Iran’s economy is deteriorating at a pace that has regime officials openly fearing a new wave of anti-government protests, according to assessments from the Institute for the Study of War and multiple economic data sources. Foreign trade has dropped 35 percent, annual inflation has surged to 66 percent, and the Iranian rial continues to collapse under the weight of six months of war and an intensifying US sanctions campaign, leaving millions of ordinary Iranians caught between scarcity and fear.
The ISW reported on August 31 that the Iranian regime is demonstrating “increasing concern that worsening economic conditions could trigger renewed anti-regime protests” and is expanding preventive security measures to deter and suppress possible unrest. Regime officials have warned internally that economic grievances could fuel the kind of mass demonstrations that swept the country in late 2025 and early 2026, prompting the government to fortify its internal security posture even as resources are stretched thin by the ongoing military conflict.
Oil Exports Collapse Under Naval Blockade
The crisis stems from the convergence of the US naval blockade on Iranian oil exports, which has strangled the country’s primary source of foreign currency, and a broader sanctions architecture designed to cut off Tehran from international financial markets. Before the war, Iran exported roughly 1.5 million barrels per day through Kharg Island, which handled 90 percent of its crude shipments. By August, loading volumes at Kharg had fallen to just 251,000 barrels per day, according to data from Kpler, and stocks held at the island fell by 550,000 barrels to 19.45 million barrels.
The loss of oil revenue has rippled through every layer of the Iranian economy. The government depends on petroleum exports for roughly half of its budget, and the sharp decline in income has forced spending cuts even as the military demands more resources for its operations. The central bank has struggled to stabilize the rial, and parallel market rates continue to diverge sharply from official exchange rates, making it increasingly difficult for importers to obtain the foreign currency needed to bring goods into the country.
The economic pain is widespread across Iranian society. Consumers face soaring prices for basic goods, while the rial has lost significant value against the dollar on parallel markets. The regime has responded with measures including price controls and warnings to suppliers against overpricing or hoarding, but these administrative responses have done little to address the structural shortage of hard currency that drives inflation. Reports indicate that gold buying has surged as Iranians seek to protect their savings from currency depreciation, mirroring patterns seen during previous periods of economic crisis.
Gas Price Dilemma Paralyzes Decision-Makers
The ISW assessment highlighted that regime elements are debating whether to raise gas prices, a move that could generate badly needed revenue but risks triggering the kind of unrest seen in 2019, when a fuel price hike sparked nationwide protests that were met with lethal force. “Iranian officials are likely reticent to significantly raise the cost of fuel because a gasoline price increase triggered nationwide protests in 2019,” ISW noted. The Winter 2025-2026 protests similarly began amid the rial’s collapse and worsening economic conditions, and regime security forces have been preparing to respond to any new mobilization.
Some elements within the IRGC appear to accept the risk of greater domestic instability. ISW assessed on August 21 that IRGC Commander Major General Ahmad Vahidi and other anti-concession officials “may tolerate greater domestic instability because they may calculate that the regime can suppress renewed protests as it has previously done.” This calculation reflects a regime that views concessions on sanctions relief or nuclear negotiations as existential threats, preferring to manage domestic unrest through force rather than appear weak in the face of external pressure.
Sanctions Architecture Expands to Regional Intermediaries
The Trump administration has shown no sign of easing its economic campaign. The latest enforcement step, reported by Haaretz, involved targeting an Egyptian bank as a warning to regional entities that facilitate Iranian trade. This approach extends the sanctions architecture beyond direct US-Iran transactions to encompass the broader network of intermediaries that have helped Tehran circumvent previous rounds of restrictions. The strategy aims to tighten the economic vise even as military operations continue to degrade Iran’s conventional military capabilities.
The Iraqi dimension adds further complexity to the regional picture. The ISW reported that some Iranian-backed Iraqi militias are conditioning their disarmament on demands that the Iraqi federal government is unlikely to meet, underscoring the militias’ intention to resist disarmament and maintain their leverage within Iraq’s political landscape. These groups remain a key element of Iran’s regional influence network, and their resistance to disarmament complicates any broader settlement.
Global Oil Markets Feel the Pressure
The economic crisis is not merely a domestic concern for Tehran. The collapse of Iran’s oil export capacity has contributed to global oil price volatility, with Brent crude climbing above 90 dollars per barrel in recent weeks. The interaction between military operations, sanctions, and energy markets has created a feedback loop in which each escalation raises costs for both Iran and the broader global economy, making de-escalation on any front more difficult.
For ordinary Iranians, the consequences are immediate and severe. The combination of war, sanctions, and economic mismanagement has created conditions where basic necessities become harder to obtain and savings lose value month by month. Whether the regime can contain the resulting frustration through security measures alone, or whether economic despair will eventually drive a new confrontation between the state and its citizens, remains the most significant question facing the Islamic Republic in the months ahead.
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