By : Shatha Kalel
The confrontation between Iran, the United States, and Israel is no longer purely military. It has increasingly evolved into a war of economic attrition, whose medium-term consequences may prove more significant than those of the military confrontation itself. Statements by Iranian President Masoud Pezeshkian regarding declining oil revenues, rising import costs, and damage to factories and production facilities indicate that the pressure is shifting from the battlefield to the state budget, domestic markets, and the purchasing power of Iranian citizens.
This raises a fundamental question: Is Iran’s economy heading toward genuine weakness, or is Tehran using the language of economic crisis as part of a broader political and negotiating strategy?
Oil Is More Than an Export Commodity
To understand the scale of the problem, oil must be viewed as more than simply a source of government revenue. It is one of Iran’s most important sources of foreign currency, which the country needs to finance imports and maintain a degree of monetary stability.
When oil exports decline, or when selling oil becomes more difficult and costly, the government’s ability to obtain foreign currency also decreases. This places greater pressure on the Iranian rial and raises the cost of importing food, medicine, raw materials, equipment, and other essential production inputs.
The effects then spread throughout the domestic economy. Higher import costs increase production expenses, which in turn raise consumer prices and reduce household purchasing power. If factories are forced to reduce production because of rising costs or damage sustained during the war, corporate profits decline, and so do the tax revenues collected by the government.
The state therefore faces a difficult economic equation: lower revenues alongside higher expenditures. The government must continue financing public services, supporting affected sectors, and rebuilding damaged facilities at a time when both oil and tax revenues are declining. As a result, a crisis in oil exports can gradually develop into a broader crisis involving the exchange rate, inflation, production, and the government budget.
Is Tehran Revealing Weakness or Politically Managing the Crisis?
Pezeshkian’s statements should not necessarily be interpreted as an announcement that the Iranian economy is approaching collapse. At the same time, they cannot simply be dismissed as political rhetoric.
The economic pressures are real, particularly when difficulties in exporting oil coincide with damage to production facilities and rising trade and import costs.
However, publicly acknowledging the extent of these difficulties may also serve a dual political purpose. Domestically, the government can link rising prices and declining purchasing power to the consequences of war and external restrictions. Internationally, Tehran may use the scale of its economic losses to demonstrate that continued confrontation carries growing costs, potentially influencing the terms of future political, economic, or security negotiations.
The most realistic assessment, therefore, is that Iran is facing genuine economic pressure while simultaneously attempting to manage that pressure politically and use it as part of its negotiating strategy.
The Strait of Hormuz: A Powerful but Costly Economic Tool
Iran possesses an important geographical advantage through its position on the Strait of Hormuz, one of the world’s most important routes for energy supplies and international trade.
Any disruption to navigation through the strait can increase shipping and insurance costs and place pressure on global energy markets. This gives Tehran the ability to transfer part of the economic cost of confrontation to its adversaries and to the wider global economy.
However, this advantage can become a double-edged economic weapon.
Iran itself depends on maritime routes to export oil and other goods and to receive imports. As regional risks increase, the cost of Iranian trade also rises. Global oil prices may increase because of geopolitical tensions, but Iran cannot fully benefit from higher prices if its access to international markets remains restricted or if it must offer larger discounts to buyers willing to assume the risks associated with sanctions and transportation.
China and Russia: Preventing Collapse Does Not Mean Creating Growth
Iran can mitigate some of these pressures through its economic relations with China, Russia, and other partners, as well as through alternative financial and trading channels.
However, there is a fundamental difference between preventing an economy from collapsing and building an economy capable of sustainable growth.
Alternative channels may allow Tehran to sell part of its oil and secure some of its essential needs, but they cannot easily replace the investment, technology, and financing required by a large economy seeking to rebuild infrastructure and modernize its productive sectors.
Growing dependence on a limited number of buyers may also weaken Iran’s bargaining position. The fewer options a seller has, the greater the buyer’s ability to demand discounts and more favorable terms. Iran may therefore continue selling part of its oil, but at a lower economic return than it could achieve in a more open market.
Where Is the Iranian Economy Heading?
Three main scenarios can be considered.
The first is a political settlement that eases restrictions on oil exports and trade. Economically, this would be the most favorable scenario because it could restore some foreign-currency inflows, ease pressure on the rial and inflation, and create greater opportunities for investment and reconstruction.
The second is the continuation of a situation in which there is neither full-scale war nor a comprehensive settlement. Under this scenario, the Iranian economy may continue functioning, but at a high cost: weak investment, persistent inflation, declining living standards, and greater dependence on alternative trading channels.
The third and most dangerous scenario would involve renewed military escalation accompanied by tighter restrictions on oil exports and trade. In that case, the current economic contraction could develop into a broader financial, monetary, and social crisis, particularly if declining revenues coincide with further damage to productive infrastructure.
The Economy May Decide What Missiles Cannot
Iran does not appear to be facing immediate economic collapse, but the equation becomes increasingly difficult the longer the confrontation continues.
The Iranian economy has demonstrated a considerable ability to adapt to years of sanctions, but adaptation does not mean the absence of economic costs. The question is no longer simply whether the state can continue functioning, but how much Iranian citizens, businesses, and the broader economy will have to pay for that resilience.
Washington is betting that reducing Iran’s oil revenues and restricting trade and foreign-currency inflows will raise the economic cost to a level that influences Tehran’s strategic calculations. Iran, meanwhile, is betting on its ability to endure, its geographical position, its trading networks, and its relationships with Asian powers to absorb some of the pressure while increasing the costs faced by its adversaries.
Ultimately, missiles alone will not determine the direction of this confrontation. The value of the rial, the volume of oil exports, inflation rates, the ability of factories to resume production, and the level of government revenues may prove more important in determining Iran’s long-term resilience.
The central question therefore remains: Can Iran transform military resilience into economic resilience, or monetary pressures eventually force Tehran to restructure its economic and political priorities?
Economic Unit – North America Office
Al-Rawabit Center for Research and Strategic Studies