Amid the US-Israel war on Iran, the country’s economy has suffered a sharp contraction, with its crucial oil and gas sector taking the biggest hit as the United States tightens its economic and military pressure on Tehran.
Data released by the government-administered Statistical Center of Iran showed gross domestic product (GDP) shrank by 10.1 percent year-on-year between March 21 and June 20, the first quarter of the Persian calendar.
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The period covers the opening months of the US-Israel war on Iran, which began on February 28.
The economic downturn has come as Iran struggles to export its oil, one of its most important sources of foreign currency, while also contending with high inflation, a weakening rial, and disruptions to trade and industry.
Here is what you need to know:
What does the economic data say?
The headline GDP number masks an even steeper decline in Iran’s energy industry. Crude oil and natural gas activity contracted by 26.4 percent compared with the same period a year earlier. GDP excluding oil, by comparison, fell by 4.6 percent.
The damage has spread beyond the energy sector. Industry and mining contracted by 14.7 percent, services declined by 4.8 percent, and manufacturing contracted by 2.5 percent. Agriculture was the exception, growing at 2.3 percent.
Those figures come amid an already difficult economic situation in the country. Earlier this month, Iran’s 12-month average inflation reached 69.9 percent, while food, beverage, and tobacco prices rose at nearly twice that rate. Official unemployment climbed to 9.1 percent in the spring.
The rial, meanwhile, fell from about one million to the US dollar a year earlier to more than 2.2 million in early September.
What is the latest with Iran’s oil exports?
Iran’s ability to sell crude has been dramatically curtailed by the US naval blockade, imposed for most of the war.
Iranian crude and condensate loadings collapsed from about two million barrels per day in March to roughly 740,000bpd in July and just 220,000-255,000bpd in August, according to estimates from Kpler and Vortexa.
TankerTrackers.com told the Reuters news agency that 29 tankers, carrying 36.11 million barrels of crude, were trapped in the Strait of Hormuz. Meanwhile, Vortexa estimated total Iranian crude afloat had fallen from 135 million barrels at the end of July to 107 million barrels by late August.
Is Trump winning the economic war on Iran?
By several economic measures, Washington’s pressure campaign is inflicting damage on Iran’s economy.
On September 6, total trade had fallen by 25 to 35 percent, President Masoud Pezeshkian said, with imports hit harder than exports. The US blockade of the Strait of Hormuz has made it hard for ships carrying imports to reach Iranian ports.
Tehran has also explicitly linked the end of the war to economic relief. Iran’s security chief Mohsen Rezaei told Al Jazeera on Saturday that its conditions include “the release of our frozen funds and an end to the naval blockade”.
In addition to the naval blockade, US Treasury Secretary Scott Bessent last month announced an economic pressure campaign against Iran, pledging to target its financial interests across the world. He said the US would target all of Iran’s sources of revenue, including oil, to prevent other countries and companies from doing business with Tehran.
The US-Israeli attacks and Iran’s retaliations have disrupted Tehran’s trade with one of its main economic partners, the United Arab Emirates.
The UAE last month announced an indefinite trade embargo on Iran after accusing its forces of carrying out several ballistic missile attacks, which Tehran denied, calling it a “false flag operation” by Israel and the US.
Chris Beauchamp, market analyst at IG Group, said, “Most wars are contests of stamina more than anything else.”
“The 10 percent drop in Iranian GDP is a sign that the US is succeeding in putting pressure on its foe. But the question rests, as it has done since March, on whether Iran can weather the fall in economic activity better than the US can stand the surge in energy costs,” he told Al Jazeera.
“For a regime prepared to do anything to stay in power, this news will make little difference, so long as the security forces remain loyal,” he added.
What is the latest with diplomatic efforts to end the war?
While Iran has taken a defiant stance against US economic and military pressure, it has indicated repeatedly that it remains open to diplomatic means to end the nearly seven-month-old war.
On Saturday, Rezaei told Al Jazeera that Iran conveyed a formal set of conditions to Washington through Qatari mediators for ending the war.
Iranian state media outlet IRNA reported on Monday that Pakistani Interior Minister Mohsin Naqvi was set to visit Tehran, without specifying the agenda or other details.
Mediators Qatar and Pakistan have been working to re-establish negotiations between the two sides since their memorandum of understanding (MoU) expired last month.
Meanwhile, Iranian Foreign Minister Abbas Araghchi will stop briefly in Qatar before going to New York for the UN General Assembly, IRNA reported.
Iran has repeatedly said it remains ready for any new strikes by Washington.
Rezaei said on Saturday Tehran did not rule out a new US strike against Iran, calling the possibility “very much on the cards” based on his country’s military assessments.
Mark Pfeifle, a Republican strategist and former White House and national security official, said Iran and the US are still willing to strike a deal.
“Sometimes in diplomacy it’s what’s taken off the table,” he told Al Jazeera.
Pfeifle said when Rezaei reiterated his demands for talks with the US, he spoke of “ending the blockade, releasing the frozen funds [and] stopping the attacks”.
“But he left off reparations and reconstruction money, which tells me that there’s a concrete sign that amongst all the rhetoric, which is still very strident, that the pressure campaign that the US is putting on Iran is having some effect,” he said.
“And it tells me that both sides are still looking for room to negotiate in the coming weeks.”
