The War Has Destroyed the Iranian Economy

By Jim Geraghty

Wednesday, April 29, 2026

 

Back on March 17, over in that other Washington publication, I wrote, “The Iranian mullahs weren’t exactly known as economic savants before the shooting started. Even if they retain power after the war, they’re going to be broke. Rebuilding their military will be expensive, and handouts for Hamas or Hezbollah, or a nuclear-weapons program, will look like unaffordable luxuries. The war is causing economic stress for the U.S. and its allies, but it’s worsening an ongoing economic nightmare for the Iranians.”

 

The headline above the column was, “When the Iran war ends, the mullahs will be broke.”

 

As you might expect, a lot of the responses were, “When the war ends, the United States is going to be broke!” and, “You haven’t looked at our national debt or deficit lately, have you?” (Yes, I have.) The reflexive insistence that everything going on in the U.S. must be the absolute worst does not actually change the dire economic circumstances for the Iranians and the current regime in Tehran.

 

This morning — about six weeks later — the Wall Street Journal offers a deep dive into the state of Iran’s wartime economy. And it turns out that the mullahs are, effectively, broke:

 

Government revenue has dried up just as the needs of its population are rising.

 

The war has thrown around one million people out of work directly and another million indirectly, according to early estimates cited by Gholamhossein Mohammadi, an official at Iran’s Labor and Social-Affairs ministry. That is a significant portion of the roughly 25 million people who are normally employed in Iran.

 

The cost of living has soared, with the annual inflation rate reaching 67 percent in the month through mid-April from the same period a year earlier, according to Iran’s central bank. The subsidized price of red meat, which was mostly imported through sea routes, has gone up to the equivalent of around $3.60 a pound, beyond the reach of most in a country where the minimum wage is around $130 a month.

 

“Living is not affordable anymore,” said Mahdi Ghodsi of the Vienna Institute for International Economic Studies. “Iran is at its weakest point.”

 

Businesses across the country — from manufacturers to retailers — are closing, residents said. The lack of steel and other raw materials is hampering production in various industries. Electronic goods, which are mostly imported, are in short supply and expensive.

 

A 67 percent inflation rate? The worst we’ve experienced in recent memory was 9.1 percent in June 2022.

 

The Journal reports, “Iranian state media estimates that postwar reconstruction could cost around $270 billion, a crippling sum for a country with an annual gross domestic product last year of $341 billion.” That’s almost 80 percent of Iran’s annual GDP; the U.S. gross domestic product is about $31 trillion, so for us, it would be like facing a postwar reconstruction cost of $24.5 trillion. For perspective, the total economic costs of the 9/11 attacks were estimated to be between $33 billion and $36 billion.

 

But you don’t have to take it from just the Wall Street Journal.

 

This morning, Iran International reports, “Iran’s rial weakened on Wednesday, with the dollar trading at around 1.8 million rials, according to market trackers. The rate reflects continued pressure on the local currency amid economic strains.” Back at the start of January, this newsletter informed you, “When Ruhollah Khomeini swept to power in 1979, one US dollar traded for 70 rials. Today, that same dollar commands a staggering 1,130,000 rials, more than 16,000-fold its price in 1979. In the last year alone, the rial has lost 50 percent of its value.” The Iran rial was the weakest currency in the world . . . back when one dollar could buy you 1.3 million rials.

 

Also from Iran International:

 

A prolonged internet shutdown — now entering its third month — has compounded the crisis, cutting off income for millions. Tourism has also collapsed, with airlines, hotels and local accommodations nearly inactive after the 12-day war.

 

Even those who remain employed are watching their purchasing power evaporate.

 

At a petrochemical terminals company in Bandar Mahshahr, representatives for more than 700 workers say their employer has eliminated overtime, holiday pay and welfare benefits.

 

In some cases, workers report wages have gone unpaid for months.

 

Political analyst Shahin Shahid-Saless warned that a naval blockade restricting oil exports and broader trade could accelerate the currency’s collapse.

 

“The national currency will collapse at an unbelievable speed, and hyperinflation will emerge,” he said. “The country may face . . . hunger riots whose intensity and violence would be entirely different from [recent] movements.”

 

When your country faces the prospect of hunger riots, you are not winning the war.

 

A few other points worth keeping in mind.

 

That Journal article linked above notes, “There is no evidence any Iranian oil cargo has breached the U.S. blockade and reached Chinese customers or other buyers, said Homayoun Falakshahi, a senior oil analyst at the commodities-data company Kpler.” In March, the Iranians managed to get about 1.85 million barrels per day out of the country to buyers, according to Kpler. Now, they’re getting nothing out.

 

Monday’s report from Kpler calculated that Iran has roughly twelve days’ worth of storage space for all that oil they’re pumping, with no way to get it to customers beyond their borders:

 

As a result, 14.9 mbbls [1,000 barrels of oil]  is effectively unusable, leaving ~26 mbbls of usable storage, equivalent to ~14 days of exports. Including 15.4 mbbls of available floating storage, total available capacity rises to ~41 mbbls (~22 days).

 

Nonetheless, Iranian onshore storage is unlikely to exceed 80 percent utilization, consistent with historical patterns. This indicates onshore spare storage capacity is closer to ~8-10 mbbls rather than 26 mbbls. In that case, this is only equivalent to around ~12 days of normal export volumes.

 

When you no longer have a place to put all the oil you’re pumping, you have problems. Kharg Island’s storage facilities are either full or nearly full, and the Iranians are reusing at least one “derelict” tanker as temporary storage.

 

Some have predicted shutting down the oil pumps could create irreversible damage to Iran’s oil fields. But Columbia University’s Center on Global Energy Policy argues that the Iranians can shut production facilities and restart them later; it’s just a time-consuming pain in the neck:

 

The reality, however, is that Iran has shut in oil production in the past without serious repercussions (as have other oil producers), although gas production may have to be cut back because of the lack of outlets for associated hydrocarbon liquids. That would require rationing of gas between the power, industrial, and residential sectors, as well as exports. . . .

 

Wells with a high water-cut may not flow naturally after being shut-in. They can be restarted by pumping or by temporarily injecting nitrogen to lighten the fluid column. Fluid blocking and cross-flow between reservoir zones with different pressures or water contents can create problems. Long-term shut-ins could lead to corrosion of wells and pipelines, the settling of sand and debris in the wellbore or pumps, or the mechanical deformation of the wells. Careful technical planning of shutdowns and restarts and the use of chemical corrosion inhibitors can fix most of these problems.

 

Meanwhile, Iran’s non-oil foreign trade is disappearing fast: “Figures from Iran’s customs administration show non-oil trade collapsed in the final month of the previous Iranian fiscal year (February 21–March 22), falling to just $6.4 billion — down 30 percent from the previous month and 50 percent from a year earlier.”

 

A national average price of gasoline of $4.22 stinks, and is no doubt driving a lot of economic pessimism. But the challenges facing the Iranian regime are exponentially worse, probably fairly characterized as catastrophic — can we keep the lights on, can we feed our people, can we avoid becoming a failed state? And perhaps most significantly, when the war ends, will the people driven to such desperate conditions continue to accept the rule of the mullahs?