Soaring inflation and a plummeting economy are testing Iran's ability to withstand ongoing war and a US naval blockade. While Iran's grip on the Strait of Hormuz disrupts global energy supplies and inflicts economic pain worldwide, the Islamic Republic faces severe internal struggles.
Economic Hardship for Iranians
Iranians are experiencing spiraling prices for food, medicine, and other goods. The country has also seen mass job losses and business closures due to strike damage to key industries and a monthslong government internet shutdown. According to Hadi Kahalzadeh, an Iranian economist and research fellow at Brandeis University, the economic cost of the war and blockade has been substantial and unprecedented for Iran. However, he notes that Iran has withstood decades of economic pressure and sanctions, and its capacity to adapt remains intact.
“Iran can probably avoid a complete economic collapse or total shortage of essential goods, but at a very high cost,” Kahalzadeh said. “The main cost will be passed to ordinary Iranians through higher inflation, more poverty, weaker services, and a much harder daily life.”
Inflation and Currency Devaluation
The International Monetary Fund predicts the Iranian economy will shrink by about 6% in the next year. Iran’s official statistics center reported in mid-April that annual inflation stood at 53.7%, while food inflation exceeded 115% compared to the same period last year. The rial has lost over half its value in the past year, falling to a record low of 1.9 million to the dollar at the end of last month. These economic woes fueled massive protests across the country in January.
Parked beneath an overpass in central Tehran, 56-year-old taxi driver Hossein Farmani reflected on price increases. The price of tea has risen over 50% since the war began. “If things keep heading in this direction, we’re going to suffer a lot more,” he said. An Associated Press tour of grocery stores in Tehran found large jumps from February: chicken and lamb up 45%, rice 31%, and eggs 60%.
Government Measures and Their Impact
Iranian authorities have announced measures to help citizens bear the crippling prices, including a 60% hike in the minimum wage and coupon programs for essential goods. But economist Taymur Rahmani of the University of Tehran wrote in a leading business newspaper that these policies are stoking inflation. Free bus and metro fares in the capital have not helped struggling taxi drivers.
Another driver, Mohammad Deljoo, 73, supports his family of two children on a daily income of $4. He blamed “price gouging” for the crisis. “We only buy what’s absolutely necessary, things like bread and potatoes. Even eggs have become too expensive for us,” he said. The price for tires and other car parts rose fivefold in less than a year.
Ali Asghar Nahardani, 32, said his ride-hailing app had not paid him in over a month, forcing him to turn to street vending. “We’re just living day by day, trying to get through this situation while the war conditions continue,” he said.
Collapse of the Middle Class
The war has marked another step in the ruin of Iran’s once large and prosperous middle class. By 2019, the middle class had already shrunk to around 55% of the population, according to Mohammad Farzanegan, a professor of Middle Eastern economics at the University of Marburg. New sanctions, wars, corruption, and economic mismanagement have further cut that number. The war will likely push several million Iranians below the poverty line, according to a UN development agency report from late March.
A physical trainer in downtown Tehran described the crisis as a mental health crisis. Many clients could no longer afford her fees. “The system is just collapsing. The layoffs are in factories, in companies, in startups,” she said via Telegram, speaking anonymously out of security fears. She cut back on groceries: “The last time I bought meat was about two months ago.” She also gave up therapy sessions after her divorce. A resident of Karaj said his insurance company saw plummeting sales for car and home policies, blaming “severe systemic corruption” and support for militant groups.
Leaders Urge Endurance
Iran’s leaders have tried to shore up the homefront by showing sympathy while urging the public to endure economic pain for the war effort. New supreme leader Mojtaba Khamenei described the conflict as an “economic battlefield” and asked employers to avoid layoffs. Parliament speaker Mohammad Bagher Qalibaf urged Iranians to “be frugal.” The US blockade has restricted Iran’s critical Gulf trade, with over 90% of Iranian trade flowing through southern ports.
Taxi driver Farmani rejected a “humiliating” peace with the US and Israel: “A country that has sacrificed so many martyrs and has so many people willing to give their lives cannot simply let others from across the world dictate terms to us.”
