Despite relentless pressure from war and sanctions, Iran's economy persists through diversification and resilience strategies
Iran’s economy, though severely strained by war and sanctions, has not collapsed. The country’s ability to diversify its economic base and maintain informal trade networks has helped it weather the storm. However, the population bears the brunt of the economic hardships, facing soaring inflation and dwindling wages.
The war with the United States and Israel, combined with decades of sanctions, has pushed Iran’s economy to its limits. Yet, the country’s reliance on agriculture, manufacturing, and services, along with shadowy oil transfers and cross-border trade, has kept the economy functioning, albeit at a high cost to its citizens.
The Cost of Economic Resilience
Inflation in Iran has skyrocketed to about 90%, with food prices more than tripling in the past year. The national currency, the rial, continues to depreciate against the US dollar, making imported goods increasingly expensive.
The closure of the Strait of Hormuz has further exacerbated the situation, blocking fresh supplies and driving up prices.
Despite these challenges, the economy has not collapsed. Welfare economist Hadi Kahalzadeh explains that collapse would mean famine and the state’s inability to pay employees or deliver basic services. While the economic shocks are severe, they are absorbed through inflation and currency depreciation, keeping goods on the shelves but making them increasingly unaffordable.
The Role of Government Subsidies
The Iranian government provides monthly cash subsidies and electronic coupons for essential goods to soften the economic blow. However, these measures are expensive and do not fully mitigate the hardships faced by the population. The minimum wage is less than $100 a month, and the subsidies add only a few more dollars, barely enough to cover the rising costs of living.
Government spokeswoman Fatemeh Mohajerani highlighted the infrastructure damage inflicted by the US during the latest round of bombing. The strikes have affected bridges, tunnels, and parts of Iran’s natural gas production and electricity generation capacity. Despite these setbacks, the government has managed to keep the economy functioning, albeit with scheduled blackouts for manufacturing industries.
The Impact of Corruption and Misuse of Funds
Endemic corruption and the misuse of funds pose significant threats to Iran’s economy. Zabihollah Khodaeian, head of the General Inspection Organisation of Iran, revealed that some trustees designated to bring back proceeds from selling crude oil and other products under sanctions have betrayed the country. Billions of dollars have been misused, with some trustees fleeing with the money.
This corruption reduces productivity, weakens institutions, and rewards political connections rather than efficiency. The overdependence on oil incomes has encouraged rent-seeking and weakened the private sector, reducing incentives for innovation and long-term investment. As a result, households reduce consumption, firms postpone investment, and educated workers consider emigration.
The economic crisis in Iran is severe, but the country’s ability to adapt and endure has kept it from collapsing. The population continues to face immense hardships, but the economy persists, albeit at a high cost. The future remains uncertain, with the continuation of war and sanctions posing ongoing challenges.
