Today's Edition
By Zayed Khalid Al Dhaheri*
Iran’s economic crisis is no longer merely a by-product of the war with the United States, nor is it a domestic challenge that can be contained through temporary fiscal measures. It has become a central component of the strategic confrontation between Tehran and Washington — and a real test of Iran’s ability to finance its military operations and strategic priorities, preserve its regional influence, and continue leveraging the instruments of pressure it has built up over decades.
Figures disclosed by Iranian officials suggest that the pressure is increasingly taking a toll on the foundations of the economy. President Masoud Pezeshkian has acknowledged that Iran’s foreign trade has fallen by around 35% as a result of US sanctions and the naval blockade of its ports. At the same time, annual inflation reached 66% last month.
Strategically, these figures signify more than declining imports and exports and rising prices. They point to a narrowing of the Iranian government’s room for manoeuvre. As the cost of trade rises, real revenues decline and purchasing power erodes, the government faces increasingly difficult choices over how to allocate resources among the domestic economy, military spending and the maintenance of its regional networks of influence.
This is where sanctions cease to be merely an economic instrument and become a means of reshaping Iranian strategic behaviour.
Washington is not simply seeking to deprive Tehran of funds. It is also attempting to raise the cost of every transaction connected to the Iranian economy, from bank transfers and trade to the purchase, transportation, and insurance of oil. As secondary sanctions expand, doing business with Iran becomes increasingly risky for foreign banks and companies, even when they are not American.
Yet Washington’s pressure strategy also has its limits. Iran is not completely isolated from the global economy, particularly as it maintains trade relations with major powers such as China and India. Directly targeting these countries could, therefore, have repercussions for the global economy and for US interests themselves.
This is where time becomes a critical factor. Washington is betting that sanctions will steadily compound the pressure, allowing economic deterioration to translate into social and political strains that constrain the leadership’s ability to continue the war.
Tehran, by contrast, is betting on endurance—and on the possibility that its capacity to withstand sanctions can become a source of negotiating leverage rather than a vulnerability.
In this context, Iran’s announcement that it sold around 90 million barrels of oil during the period covered by the June memorandum of understanding takes on particular significance. Oil remains the lifeblood of the Iranian economy, and any easing of restrictions that allows Tehran to increase its exports could give it considerable financial room for maneuver.
Yet selling oil does not automatically resolve the crisis. The issue is not simply how much oil Iran can export, but whether it can collect the proceeds and convert them into usable resources to finance imports, stabilise markets, and support the local currency.
Meanwhile, the Strait of Hormuz remains Iran’s most sensitive strategic lever. The strait gives Tehran considerable leverage over global energy flows, but it is also a double-edged sword. Disrupting shipping could raise energy costs for Iran’s adversaries, but it would also inevitably damage its own trade, deepen its isolation, and risk provoking a stronger military response.
The more important strategic question, however, is how long Iran can withstand this war of attrition.
Iranian Supreme Leader Mojtaba Khamenei’s call for the government to address inflation, unemployment and rising prices, while improving market management, reflects the leadership’s awareness of the vulnerability of the domestic front.
War may rally society behind the leadership for a time, but if it persists amid inflation of 66% and a 35% contraction in trade, its social and political costs could become increasingly difficult to bear.
Washington is, therefore, betting that economic pressure will not necessarily trigger a sudden collapse, but will instead gradually erode Iran’s ability to sustain a prolonged confrontation. Tehran, by contrast, is relying on oil, the Strait of Hormuz, its trading partners and indirect trade networks, as well as its ability to raise the costs of escalation across global energy markets.
At its core, then, the current war is a contest of strategic attrition. The United States is using its dominance of the global financial and banking system to constrain Iran’s options, while Tehran is leveraging its geographic position, oil resources, and ability to threaten maritime traffic to offset that advantage.
Ultimately, Washington’s success will not be measured by the number of sanctions it imposes, but by the extent to which it can narrow the strategic options available to Tehran. Likewise, Iran’s success will not be measured simply by its ability to continue fighting, but by whether it can sustain an economy capable of financing the state, the war and its regional influence simultaneously—a prospect that, by any measure, appears increasingly out of reach.
*The writer is a researcher and director of the Distribution Department at TRENDS Research and Advisory.
