Iran’s worsening economic crisis raises questions over Tehran’s willingness to compromise

Images emerging from Iran in recent days showing vehicles waiting in long lines to refuel are another indication of the severe economic crisis facing the country – one of the most serious Iran has experienced in decades.

The rial has continued to collapse against the US dollar, recently falling below the threshold of 2 million rials to the dollar on the open market. Soaring inflation, growing difficulties in importing and exporting goods, and a dramatic decline in oil exports are increasingly being felt on the streets of Iran.

The latest figures underscore the scale of the deterioration.

Even senior Iranian officials have acknowledged the severity of the situation. Iranian President Masoud Pezeshkian said the country’s foreign trade has contracted by about 35% due to US sanctions and disruptions to maritime trade.

The World Bank estimates that Iran’s economy contracted by 2.7% during the Iranian fiscal year that ended in March 2026, and has warned that the current conflict could further weaken the economy.

“The main problem is inflation,” Dr. Raz Zimmt, director of the Iran and Shi’ite Axis Program at the Institute for National Security Studies (INSS), told The Jerusalem Post. “The official inflation rate is more than 80%. But what is even more interesting is the price of basic goods, particularly food, which has increased by between 120% and 180%.”

Can Iran outlast America's blockade on Hormuz?

The most immediate threat to Tehran’s finances is the US blockade, which is disrupting Iran’s ability to export oil and other goods.

For years, Iran has relied on tankers known as the “shadow fleet” and on intermediaries to continue selling crude oil – primarily to China – despite US and European sanctions. The system allowed Tehran to maintain a significant flow of foreign currency despite the sanctions.

In recent weeks, however, Iran’s crude oil exports have reportedly plunged to approximately 220,000-255,000 barrels per day in August, compared with around 2 m. barrels per day in March.

The sharp decline is putting additional pressure on Iran’s ability to obtain foreign currency at a time when it needs it more than ever.

At the same time, US Treasury Secretary Scott Bessent has warned that the US administration will impose sanctions and severe penalties on any country that enables Tehran to obtain foreign currency.

At the start of the war, Iran tried to circumvent the pressure through alternative trade networks, offshore oil storage, ship-to-ship transfers, barter arrangements, and transactions in currencies other than the dollar.

But these mechanisms are becoming increasingly difficult to operate as Washington expands its sanctions and implements its “D-Day” campaign targeting Tehran’s financial and banking system.

The central question is no longer simply whether Iran’s economy can survive the sanctions. It is how long Tehran can absorb the cumulative impact of its economic problems – and whether the pressure will ultimately push the regime toward an agreement with the US.

Dr. Zimmt estimates that despite the difficult economic situation, which he expects to deteriorate further, there are currently no clear signs that the economic crisis is translating into protests capable of threatening the regime’s stability.

“There is a difficult economic situation, there is inflation, but it is not unbearable at this point,” he said. “We still don’t see anything that can be defined as a loss of control or a collapse. Not at all.”

Expert tells 'Post': Nothing suggests Iranian regime's loss of control 

He also said that reports of widespread hunger in Iran do not currently reflect the situation on the ground.

“The situation is certainly difficult, but there is no hunger as a phenomenon. This is still not a situation that can be defined as a collapse,” he continued. “Inflation is very worrying; there is no doubt about that. But over the past week or two, there has been some stabilization. It is still considered extremely high, around 80%, but it has stopped rising.”

In his assessment, this means the regime may still be able to weather the pressure for some time.

“I don’t get the impression that this is a matter of days or weeks,” he said.

At the same time, Zimmt noted that the regime itself is preparing for the possibility of renewed protests, and warned that if demonstrations do erupt, the Iranian authorities could respond even more harshly than they have in the past.

Despite the mounting pressure, Zimmt cautioned against assuming that Iran will necessarily capitulate to US demands.

One of the central problems, he said, is that the Iranians do not believe that concessions on their part would necessarily guarantee an end to the war. History, he added, shows that economic pressure alone is not sufficient to force Tehran into a compromise.

“Economic pressure is bringing them very close to the point of decision,” Zimmt said. “But in order for them to make a decision in the desired direction, they need to be offered something that would also allow them to come out without being humiliated – to save face.”

Zimmt also warned of the possibility that Washington could fall into a “misconception” of its own, overestimating the degree of pressure it is exerting on Tehran and concluding that the Iranian regime is on the verge of surrender.

“The sense of hubris and self-confidence that characterized the Iranians in recent months is now somewhat characterizing the Americans,” he said. “I’m not sure that they themselves are not now trapped in some kind of misconception that if we just continue doing this, it is only a matter of time before the Iranians surrender.”