The latest

Iran’s economy is under intensifying strain after six months of war, a U.S. naval blockade and an expanding sanctions campaign compounded longstanding structural weaknesses. President Masoud Pezeshkian says foreign trade has contracted by roughly 35%, while annual inflation has climbed to 66%. The rial crossed 2 million to the U.S. dollar on the open market in late August, setting another record low as Washington moved to close Iran’s remaining links to international markets.

Details

• Trade impact: The deterioration extends beyond financial indicators. Long queues formed at Tehran gas stations amid fears of shortages and changes to fuel subsidies. Washington is also targeting access to foreign currency, oil customers and regional trading networks that traditionally softened the effect of sanctions.
• Oil exposure: Before the war, oil exports represented roughly 11% of Iran’s GDP on an annualized basis, according to William Jackson, chief emerging markets economist at Capital Economics. He says the blockade has effectively cut Iran’s “financial lifeline,” making lost oil income particularly damaging.
• Isolation campaign: Treasury Secretary Scott Bessent describes the campaign as an effort to impose unprecedented economic isolation. The Trump administration is targeting not only Iranian institutions but also foreign banks, companies and governments that provide Tehran with access to global markets.
• Negotiating terms: Pezeshkian has signaled readiness to revive the June understanding with Washington, while the Revolutionary Guard and other influential institutions continue stressing resistance, military capabilities and leverage in the Strait of Hormuz. Firas Elias says Tehran is focused on when, how and from what position concessions could be made.
• Political cost: Elias argues that negotiating while sanctions and military pressure are at their peak would validate Washington’s claim that Iran retreated after being weakened. The leadership therefore wants to preserve an image of economic, military and political endurance before negotiating any compromise.
• Pressure limits: Richard Goldberg, a former National Security Council official now at the Foundation for Defense of Democracies, says Iran faces conditions it has never previously confronted. Even as an advocate of maximum pressure, he calls the situation “uncharted waters” and says economic weakness does not ensure political capitulation.

Between the lines

Pressure creates a paradox: sanctions strengthen Tehran’s economic reason to negotiate, but the appearance of surrender makes diplomacy harder for powerful factions to accept. A deeply weakened Iran may also use remaining military and geographic leverage before it erodes, especially in the Strait of Hormuz, where disruption can shift costs to global energy markets.

What’s next

The next indicator will be Tehran’s decision on reviving the June understanding with Washington. Movements in the rial, inflation, trade and fuel queues will show whether the government can keep the economy functioning while managing that choice.