Soaring inflation and plummeting economy test Iran in wartime

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Iran is facing a two-front pressure campaign as a U.S. naval blockade and the war around the Strait of Hormuz tighten global energy supplies while also rattling the Islamic Republic’s own economy at home. The economic burden is showing up in everyday life, where many Iranians say price jumps have made essentials harder to buy even as layoffs and shuttered businesses squeeze household income.

Hadi Kahalzadeh, an Iranian economist and research fellow at Brandeis University, said the economic cost of the war and the U.S. naval blockade “has been very substantial and unprecedented for Iran.” He said Iran has endured decades of economic pressure and sanctions and that its capacity to adapt has not been “dismantled,” but he warned that the cost would flow largely through inflation and the knock-on effects for ordinary people.

Kahalzadeh said Iran can probably avoid a complete economic collapse or total shortages, but “at a very high cost,” adding that “The main cost will be passed to ordinary Iranians through higher inflation, more poverty, weaker services and a much harder daily life.” He said the strain is likely to deepen as the conflict continues and as business disruptions and reduced access to information compound the economic hit.

The Associated Press reported that Iranians have been hit by spiraling prices for food, medicine and other goods while also seeing job losses and business closures. The report linked part of those losses to strike damage in key industries and the government’s monthslong shutdown of the internet.

Iran’s official statistics center reported in mid-April that annual inflation was 53.7%, while inflation for food breached 115% compared with the same period last year, according to the AP reporting. The report also said the International Monetary Fund has predicted the Iranian economy will shrink by about 6 percentage points in the next year.

The pressure has also hit Iran’s currency, with the AP report saying the rial had lost over half its value in the past year and fell to a record low of 1.9 million to the dollar at the end of last month. The report said the worsening economic conditions helped fuel massive protests that spread across the country in January.

In Tehran, some residents described large price swings over recent months. A taxi driver, 56-year-old Hossein Farmani, said he was seeing steep increases in staples and said tea prices have risen more than 50% since the war began. Another driver, 73-year-old Mohammad Deljoo, said he supported his family on a daily income of $4 and blamed the problem on “price gouging,” saying essentials like bread and potatoes remained affordable only by scaling back consumption.

The AP also described how strike damage, disrupted pay, and restricted commerce have pushed some people into more informal work. Ali Asghar Nahardani, 32, said a ride-hailing app where he worked had not paid him in over a month, and he turned to street vending to cover living expenses, describing survival as “living day by day” while “war conditions continue.”

Kahalzadeh’s view of adaptation echoes broader assessments that Iran’s middle class has already been weakened by sanctions and economic mismanagement. Mohammad Farzanegan, a professor of Middle Eastern economics at the University of Marburg, said Iran’s middle class had shrunk to around 55% of the population by 2019 and that new rounds of sanctions plus wars, corruption and economic mismanagement further reduced that share. The AP report said a U.N. development agency report published in late March found the war would likely push several million Iranians below the poverty line.

It also described social and mental health fallout, including from a physical trainer in downtown Tehran who said her clients could no longer afford sessions and that some people had begun discussing depression. She spoke on condition of anonymity out of security fears and said, in a voice note, “The system is just collapsing. The layoffs are in factories, in companies, in startups, in whatever your work is.” She said she had severely cut back on groceries and had stopped paying for therapy sessions after divorcing a spouse a year ago.

In a bid to steady the home front, Iranian leaders have been urging the public to endure the economic pain in support of the war effort. In a series of messages on his official Telegram channel Friday, the new supreme leader, Mojtaba Khamenei, described the conflict’s current phase as an “economic battlefield” and asked employers to “avoid layoffs as much as possible,” according to the AP report.

The AP report said parliament speaker Mohammad Bagher Qalibaf urged Iranians to “be frugal” and said on his official Telegram account that government administrators and the public “have a duty to help each other” to ease economic effects. The report also cited estimates that over 90% of Iranian trade, particularly oil exports, flows through southern ports, with Farzanegan estimating that the U.S. blockade restricted that Gulf trade.

Even as officials urge endurance, some residents said they felt trapped between declining purchasing power and political demands. Farmani, the taxi driver, said he did not want to accept what he called a “humiliating” peace with the U.S. and Israel, saying a country that has sacrificed many “martyrs” and has people willing to give their lives cannot let “others from across the world dictate terms to us.”