Weeks of conflict have aggravated Iran’s dire economic problems, risking calamity after the war, but the Islamic Republic looks able to survive a standoff in the Gulf for now, despite a US blockade that has cut off energy exports.
With major fighting paused by an April 8 truce, Iran is locked in a stalemate with the US and Israel, with talks for a lasting ceasefire stalled while Tehran keeps the Strait of Hormuz shut and Washington blockades Iranian Gulf ports.
Despite bad damage to infrastructure and industries and an oil-export squeeze, Iran has plentiful internal supplies, steady trade with neighbours and only limited signs of immediate stress from state-revenue losses caused by the blockade.
If US President Donald Trump expects Iran to blink first in their game of economic chicken, with global inflation rising and midterm elections approaching, he may be waiting a while.
“I think that they have calculated a longer runway than I think economists or Western policymakers are anticipating,” said Sanam Vakil, head of the Middle East programme at the Chatham House thinktank in London, referring to Iran’s leaders.
Facing what they see as an existential threat to the Islamic Republic, Iran’s ruling clerics and Revolutionary Guards are able to use their iron grip on the country to hold out for a sustainable deal from Washington, Vakil said.
“They are quite known to use repressive capacity. They’re relying on people using their savings,” she said, adding that Tehran was falling back on its “resistance economy” approach of relying on internal resources and trading across land borders.
The extent of economic damage from the war – and the likelihood of imminent economic crisis – are hard to gauge given the lack of reliable official data and a partial internet blackout since January.
However, Reuters reported this month the situation was so bad that Iranian officials feared new rounds of protests and the country faced disaster unless sanctions were lifted.
Vakil said she anticipated a double-digit drop in Iran’s GDP this year. The rial currency, which fell by 70% last year, worsening inflation that contributed to mass protests in January, has dropped by 15% over recent days but after stabilising through March is not far off its pre-war value.
There are few other indications of immediate fiscal stress. The authorities have not curbed bank withdrawals, rationed fuel or food staples or delayed state-salary payments.
Supermarket shelves remain full and offices and banks have stayed open.
Shipping data from April 13 to 25 showed only around 300,000 barrels of oil per day moved out into the Indian Ocean from over 1 million bpd loaded onto tankers during that period.
Storage capacity is limited but energy analysts believe Iran may be able to go another two months before curbing production.
Iran built up extra revenue through energy sales when sanctions were waived earlier in the war. Limited volumes of oil are being shipped overland, but not enough to replicate the blockaded sea routes.
A senior source at Iran’s Central Bank told Reuters the country had substantial gold reserves, “tons of it”, that it could deploy if needed and that after decades of evading sanctions, Tehran knew how to maintain imports by paying a little more.
“Iran is the largest food importer in the region. But it is also important to note that Iran is the least food insecure country in the region,” said Ishan Bahnu, head agricultural commodities analyst at Kpler.
With an expected better-than-usual harvest approaching, the need for wheat imports is reduced, Bahnu said, reducing vulnerability to any extension of the maritime blockade to grain shipments and putting off some foreign currency spending.
The US blockade has so far been limited to Gulf ports, not Iran’s Chabahar on the Arabian Sea, and has focused on oil tankers, Bahnu said, citing monitored vessel movements.
Officials in Turkey, Iraq and Pakistan told Reuters there was no indication of a slump in cross-border trade yet.
Russia has also boosted trade across the Caspian this year, shipping 500,000 tons of corn, 180,000 tonnes of barley and 4,000 tonnes of wheat across the inland sea from January to March, according to Russian agriculture ministry data, bypassing blockaded Gulf ports.
