Iran's Economic Crisis Deepens Amid US Sanctions and Internal Struggles

For many Iranians, the new US sanctions campaign, called Operation Economic Outcast, seems superfluous given the grim economic situation in their country.

Iranians are facing runaway food inflation, closed petrol stations and a seemingly never-ending depreciation of the nation’s currency caused by a lack of foreign exchange reserves.

Vegetable oil in Iran in August cost 383% more than a year ago. The price of eggs rose by 294%, chicken by 177% and red meat by 148%.

The cratering economy leaves the country’s political class on edge as they try to prevent economic conditions leading to social chaos.

In truth, long before Donald Trump’s latest sanctions push, Iran’s economy had become a parallel battlefield in which the country’s economic commanders were struggling to maintain control.

On 23 August, the US dollar reached roughly 2m rials on Iran’s open market, a new record.

Three days later, Iran’s statistical centre announced that year-on-year inflation in August reached 84.4%; the rolling annual average rate was about 65%.

As purchasing power in Iran collapses, households are buying fewer goods.

Diets are changing, clothes are being patched up and repaired rather than replaced, and medicine is in short supply, though it can be found on the hidden market.

According to the Mehr news agency, demand for red meat fell by 50% in April 2026 compared with the same period last year. There has also been a leap in the consumption of potatoes, leading to shortages.

Basic goods like eggs are now unaffordable to middle- and working-class families, Golshan Fathi, an Iranian feminist, recently said. “They don’t understand that people can no longer afford even a normal life.”

Mohsen Zavaar, a biomedical engineer, said: “For part of the population, the issue is no longer buying a house or a car; the issue is cutting out meat, reducing food quality, postponing medical treatment, and scraping by until the end of the month.”

Frustrated by the inability of officials to tackle the problems, he added: “The people don’t want miracles – they want decisions.”

The crisis has spread beyond food and clothes. Long lines of cars stretched through parts of Tehran and the north-eastern Iranian city of Mashhad on Tuesday and Wednesday as motorists queued for fuel, with some lines blocking entire streets. Many petrol stations, including some of the largest, were closed.

Officials blamed isolated panic buying caused by rumours of a government-planned price increase, or Israeli bombs that destroyed two of Tehran’s three main oil depots.

Inside the government, anxious discussions have been under way for weeks about increasing the price of oil to reduce costly subsidies, but the political class know from past experience that there could be significant pushback. A sudden overnight petrol price rise of 50% in November 2019 sparked week-long violent protests.

Public anger has been exacerbated by an admission that vested interests in the government made it hard to tackle fuel smuggling.

Saqab Esfahani, deputy to Iran’s president, said: “Both political factions in the country are involved in fuel smuggling, and if I were to shut down their operations, they would break my windows.”

Masoud Pezeshkian, Iran’s president, has been urged to investigate the remarks.

However, transparency over the economic conditions in Iran is likely to decrease.

Fatemeh Mohajerani, a spokesperson for the Iranian government, said recently that future poverty statistics would only be published with the permission of the country’s supreme national security council, making the decline in living standards akin to a classified state secret.

Iran’s leaders now cast the home front as part of the war against America. Hojatoleslam Taeb, the new head of the Basij paramilitary force and a close ally of Mojtaba Khamenei, Iran’s supreme leader, recently delivered a speech that conjured up an image of resistance against market forces distorted by US sanctions.

As part of this war, he said it was necessary to reduce petrol consumption by as much as 10% to reduce the need for expensive imports. Avoiding unnecessary travel would be an act of patriotism, he implied.

But these patriotic appeals increasingly have an air of desperation as the economic crisis becomes worse.

Mohsen Rezaei, the new, more hardline secretary of the supreme national security council, said: “I advise young people to start producing the products they and society need in their homes, just as they gather in public spaces.”

Mohammad Taheri, editor of the economics magazine Tejarat Farda, said the advice reminded him of Mao’s “backyard steel furnaces” during the Great Leap Forward. Mao encouraged people to produce their own steel, with disastrous effect.

Amirhossein Hashemi-Javid, an energy expert, said Iran’s true economic crisis was its inability to export oil due to the US blockade. “The channels for selling Iranian oil are drying up.

“Oil that cannot reach customers from the well provides no revenue for the Iranian economy; it is simply barrels that incur increasing production, storage and risk costs every day,” he said.

At some point, the Iranian government will have to decide if it might achieve more through diplomacy than through continued confrontation.