Overview
In recent weeks, the US has escalated economic pressure on Iran in a bid to exacerbate Tehran’s financial woes and precipitate a return to the negotiating table without escalating militarily. While the pressure is having an effect, Iran’s war-torn economy, hardened by years of economic isolation, remains resilient. What is the state of Iran’s economy? And how exactly is it weathering escalating economic pressure without fear of imminent collapse? Iran retains effective sanctions evasion strategies honed over years (and still largely successful under heightened pressure), maintains cross-border trade in key goods, and its regime is insulated from the complaints of everyday Iranians. While the cessation of oil exports through the Strait of Hormuz hurts, Iran still assesses that it can endure Operation Economic Outcast longer than the US can tolerate broad Middle East disruption.
The Scale of Disruption
Among the core strategic assumptions at the start of the war with Iran was that its economy, depressed by years of “maximum pressure” sanctions following President Trump’s withdrawal from the JCPOA in 2018, was on the brink of collapse. However, it does not appear that this is the case. According to the World Bank's constant-price PPP measure, GDP per person had modestly recovered over the last decade. In 2025, it was 9.6% higher than in 2018, when the maximum pressure campaign was launched, and 5.5% higher than 2011, when President Barack Obama first restricted Iran’s international trade. Employment rose from 23 million to 25 million from 2018 to 2025, with new jobs added actually outpacing the working age population. And from 2021 through 2025, real average per capita expenditure increased, and poverty rates declined. While this hardly describes a thriving economy, it also does not paint a picture of a country one shock away from collapse.
While Iran has thus far weathered significant economic headwinds, there is no doubt that its economy is in its worst shape in decades. The war has done roughly $270 billion in damage, according to Tehran. Per the most recent IMF projections, Iran will see a GDP contraction of 5.4% in 2026, alongside 69% inflation. Much of the hardship has been shouldered by everyday Iranians: the prices of basic groceries have more than doubled, the domestic price of fuel has surged and the cost of basic imported medicines has nearly tripled. A think tank affiliated with the state-run pension fund estimated that 45% of Iranians now live below the poverty line, compared to 30% in 2020. Iran’s official unemployment rate rose from 7.3% to 9.1%, although Iranian NGOs argue that the rate is at least 25%. Some report that only 37% of working-age Iranians have a job, although the statistic is difficult to parse given that it likely includes those not seeking work and those employed in the informal sector.
But the full impact remains difficult to fully assess, given the Islamic Republic’s opacity. The government does not publicize full budgets or expenditures. Iran’s central bank claims it has sufficient currency exchange reserves, claiming at the beginning of the month that it is ready to inject $2 billion into the foreign exchange market. And while Central Bank Governor Abdolnaser Hemmati admitted on September 1 that “economic conditions […] have become difficult,” he proclaimed that “collapse has never happened and will never happen.”
Resilience Strategies
Since the first imposition of the naval blockade in April, Iran faces a dual trade puzzle: evading increasingly stringent US sanctions (at which it is relatively experienced) and rerouting around the US naval blockade on all Iranian maritime traffic (which is new).
Getting goods in and out of Iran, given the former reliance on maritime routes, is a key struggle. Heavier reliance on alternative trade routes (a combination of land, rail and Caspian Sea routes, largely to Russia, Kazakhstan, Azerbaijan, Pakistan, and Iraq) is keeping key goods moving but will not substitute the scale of maritime trade. A member of Iranian parliament's Economic Commission recently cited internal estimates to say that 83% of Iran’s 210 million tons of annual imports traditionally came through southern maritime routes (other sources report much lower annual imports, around 40 million tons). At least 35 million tons should be able to be rerouted via alternate routes, but the remaining volume remains stranded. Even at full capacity, the cost increase of overland trade routes is immense: a member of the Iran-China Chamber of Commerce estimated this month that a prolonged shift to land routes could add about $18 billion to Iran's trading costs. Nonetheless, food, medicine and other essentials are largely still reaching Iran, albeit at increased cost.
Alternate routes cannot replace maritime routes for energy exports. Ship tracking companies report that no Iranian oil tankers have exited the Strait since the blockade was reimposed in July, and Arab Gulf oil brokers say that Iran is inking very few purchase agreements. One way Iran is currently profiting from its oil is the sale of floating oil reserves already exported outside of the Middle East. Early this month, ship-tracking companies estimated that Iran still had about 29 million barrels of crude stored in tankers mainly around Malaysia (a reserve that could last as little as a month given the rate of sales since the floating reserve was established in April with 192 million barrels). This oil is mainly sold on to Chinese refineries (mostly small “teapot” refineries that are less exposed to the international financial system) via ship-to-ship transfers (which help evade US sanctions). Tehran is also getting limited use out of the Goreh-Jask pipeline, which was expressly designed to circumvent the Hormuz chokepoint for Gulf of Oman loadings. The pipeline, which has been wracked by maintenance issues since its launch in 2021, may be handling 300,000 bpd per day. Finally, Iran is reportedly sending limited oil to China via the China-Iran railway, a 10,400-kilometer rail corridor connecting Tehran to Xi’an – but at significant additional cost.
To evade US sanctions, Tehran utilizes a network of shell companies, shadow vessels, and Chinese transactions to conduct business, avoid dollar-denominated financial networks, and access regular currencies. Trade with China offers crucial financial plumbing: Chinese buyers purchased up to 90% of Iranian oil last year in transactions largely settled in yuan or made under a barter system in exchange for goods, services, or Chinese-built infrastructure projects. The use of cryptocurrencies also offers options for hard-to-trace transactions outside of traditional financial environments. Iran’s crypto ecosystem was valued at nearly $10 billion last year. The crypto network is used both by regular Iranians wary of riyal inflation and by the government: the Islamic Revolutionary Guard Corps (IRGC) accounted for about 50% of on-chain activity in the country at the end of last year. Iran takes advantage of relatively cheap domestic energy to mine bitcoin as well (blockchain analysis in 2021 estimated that 4.5% of all bitcoin mining took place in Iran). These assets are reportedly increasing in use as the war escalates, even as the US plays whack-a-mole with Iranian platforms and wallets. Finally, Iran uses ever-changing networks of shell companies in Hong Kong, Dubai and elsewhere to move export revenues into other currencies and purchase goods.
How Long Can This Last?
Despite escalated pressure – especially on the oil export front – analysts broadly agree that the Iranian economy remains relatively resilient. The US hopes that the threat of a full economic collapse in the face of mounting economic isolation will compel Iran to rejoin negotiations and accept limits on its nuclear program. Even in the current deteriorating state of the Iranian economy, analysts broadly consider an economic breakdown months, or, more likely, years away. Iran's economy is limping along on trade that it will be difficult for the US to disrupt, it remains insulated from public opinion, and a pause in fighting in the coming months (during which Tehran can surge oil sales) is likely. Iran retains the ability to conduct basic trade with countries mostly outside the reach of US sanctions, as well as continue some fraction of oil exports. Food, medicine and fuel shortages have not been reported (despite some panic in July). Sanctions evasion strategies that were successful prior to the war remain effective. Escalating US pressure is unlikely to be able to touch Iran’s longstanding shell networks or trade with China (especially as President Trump seeks to balance Washington’s relationship with Beijing). And another element of the Iranian state’s durability is its ability to effectively ignore popular sentiment. The current government is deeply unpopular, and the Iranian public has for years resented the siphoning of state funds to regional proxies. But Iranians vote in strictly circumscribed elections that have no meaningful impact on state policy, and popular protest results in violent crackdowns. Some analysts suggest that Iran authorities may even welcome protests at this stage, seeing civil unrest as an opportunity to clamp down on negative sentiment and root out any remaining anti-regime voices. Tehran will likely preserve warfighting capabilities even as domestic shortages set in, making its runway much longer than a typical country’s.
Of course, the lack of oil revenues still presents an urgent challenge for Tehran. It is unclear how the Islamic Republic is funding itself as oil sales slow to a trickle, and it will be worse off when its floating reserves are completely depleted. But perhaps most importantly, Iranian commitment to continue fighting – even at great economic cost – is underwritten not by the belief that it can endure the pain indefinitely, but rather that it can endure it longer than the US. And this is almost certainly true: unlike Tehran, Washington is sensitive to the opinions of voters, allies, and the international market writ large. Iran is likely betting that pre-midterm pressure will force the US to agree to another pause in fighting, during which it can shore up its economy with a spike in oil exports, extending its economic longevity.
