Iran's economy is facing severe pressure due to intensified US sanctions and a nearly six-month-long war with the United States and Israel. This has resulted in long queues at gas stations across Tehran, with some residents waiting for two hours or more to fill up their tanks. The US Treasury Secretary Scott Bessent announced a new campaign of "economic asphyxiation" targeting Iran's digital assets, technology, gold, aviation, and shipping sectors, aiming to sever all economic lifelines to the regime. This escalation has caused oil prices to slip below $90 a barrel for international benchmark Brent, despite earlier surges when Iran blockaded the Strait of Hormuz.
The economic hardship is widespread, with double-digit inflation and the Iranian rial hitting a record low of 2 million rials per US dollar. Grocery stores are stocked, but many families struggle to afford basic necessities, and unemployment is high. The cost of living has surged, with prices 88 percent higher than last year and food inflation exceeding 128 percent. The International Monetary Fund predicts Iran's GDP will contract by 5.4 percent in 2026.
The Iranian government is grappling with the burden of heavily subsidized fuel, with production at 121 million liters per day against a consumption of 135 million liters. The government pays 1.3 million rials (65 US cents) per liter for production, while selling it at a subsidized price of 15,000 rials (less than 1 cent) per liter. Officials are considering reducing fuel quotas at the subsidized price or liberalizing fuel prices to about 872,000 rials (44 cents) per liter, a move that could trigger significant inflation due to increased transport costs.
These economic pressures are raising concerns about potential unrest, as previous fuel price hikes in 2019 and January 2026 led to widespread protests. Senior security officials have warned that the current economic strain, coupled with issues like unemployment, could incite new anti-government demonstrations. While the sanctions and blockade have battered the economy, there are no immediate signs that Iran's leaders are close to making military or political concessions, as they continue to retaliate by attacking oil-rich neighbors and disrupting shipping in the Strait of Hormuz.
