War, blockades and 88% inflation: How is Iran keeping its economy running?

Iran’s economy is deep in crisis, yet it has not collapsed after six months of war. Inflation has climbed to nearly 88 percent, the rial has fallen to a record low, and basic foods such as eggs, rice and meat have become increasingly unaffordable for many households.

Consumers are changing what they eat to cope with rising prices. Some have replaced red meat and chicken with cheaper alternatives such as soy flour. As cash runs short, households are turning to loans and installment payments, even for essential goods and food.

The pressure began before the war. Iranian export earnings and foreign-currency inflows fell sharply after the first Trump administration restored tough US sanctions. A shortage of dollars weakened the rial and made imports more expensive. Corruption and government mismanagement added to the strain.

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Revenue usually returns one to two months after unloading in Chinese ports.

The war has intensified the damage. US and Israeli bombardments damaged homes, hospitals, schools, fuel depots and other infrastructure across the country, killing thousands of people. The Iranian government estimated that six weeks of attacks before a ceasefire agreed in April caused about $270 billion in economic losses. The IMF forecast that Iran’s economy would shrink by 5.4 percent this year, its sharpest decline in decades. Annual inflation reached 87.9 percent in July, according to Iran’s statistics office, and the rial hit a record low against the dollar in August.

The US blockade has effectively interrupted Iran’s exports from the Persian Gulf, cutting revenue from oil, petrochemicals and industrial goods such as steel. New Iranian crude shipments have nearly stopped. Kpler said at least 41 million barrels of Iranian oil were stranded on ships inside the Gulf in mid-August. More than 80 million barrels were outside the blockade zone, although most had already been sold. China buys about 90 percent of Iran’s oil exports. “Revenue usually returns one to two months after unloading in Chinese ports,” said Homayoun Falakshahi, Kpler’s head of crude oil analysis. At the current rate of unloading, he said, oil already at sea could continue generating revenue for another five or six months before export earnings effectively disappear.

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At the current rate of unloading, this oil at sea could continue generating revenue for another five to six months before export earnings effectively disappear.