of Iran’s National Carpet Center.
Germany, the UAE, Japan and China are now Iran’s top destinations, but volumes remain a fraction of past levels.
Rivals including India, China, Nepal, Turkey and Pakistan have captured global market share, with some rugs even imported back into Iran, traders said.
At least two million Iranians, many of them rural women, depend on carpet-weaving but earn only a few dollars a day. “We are losing even part of our domestic market due to imports,” Tehran trader Hamed Nabizadeh told AFP.
With tourism also in decline, fewer foreign visitors buy rugs, and even those who do are deterred by price tags of $30,000 or more for silk carpets.
Officials insist revival is possible. Trade Minister Mohammad Atabak said in June that new trade and currency policies could help resuscitate exports.
Analysts argue adapting designs to modern décor trends, using social media for sales and branding carpets more effectively may be key.
But with Iran’s currency plunging, many families at home are turning to cheaper factory-made rugs, and a centuries-old craft risks fading into a relic of the past.