Iran’s Economy Under Pressure, but Collapse Is Far From Certain

Trump has intensified economic pressure on Iran following the breakdown of ceasefire negotiations, describing the Iranian government as “hanging by a thread.” His administration has pledged to further isolate Tehran by targeting oil smuggling, currency transactions, financial intermediaries and other channels that provide the country with foreign revenue.

Iran’s economy is already under significant strain. The World Bank estimates GDP contracted 2.7% in the year ending March, while inflation reached 62.2% in February and food inflation climbed to a record 99%.

The conflict has also taken a significant toll on employment, with an Iranian official estimating that around one million jobs have been lost because of the war. These pressures have disproportionately affected younger and lower-income Iranians as living costs rise and employment opportunities shrink.

Despite the deterioration, Sepahvand argued that the economy has not reached the point of systemic collapse. Shops remain supplied with basic goods, there has been no widespread panic buying, and confidence in the banking system has held despite financial imbalances and severe cyberattacks.

A potentially more serious challenge is emerging from the United Arab Emirates, which has announced an end to trade and financial ties with Iran. The UAE was Iran’s largest source of imports before the war and has traditionally served as an important financial and commercial gateway for the country.

Losing access to that channel could increase transaction and import costs while putting additional pressure on Iran’s exchange rate. Sepahvand estimates the economy could contract by around 5% this year, with the UAE measures potentially worsening the outlook and feeding inflation over the next two quarters.

Washington is seeking to increase that pressure further by threatening economic consequences for countries that provide Iran with a financial “lifeline.” The strategy aims to restrict Tehran’s access to oil revenues, currency swaps, cash transfers, shipping networks and intermediary companies.

However, greater economic pressure may not necessarily translate into greater willingness to negotiate. Sepahvand argued that the confrontation could strengthen hardline political factions within Iran, potentially making an agreement with Washington more difficult.

Iran therefore faces a difficult economic trajectory even if outright collapse remains unlikely in the near term. The combination of deepening international isolation, elevated inflation, weaker trade channels and job losses could further erode household purchasing power and economic activity, leaving the country increasingly vulnerable if geopolitical tensions continue.