Senior advisor, Foundation for Defence of Democracies
Iran’s economy is heading into a period of sharp deterioration following the March war, with mounting pressure from inflation, currency depreciation and damage to key industries raising the risk of a broader crisis.
Over the next two to four months, Iran’s economic conditions are expected to continue deteriorating sharply, with high inflation, rising unemployment, falling real incomes, and significant stress across key industries, the external sector, and the financial system, amounting to severe stagflation.
The economy entered the recent war from a weak starting point, and the combined effects of war-related damage, financial strain, and policy responses are likely to intensify these pressures.
Under a continued ceasefire, the deterioration is expected to be gradual but persistent; under a strictly enforced naval blockade, the adjustment is likely to be faster and more severe, with risks of very high inflation and broader economic disruption.
However, hyperinflation and full economic collapse are less likely in the next two to four months. An effectively enforced blockade, combined with military operations focused on reopening and securing the Strait of Hormuz, will push Tehran to the edge of economic collapse.
Starting point: A weak economy before the war
Iran entered the war from an already fragile position. By late 2025, inflation was elevated above 50 percent, the rial had lost substantial value, and the banking system was under visible strain, notably by the collapse of Bank Ayandeh. These pressures had already reduced household purchasing power and severely weakened business activity.
The continued depreciation of the currency, which saw the rial lose more than 20 percent in less than 20 days by the end of 2025, and worsening economic conditions contributed to widespread unrest across the country, which was ultimately suppressed. This left the economy highly vulnerable even before the war began.
Impact on income-generating industries
The war has directly affected Iran’s main sources of export revenue. Damage to industrial infrastructure—especially in petrochemicals and metals—has disrupted sectors that generated roughly $25–30 billion in exports in 2024 (petrochemicals: $13–17 billion; metals: $12–13 billion).
Production in these sectors is now constrained by:
Even partial restoration of operations is expected to take time, and exports from these industries are likely to decline sharply in the near term.
Spillovers to other sectors are also significant. In the agriculture sector, fertilizer shortages and disrupted logistics are expected to reduce output. Heightened uncertainty, combined with likely shortages of steel and possibly cement, is contributing to a significant slowing of activity in the construction sector, particularly in private projects. The auto sector is also likely to suffer a setback due to the lack of steel and aluminum.
Internet blackout and business disruption
Domestic policy responses have added further strain. The widespread internet blackout has severely disrupted economic activity, especially small and medium-sized businesses reliant on digital platforms.
According to NetBlocks, the economic cost of internet shutdowns in Iran has been estimated to be at least $37 million per day during recent outages.
The blackout has:
These effects extend beyond online businesses and have slowed activity across the broader economy.
Financial system stress
The financial system, already under pressure before the war, is facing increased risks. The collapse of Bank Ayandeh in December 2025 highlighted underlying vulnerabilities in the banking sector. Other large banks were already under strain prior to the conflict.
Current conditions may lead to:
The disruption of the private trade credit system—often based on post-dated checks—has further constrained business financing. Recent signals from the judiciary suggesting reduced legal consequences for unpaid checks have weakened enforcement, discouraging sellers from extending credit and further restricting transactions.
Impact on households
Households are expected to reduce spending significantly. Private consumption accounts for roughly 50 percent of the economy, so this contraction will have broad effects.
Key drivers include:
These factors point to rising unemployment, a notable decline in private consumption, and a broad and significant decline in living standards.
Economic conditions over the next 2-4 months
Scenario 1: Continuation of ceasefire with the US and Israel
Under this scenario, large-scale hostilities do not escalate further, and oil exports continue, although under constraints. However, petrochemical and metals exports remain significantly disrupted due to infrastructure damage and ongoing restrictions on trade and financial channels, including limited access to regional intermediaries such as the UAE.
In this environment:
Economic conditions continue to deteriorate, with persistent pressure on household incomes and employment. The rial is likely to remain under depreciation pressure, sustaining elevated inflation in the 50-60 percent corridor. Resource allocation is expected to be heavily tilted toward military rebuilding—particularly missile and defense capabilities—while remaining funds are directed toward essential imports such as food and medicine.
Scenario 2: Rigorously enforced naval blockade
Under this scenario, a naval blockade is strictly enforced following recent actions by the United States administration. Iran would be largely unable to export oil through the Persian Gulf, with only limited alternative channels (such as “ghost fleet” activity) available.
In this case:
The loss of oil export revenue significantly weakens the government’s ability to stabilize the economy. Note that the “ghost fleet” overseas is likely to continue generating revenue for the next two to three months.
However, if the blockade is expected to continue, the government will ration this revenue for the near future. Inflation would rise sharply but most likely will not break the 100 percent ceiling, and the risk of broader economic breakdown increases, particularly if access to foreign currency becomes severely limited.
As in the first scenario, despite the dire economic situation, the government is expected to prioritize military spending to rebuild defense capabilities and prepare for future conflict.
Remaining resources would be directed toward securing basic goods such as food and medicine. Under a strict blockade, however, even if essential goods remain available, high inflation and rising unemployment would leave many households unable to afford them, sharply reducing living standards and intensifying public discontent. Even so, a full-scale economic collapse or hyperinflation is not expected within the next two to four months.
Scenario 3: Naval blockade plus major military operation in Iran's south
Under this scenario, strict enforcement of the naval blockade is coupled with a major military operation focused mainly on the south of Iran to reopen and secure the Strait of Hormuz.
Such an operation would render Iran not only unable to export oil but would also disrupt most of its trade through the Persian Gulf, including the import of food and other essential goods.
Securing basic goods would become extremely difficult for the government, which would be diverting its limited resources toward active military confrontation. Most economic activities are likely to come to a halt as inputs become extremely scarce and uncertainty rises sharply.
Inflation would spiral out of control, prompting the government to impose stricter limits on the payment system to prevent hyperinflation. These measures would, in turn, hinder economic activity even further. A full economic collapse within two to four months would not be inevitable, but it would remain a distinct possibility.
Trading has been suspended for two months. Ticker symbols remain closed, and millions of retail investors have been unable to move their assets.
The head of the Securities and Exchange Organization said the market would reopen within ten to twelve days in phases. In the first stage, only companies not directly damaged by the war will resume trading, while steel and petrochemical firms that suffered losses will remain closed.
Reopening a damaged petrochemical company whose production has halted and whose recovery costs and timeline are unclear would likely trigger a sharp price drop and create a volatile market signal. Yet the current approach of prolonged closure presents deeper structural concerns.
There are three conceivable scenarios for reopening the Tehran Stock Market.
Scenario one: Comprehensive deal with US
The first scenario envisions a comprehensive agreement and broad sanctions relief. In an optimistic case, Iran reconnects to the global financial system, oil and petrochemical exports face fewer restrictions, and foreign investment gradually returns. Market reopening could then mark the beginning of long-delayed reforms: transition from price controls to market pricing, reduced financial repression in banking, and transparent government balance sheets.
Export-oriented sectors such as steel, petrochemicals, and copper would benefit from renewed access to global markets. Banks could reassess their balance sheets and shift toward genuine credit evaluation. Foreign investors, absent for nearly two decades, might gradually return.
However, without internal coordination and structural reform, even sanctions relief would not rescue the TEDPIX.
Scenario two: Limited military and regional agreement
A more likely scenario involves a limited agreement focused on military and regional tensions. Hostilities ease, but sanctions remain largely intact and foreign investment prospects stay uncertain.
Under these conditions, reopening may trigger a new crisis. Major export-driven firms would initially remain untradeable. Downstream industries would face raw material shortages and price spikes. The automotive sector, already loss-making before the war, would struggle with supply chain disruptions and accumulated losses.
Meanwhile, limited foreign currency inflows could push the government toward inflationary financing to fund reconstruction and subsidies, either through money creation or borrowing from banks already dependent on regulatory forbearance. With high inflation ahead, questions arise about how listed firms can generate sufficient value to remain profitable, especially amid infrastructure damage and seasonal energy shortages.
Investors, having endured months of uncertainty without clear disclosure of portfolio losses, may view reopening as an exit opportunity. Investment funds facing redemption waves would be forced into selling queues, amplifying downward pressure. The market could reopen with a heavy backlog of sell orders, and each negative headline could trigger further declines.
Scenario three: Continued conflict and further escalation
If negotiations fail and conflict intensifies, prolonged closure would likely continue. In such a scenario, Tehran Stock Exchange, under its current management and policy framework, could effectively cease to function as a credible capital market.
Policymakers may believe closure prevents price collapse, but in practice, investor confidence collapses instead. Alternative investment channels gain prominence: foreign currency, gold, real estate, consumer goods, or capital flight to neighboring countries.
Iran’s economy before and after the war
Even before the recent conflict, Iran’s economy faced a structural crisis. Industrial capacity was constrained by aging machinery, energy imbalances, and sanctions. Institutional trust was at its lowest level in four decades. Key industries — steel, petrochemicals, automotive, and banking — were either loss-making or dependent on hidden subsidies. War in such an environment acts as a crisis accelerator, pushing uncertainty beyond policymakers’ management capacity.
Tools available for reopening — tighter price limits, sales restrictions, targeted liquidity injections, and market-maker intervention — can at best distribute the shock and manage short-term risk. They cannot substitute for honest disclosure of losses, independent audit assessments, and credible reconstruction plans.
Reopening the Tehran Stock Exchange alone will not resolve broader economic challenges. In the best-case scenario, it could form part of a larger reform package aligned with political agreement and foreign capital inflows. In the other two scenarios, reopening may merely accelerate the crisis cycle.
The core question facing policymakers is political rather than technical: are they willing to accept the real market value of shareholders’ assets, or will they postpone the cost through opacity and suspension, only to face a larger reckoning later.
“Prices here have increased tenfold and rice and cooking oil are hard to find,” one resident wrote from Zahedan in southeastern Iran, pointing to worsening access to staple goods.
Other citizens described the rapid erosion of purchasing power. “We go to sleep and wake up to everything being twice as expensive,” one message said, reflecting widespread concern over accelerating inflation.
Food costs climb, access narrows
Messages from multiple cities highlighted steep increases in the cost of everyday items. Citizens said even the most basic foods were becoming unaffordable, with eggs, rice and cooking oil among the hardest hit.
“Eggs have become so expensive they are being removed from our tables,” one citizen wrote, describing the shrinking range of affordable protein options.
Restaurant prices were also cited as an indicator of inflation. Citizens said a single serving of kebab now costs between 5,000,000 and 6,000,000 rials (about $3.10 to $3.75), while a plate of chicken with rice ranges from 3,000,000 to 4,000,000 rials (about $1.90 to $2.50). Soft drinks were reported to exceed 1,000,000 rials (about $0.60).
Based on an exchange rate of around 1,600,000 rials per dollar, the new minimum monthly wage of 162,550,000 rials is equivalent to roughly $104. This comes as annual inflation had already exceeded 70 percent before the start war on February 28, reaching its highest level since World War II.
As of late 2025/early 2026, average Iranian incomes have contracted to roughly $200 per month.
Shortages compounded the problem. Messages described difficulty finding chicken in distribution centers and limits on purchasing cooking oil in shops. Others pointed to disruptions in supply chains linked to industrial slowdowns and rising production costs.
Economic journalist Arash Azarmi said the surge in food prices was hitting lower-income households hardest. “Eggs priced at 200,000 rials ($0.12) each are shocking. This is a basic food item, especially for lower-income households, and it is effectively being pushed out of their consumption basket,” Azarmi said.
Official data, he added, already showed food inflation exceeding 112 percent, with some categories such as cooking oil rising by more than 200 percent.
Iran’s monthly minimum wage for workers is set at one of the lowest levels compared to many countries in the region. Among Oman, Saudi Arabia, Turkey, Iraq, Qatar, Pakistan and Lebanon, the lowest minimum wage belongs to Pakistan, where workers earn at least the equivalent of $133. This figure is about $201 in Lebanon, around $275 in Qatar, about $345 in Iraq, and $625 and $585 in Turkey and Oman, respectively.
Pressure spreads beyond food
Beyond rising prices, citizens said financial obligations continued to tighten during and after the conflict period, adding to the strain on households and businesses.
“During the war there was no tax relief, insurance was taken in full from the private sector, and all loans faced late penalties despite earlier promises,” one message said, describing continued pressure on businesses.
Another citizen pointed to mounting banking enforcement and legal follow-up tied to unpaid debts. “All checks were bounced, accounts were closed and legal action started. Loan installments were either collected with interest or deducted from guarantors,” the message read.
Business owners described a cycle of rising costs and falling demand. A clothing seller said prices for goods were increasing by around 35 percent each week, while customers’ ability to pay continued to decline.
Jobs scarce, costs rising
Citizens also pointed to a lack of job opportunities and growing difficulty in covering basic living expenses, including rent and utilities.
“There is no work and our savings are gone,” one citizen said, describing limited options for supplementing income.
Others reported rising bills even as businesses slowed or shut down. “We cannot pay rent, we cannot work,” another citizen wrote, pointing to disruptions affecting daily commerce.
Small business owners said they were increasingly operating at a loss. One restaurant operator said higher meat prices and reduced customer demand were pushing the business toward closure. “If this continues, we will shut down and pay rent from our own pockets,” the message read.
Experts warn of accelerating inflation
Economist Mohammad Machinechian said the pace of price increases had reached a point where monthly inflation was more relevant than annual figures.
“I’m no longer talking about annual inflation, but monthly inflation, and that is the reality we’re dealing with,” Machinechian said. “Even in the best-case scenario, inflation could average at least 5 percent a month, meaning prices rise around 80 percent over a year.”
Machinechian added that in a prolonged stalemate scenario, prices could triple over the year, while renewed conflict could push monthly inflation above 20 percent, leading to annual increases approaching 500 percent.
Azarmi described the situation as a “modern famine,” where goods remain available but are increasingly unaffordable for many households.
The accounts from citizens across the country depict an economy where rapid price increases, supply constraints and falling incomes are converging, leaving many struggling to secure even the most basic necessities.
