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Today, the Iran economy is experiencing additional strain due to the negative impact of war, which is aggravating existing issues. Initially, the country was suffering from high levels of inflation and a weakened rial. In addition, Iran had been facing sanctions that have limited trade and investment over recent years. According to the World Bank, despite sanctions, Iran was capable of growing due to the oil industry. However, the current situation makes this statement rather doubtful. The International Monetary Fund has shown that Iran’s real GDP growth in 2026 will be 1.1%, which is a highly pessimistic forecast for a country undergoing a significant military shock.
Importantly, the reason behind such statements is that the Iran economy was not healthy prior to the war. As reported by Reuters toward the end of 2025, the Iranian national currency, the rial, devalued by almost 50% in 2025. In addition, inflation reached 42.5% by the time of publication. The article added that Iran would see its economy shrink by 1.7% in 2025 and 2.8% in 2026.
As a result, the war is aggravating all existing problems in Iran. A recently published analysis prepared by UNDP suggests that military escalation in the country is creating problems related to people’s livelihoods, the provision of services, and human development. According to UNDP’s simulations, Iran’s real GDP growth may decrease by 8.8 to 10.4 percentage points due to disruptions to energy infrastructure, trade, consumer activity, and investor confidence. According to UNDP’s estimates, the GDP per capita of Iran dropped from above $8,000 in 2012 to $5,000 in 2024.
Thus, the current situation in the Iran economy looks more complex than a typical story of sanctions. It is clear that the ongoing war is affecting nearly every aspect of life in Iran. According to UNDP, the conflict in the region is affecting commercial activity, agriculture, construction, the delivery of products and materials, and online business. Importantly, the ongoing conflict is also having a negative impact on the financial sector and on the low-income population in particular.
One can state that inflation is going to remain one of the most critical challenges faced by Iran. Economist Bart Piasecki of the Atlantic Council claims that four factors are causing inflation in Iran: exchange-rate distortion, fiscal imbalance, sanctions, and government control over the economy. Obviously, the outbreak of war is likely to worsen all of these concerns, leading to lower investor confidence, a weaker currency, and increased import costs. In turn, this increases inflation expectations among the public, making it even harder to bring the economy back on track.
The role of oil in the Iran economy is still crucial for maintaining growth rates. However, it does not provide full protection. As noted in World Bank reports, the oil industry has always been a key driving force for Iran. However, today, due to war, the probability of interruptions in oil-related processes has increased, including disruptions to trade, energy infrastructure, and domestic demand. Thus, although oil continues to be exported, it is unlikely to protect regular citizens of Iran from rising food prices and a weakening currency.
Overall, the current situation in the Iran economy looks like a crisis on multiple levels. First, sanctions created the foundation for economic weakness. Second, inflation and the weakening of the currency have reduced people’s purchasing power. Third, the ongoing military conflict is intensifying the situation through negative effects on confidence, commerce, and GDP growth. Based on the presented data from IMF, World Bank, Reuters, and UNDP sources, the Iran economy has suffered significantly due to the war.
[…] Iran Economy Right Now Is Collapsing Under War and Sanctions […]