Weekly Graphic: Economic Decline in Iran

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A paradox has emerged in Iran’s economic crisis: Conditions that might be expected to bring down the regime have instead become a chronic feature of its rule. Rising costs of food, housing, transportation and other essentials have steadily eroded household purchasing power, deepening public frustration and weakening faith in the state’s ability to provide economic security. The rial’s continued depreciation against the U.S. dollar compounds these pressures, while negative real interest rates further undermine trust in the domestic currency. Yet economic hardship has not led to regime collapse, in part because no organized opposition exists that can convert widespread discontent into a sustained challenge to the state, allowing the regime to endure even as conditions worsen.

Meanwhile, these pressures are intensifying friction within the regime, as competing factions struggle over how to manage a deteriorating economy while preserving their own political and institutional interests. The regime’s imperative is now to secure a settlement with Washington that delivers at least partial sanctions relief, restoring access to revenue and trade and easing pressure on the economy. However, even a deal would offer no guarantee of stabilization, since sanctions relief cannot by itself reverse entrenched inflation, restore confidence in the rial or resolve structural weaknesses accumulated over decades. The regime’s economic unraveling predates the war, but the conflict has sharply accelerated it, deepening the currency’s slide and compressing the time available to the leadership to contain the fallout. As a result, even meaningful sanctions relief is unlikely to give Tehran enough room to stabilize its political and economic situation, leaving it to manage an accelerating decline rather than reverse it.