War Drains Iran’s Economy as US Intensifies Pressure on Tehran

Iran’s economy is sinking deeper into crisis after six months of war with the United States and a major escalation in American sanctions. The Iranian government has acknowledged the impact of the conflict: foreign trade has fallen by almost 35%, while inflation reached 66% in the latest month.

For Tehran, this is more than another round of sanctions. The war is simultaneously hitting oil revenues, trade, foreign currency inflows and the country’s ability to maintain imports. Economic pressure is compounded by disruptions around the Strait of Hormuz, a crucial route for global oil and liquefied natural gas shipments.

Sanctions move to a new level

Washington is no longer trying simply to restrict Iran’s own access to international markets. It is also seeking to force companies and countries elsewhere to reduce their economic ties with Tehran.

In August, the Trump administration announced a new package targeting almost 60 companies, individuals and vessels. The measures focused on networks linked to Iranian oil sales and transportation, financing, military procurement and cyber activities. Washington has also warned foreign companies and governments that they could face secondary sanctions for continuing to do business with Iran.

The objective is to push the sanctions regime well beyond US-Iranian relations. Financial intermediaries, shipping companies, traders, technology suppliers and other actors involved in helping Tehran circumvent restrictions are increasingly exposed.

The oil sector is particularly important. The latest sanctions target brokers, companies providing maritime services, financial intermediaries and tankers that Washington associates with Iran’s so-called shadow fleet.

Oil remains Tehran’s biggest vulnerability

Iran has lived under sanctions for decades, giving its economy considerable experience in circumventing restrictions. Tehran relies on alternative financial channels, opaque trading networks, intermediaries and fleets of vessels to keep its oil exports moving.

The current situation, however, is different because economic pressure is being combined with physical disruption. According to Reuters, US efforts to restrict Iranian exports have reduced oil shipments by around 85% from pre-war levels, to roughly 250,000 barrels per day in August.

That creates a fundamental problem for Tehran. Sanctions can be circumvented, but replacing lost physical access to a critical maritime route is considerably harder.

The Strait of Hormuz has become one of the central pressure points of the conflict. Iran says it has full control over the waterway and insists that restrictions on shipping will remain until the United States ends military operations against it. Washington, meanwhile, maintains that the strait remains open. In practice, however, shipping traffic has fallen sharply.

According to Reuters, only seven vessels passed through the strait on one recent Thursday. That illustrates how far the waterway has moved from normal operations despite its importance to global energy markets.

Inflation is becoming a political problem

For ordinary Iranians, the consequences of the war are most visible in the rising cost of living.

Iranian President Masoud Pezeshkian has acknowledged the nearly 35% decline in foreign trade, while monthly inflation has reached 66%. The government is increasingly focused on controlling prices, unemployment and the economy’s dependence on the dollar.

This creates a double risk for Iran’s leadership. Economic deterioration reduces the state’s resources for financing the war and maintaining social stability. At the same time, a sharp decline in living standards could intensify domestic discontent.

So far, however, economic pressure has not forced Tehran to capitulate or accept Washington’s demands. The Iranian leadership is demonstrating that it can adapt to new restrictions while continuing to use the Strait of Hormuz as leverage against the United States and global energy markets.

Washington is betting on attrition

The US strategy is increasingly taking the form of economic attrition. Washington is not simply trying to deprive Tehran of money; it is targeting the infrastructure through which Iran generates and moves foreign currency.

The United States is also putting pressure on China, India and other countries that remain important trading partners for Iran. Washington has warned that companies and financial institutions assisting Tehran could themselves lose access to the American financial system.

That makes the sanctions regime more powerful than a conventional bilateral economic blockade. The United States is using the central role of the dollar in the global financial system to force third countries to weigh cooperation with Iran against access to the US economy.

There are limits to this strategy. China remains one of the most important buyers of Iranian oil, while Beijing has criticised sanctions as ineffective in resolving the conflict and has made clear that it will protect its own interests.

Economic crisis does not mean an imminent collapse

Despite the scale of the losses, Iran is showing considerable resilience.

The country has spent decades operating under sanctions, and its economic system has therefore developed mechanisms for functioning with limited access to international finance. This creates a problem for Washington that cannot be solved with a single sanctions package: an economy can be weakened significantly without necessarily forcing its political leadership to change course.

The broader conflict has increasingly become a costly stalemate. Iran has suffered major economic and military losses, but it has retained the ability to strike regional targets and threaten energy infrastructure.

The economic crisis is therefore not simply a question of money. It has become part of a wider confrontation in which oil flows, foreign currency revenues and control over the Strait of Hormuz are themselves instruments of war.

Washington is trying to make the cost of continuing the conflict as high as possible for Tehran. Iran, meanwhile, is trying to demonstrate that even after a dramatic reduction in revenues, the state can continue to function.