Iran's economy faces severe decline amid war with Israel

In June 2025, Iran engaged in a 12-day conflict with Israel that significantly impacted its already fragile economy. Prior to the war, Iran was grappling with severe economic challenges, evident as government revenues reached only 40 percent of the planned figures during the first quarter of its fiscal year. Foreign trade also declined sharply during this time. Although the Israeli military focused on military target strikes, the war left Iran's economy reeling, leading to a reported 16 percent drop in Iranian oil deliveries to China, totaling 1.36 million barrels per day. The situation worsened due to the implementation of widespread internet restrictions by Iranian authorities, which disrupted online businesses. Consequently, the war brought the country's operations to a near standstill for almost two weeks, leading to a substantial decline in export revenues and tax income for the Iranian state. Additionally, Iranian state media refrained from publishing figures that would indicate the economic toll the war took on the country. The public narrative from Tehran is one aimed at downplaying its own losses while emphasizing the supposed severe impact on the Israeli economy through exaggerated reports. However, actual statistics from international organizations reveal a grim reality: the Iranian economy is forecasted to shrink further to $341 billion by the end of the year, reflecting a stark contrast to the $625 billion it was valued at in 2012. Currently, Iran's economic indicators are so poor that there is little ability for the government to address critical public service shortages, such as electricity and water. In addition, existing studies indicate that Iran's public debt is projected to hit 40 percent of its GDP this year, with expectations to reach 45 percent by the end of the decade. The heavy borrowing and persistent budget deficits have contributed to a staggering inflation rate, which has surged beyond 40 percent. Moreover, the Iranian rial has depreciated significantly, losing more than 98 percent of its value since 2012. In comparison, while Iran struggles to stabilize its economy, Saudi Arabia's economic landscape continues to grow, with its economy being three times larger than Iran's. The ongoing crisis is compounded by the potential reactivation of the 'snapback mechanism' concerning the 2015 nuclear deal, which could reinstate all United Nations sanctions on Iran if it is determined to be in violation of its nuclear commitments, further jeopardizing Iran's economic standing and exacerbating the situation for its citizens.