When the US and Israel launched their war on Iran earlier this year, it was on a country seriously weakened by economic mismanagement, decades of US sanctions, rising inflation, currency depreciation and popular dissent.
The war has, undoubtedly, aggravated Iran’s dire economic problems in recent weeks.
Yet, the Islamic Republic looks able to survive a standoff in the Gulf for now, despite a US blockade that has cut off energy exports from Iran’s Gulf ports.
Despite heavy damage to infrastructure and industries and a squeeze on oil exports, Iran has plenty of internal supplies, steady trade with its neighbours and, so far, has suffered limited losses caused by the blockade
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Anticipating blockades and an economic squeeze by the West after the 1979 revolution, Iran has fostered a “reliance economy” as much as possible by promoting investment in industrialisation and stockpiling essential inputs and goods. A vast, rich country with extensive resources, Iran benefits from trade with its neighbours.
While economic collapse is not expected, gradual economic deterioration in the short and medium terms could accelerate under a protracted US naval blockade due to disruption and inflation.
The war has disrupted sectors that generated roughly $25–30 billion (€21-25 billion) in exports of petrochemicals and metals, which are expected to decline sharply in the short term. Output has been reduced by damage to facilities and utilities, shortages of essential material imports and limited access to finance and foreign currencies.
Although Iranian farmers expect bumper crops this season, a lack of fertilisers could reduce agricultural productivity longer term while the shortages of steel, iron, aluminium and cement are likely to affect the construction sector.
The broad internet blackout has cost an estimated $37 million daily to small and medium-sized firms by disrupting online sales and payments, reducing access to markets and interrupting orders and deliveries. Since many firms and industries have closed or downsized, 191,000 Iranians have lost jobs.
The iron grip on the security apparatus exercised by the ruling Iranian Revolutionary Guard Corps (IRGC) is seen as discouraging and preventing popular protests like those that erupted across Iran and were brutally put down early this year. The IRCG gives priority to its survival rather than to the welfare of 93 million Iranians.
As private consumption accounts for about half of the economy, households have begun to reduce expenditure due to declining incomes, rising prices, uncertainty, increased saving, reduced credit and declines in the values of assets.
Time is neither on Iran’s side, nor on the side of the Trump administration in the face of growing opposition to the war at home and midterm elections in November.
If Trump expects Iran to fold first in an economic standoff, he may be waiting a while.
