Iran’s regime has so far withstood U.S. and Israeli bombardment, but the economic forces that sparked the most serious conflict in decades have only gotten more severe.
Spiraling inflation and a collapsing currency set off mass protests in late December and early January, prompting a brutal crackdown that is estimated to have left tens of thousands dead.
Given the Iranian regime’s willingness to massacre its own people, analysts have said Tehran has a higher tolerance for economic pain than the U.S., which is trying to clinch a favorable peace deal with a naval blockade that’s choking off oil exports.
Still, the pain is excruciating, and now, even the regime is acknowledging it.
An official in Iran’s labor and social affairs ministry said the war has put a million people out of work, as top employers in the oil and manufacturing sectors have suffered damage.
Iran’s parliament speaker and top negotiator, Mohammad Bagher Ghalibaf, warned Wednesday that the U.S. blockade represented a “new phase” of war.
“The enemy has pinned great hope on economic pressure,” he said.
The government has urged Iranians to limit consumption of water, electricity and gas, while authorities in the capital called on residents use public transportation instead of their cars. Iran’s steel industry encouraged companies to ration their use of steel sheets.
First vice president Mohammad Reza Aref also admitted that prices for certain products soared by more than 100% in less than a week. The overall annual inflation rate hit 67% in mid-April from a year earlier, according to Iran’s central bank.
That tracks with assessments in mid-April, when residents of Tehran and other cities told Reuters that some prices have shot up around 40% in the six weeks after the war started.
Prior to that, food inflation had soared to an annual rate of 64% in October, then accelerated further to 105% by February, vaulting overall inflation to 47.5% on the eve of war.
A 56-year-old housewife in Tehran told the Financial Times a block of cheese jumped 29% in price in just the past week. And authorities are expected to approve a 40% price hike in cement, a critical raw material for rebuilding war damage.
Meanwhile, prosecutors in Tehran have vowed to sentence price-gougers and hoarders of staple goods to 20 years of prison and flogging, according to state-affiliated media.
The Iranian government has hiked wages, distributed cash to the poor, and issued coupons for staples like rice, chicken, and cooking oil.
But such support is further straining the government’s finances. Without an influx of funds, authorities will have trouble making payroll, eventually threatening the regime’s ability to govern Iran, an insider close to the Iranian establishment told Reuters last month.
Another Iranian official said the country “will face a disaster” if sanctions aren’t lifted as the biggest industrial plants that power the economy will take months or years to repair, according to Reuters.
At the same time, Iran’s currency sank to a fresh all-time low against the U.S. dollar of 1.8 million rial on Wednesday, stoking more panic over declining purchasing power.
That’s after the rial fell 8% during first month and a half of the war and lost 60% of its value in the months after the 12-day war against Israel last June.
While hopes are high that the U.S. and Iran are close to a lasting peace deal, the arduous task of rebuilding will take years.
State media estimated reconstruction could cost of around $270 billion, or nearly 80% of Iran’s entire GDP of $341 billion.
The regime also may not be able to rely on neighbors like the United Arab Emirates to facilitate oil trades and provide Iranians with capital after the war officially ends.
For now, some Iranians have taken to doom-spending with the economic outlook getting increasingly grim.
Melika, 28, who was visiting Turkey in late April, told the New York Times, that restaurants were packed despite the rest of the economy stagnating. She speculated people were enjoying the money they had, not bothering anymore to try saving it.
“Now those things are out of reach for a large portion of society,” Melika said. “So they say, ‘Why should we be hard on ourselves? Let’s at least have a nice meal.’”
