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“The longer this goes on, the harder it will be to rebuild the oil and gas infrastructure, and the more the economy will become geared towards more basic survival,” said Henry Smith, a Middle East analyst at the London-based consultancy Control Risks.
Iran’s oil production has fallen by around 50% since the start of the conflict, while industrial production has also been hit, with reports of factories closing and workers being laid off due to lack of raw materials and electricity.
Smith said that while Iran has some capacity to repair its energy infrastructure, it will struggle without access to key technology and foreign investment.
Strategic chess
Analysts say Iran’s economic woes and the financial pressure of the U.S. blockade could be a bargaining chip in the ongoing peace talks.
“Iran is playing a strategic game of chess with the U.S. and its allies in the region,” said Michael Horowitz, a senior analyst at the geopolitical risk consultancy Le Beck International.
“By raising the economic stakes, Iran is hoping to force Washington back to the negotiating table on its terms,” he added.
However, the U.S. and its allies have shown no sign of backing down. The U.S. has warned that it will not lift sanctions until Iran agrees to a comprehensive peace deal that includes strict limits on its nuclear program and support for regional proxies.
“Washington is determined to keep up the pressure on Tehran until it agrees to a deal that addresses all of its concerns, including Iran’s missile program, support for proxy groups in the region, and its nuclear ambitions,” Horowitz said.
For now, Iran’s economy remains in freefall, and the country’s leaders are facing tough choices about how to navigate the economic storm ahead. The path to recovery may be long and arduous, but with the right decisions and international support, Iran may be able to rebuild and emerge from the conflict stronger than before.
The recent blockade on Iran by the United States and Israel has caused significant damage to Iran’s energy infrastructure, exacerbating the economic pressure on the country in hopes of pushing Tehran to the negotiating table. According to experts, the intense strikes on oil refineries, power plants, and other related facilities have dealt a severe blow to Iran’s economy.
Prior to the conflict, Iran was already facing budget deficits, and the estimated $200 billion to $270 billion in infrastructure damage has further worsened the situation, as stated by Seth Krummrich, a retired U.S. Army colonel and vice president at security firm Global Guardian. The lack of a functioning economy, deteriorating social services, limited political options, and lack of global support have put Iran on the brink of a humanitarian disaster, especially with the scorching summer approaching.
Lucila Bonilla, lead emerging markets economist at Oxford Economics, predicts more hardships for Iran in the near future. Iran’s neighbors, disturbed by the attacks on their infrastructure, are seeking alternative routes to bypass the Strait of Hormuz. Additionally, trading partners like Russia and China have shown little inclination to assist Iran in its time of need.
Even in the best-case scenario of a peace deal, Bonilla believes that Iran will continue to face economic challenges, including a weaker currency, higher inflation, larger fiscal deficits, and reduced leverage due to the need to reroute trade away from the Strait of Hormuz. The outlook for Iran is one of prolonged weakness and hardship for its people, rather than a quick recovery.
As negotiations continue and the blockade persists, it remains to be seen how Iran will navigate the economic and humanitarian challenges it is currently facing. The international community will be closely monitoring the situation to assess the impact of the blockade and the potential for diplomatic resolutions to the ongoing conflict.
