<p class="wp-block-paragraph">The economy of Iran is severely strained. At least in the near term, however, it is unlikely to experience a total collapse that would force the ruling regime into negotiations with the United States.</p>
<p class="wp-block-paragraph">Iran’s economy is in a challenging state. Inflation is high, the currency’s value is declining, oil exports have been disrupted, and years of sanctions have isolated the country from the global financial system. The recent American blockade has intensified these pressures. However, economic difficulties should not be confused with complete functional failure. Iran is reportedly more resilient than some suggest.</p>
<p class="wp-block-paragraph">The International Monetary Fund projects that Iran’s economy will contract by 5.4% this year, contributing to an overall contraction of 29% since 2017. Additionally, consumer price inflation is expected to approach 70% this year, while official unemployment has risen from 7.3% to 9.1% over the past year, with underemployment likely much higher. The state of Iran’s household sector is reportedly worse, with food prices rising faster than the overall inflation rate, affecting consumer purchasing power. Certain segments of the population are beginning to experience malnutrition, with pregnant women particularly affected.</p>
<p class="wp-block-paragraph">The Iranian rial provides a clear indication of this deterioration. The currency recently fell to a record low of more than 2.5 million rials to the dollar, compared to roughly 1 million rials to the dollar a year ago. Washington has targeted the Iranian government’s primary source of hard currency, oil.</p>
<p class="wp-block-paragraph">For decades, Iran has circumvented American sanctions by transferring crude between tankers, relabeling shipments, and selling through intermediaries, primarily to China. Before the current blockade, China purchased about 90% of Iran’s oil exports. However, the blockade has changed this dynamic, with Iran reportedly going roughly seven weeks without significant crude shipments through the Strait of Hormuz, depriving Tehran of the dollars needed to finance imports and government operations.</p>
<p class="wp-block-paragraph">Nevertheless, an outright economic paralysis remains unlikely.</p>
<p class="wp-block-paragraph">Iran has spent decades learning to function under sanctions, developing a diversified domestic economy that includes agriculture, manufacturing, services, petrochemicals, and mining. An extensive informal economy and networks of intermediaries allow goods and money to move even when conventional financial channels are blocked.</p>
<p class="wp-block-paragraph">Furthermore, the government can shift much of the cost of adjustment onto its own population.</p>
<p class="wp-block-paragraph">By allowing the rial to depreciate, permitting inflation to erode real wages and public expenditures, restricting imports, imposing capital controls, and directing scarce foreign currency toward politically vital industries, the state absorbs the shock. While this adjustment mechanism is painful, it keeps the government functioning. The distinction lies between widespread impoverishment and structural collapse.</p>
<p class="wp-block-paragraph">Iran is becoming poorer, but its economy has not ceased to function. Real wages are declining, inflation remains high, infrastructure is degrading, human capital is leaving, and private-sector capital investment is low. Yet the government retains its ability to pay security forces, distribute essential goods, and maintain basic state functions.</p>
<p class="wp-block-paragraph">Iran’s economy is under significant pressure. While this pressure provides the U.S. with leverage, expecting economic hardship alone to lead to the downfall of the Iranian state is considered unrealistic.</p>
<p class="wp-block-paragraph"><em>James Rogan is a former U.S. diplomat who later worked in law and finance for over 30 years. He writes a subscription-based daily note on markets, economics, politics, and social issues. His email is <a href="mailto:roganjames8202@gmail.com" rel="noopener noreferrer" target="_blank">roganjames8202@gmail.com</a>.</em></p>