Currently, the global focus is on Iran, which is now the nerve centre of the geopolitical tension of the world.
But the crisis of Iran is not exclusively on the external or the political front. A major crisis is on the country’s economic front, where it is really in shambles.
In fact, Iran’s economy has slowly been bleeding for decades, and the recent political and security crisis has just exposed the wound.
Historically speaking, the economy of Iran during the pre-Islamic revolution in 1979 was a fast-expanding one. But the country was primarily dependent on oil.
Yet, with the use of oil revenue, large-scale industrialization, infrastructure development, and urbanization took place during the Pahlavi regime.
Per capita income of the Iranians went up and an urban middle class emerged. At one point, Iran used to be considered as a major modern economy in the Middle East.
According to the World Bank, except for one year, the Iranian economy grew by more than 10% every year for 14 years till 1975. In 1976, the economic growth rate of Iran reached more than 18%.
But just like any other developing economy, the benefits of high growth were not equitably distributed in the country.
The rural-urban disparities widened. Excessive dependence on oil and the rise of capitalism with state patronage and social discontent slowly but surely created a deep crisis in the country behind the curtain.
That crisis ultimately hastened the path for political explosion, which led to the Islamic Revolution in 1979.
The decay of the Iranian economy, however, continued after 1979. The revolution brought a serious jolt to Iran’s growth scenario with its economy starting to shrink.
In 1980, the economy of Iran shrunk by more than 21%. It rebounded a little in the following years, and achieved double-digit growth rates in 1990 and 1991. But the economy slid back to shrinkage for a number of years after 2010.
In recent years, the economic crisis of Iran has reached a new height. Iran possesses 10% of global oil and gas deposits. But because of US sanctions, the nuclear crisis and the 2025 war with Israel, the Iranian economy has been facing renewed crisis.
During the first half of the 2025-26 fiscal year, the Iranian economy shrunk by more than 0.5%, while during the preceding fiscal year, the growth rate of the Iranian economy was 3.7%. The service sector accounts for more than half of the country’s GDP.
During 2011-2020, the per capita income of the Iranian people shrunk by 0.6% and millions of Iranians were forced into poverty. Currently, about 40% of Iranians face the risk of sliding back into the poverty trap.
The present unemployment rate in Iran is about 10% and the inflation rate in October 2025 was 49%. Iran produces 3.2 billion barrels of oil every day, and the annual revenue from oil sale of the country is about $23 billion, which is $28bn less than what it could have been by international standard.
In 1979, the exchange rate of Iranian Riel was $1 equalling 70 Riel. At the beginning of 2026, that rate was 1.4 million Riel, which means that the Iranian currency has lost its value by 20 thousand times during the last four decades.
The reasons for such a decay of the Iranian economy are varied.
First, for so long, because of geo-political reasons, Iran was preoccupied with security and political issues. It had to face military and security threats from the United States; attacks from Israel, and wide economic sanctions, again from the US.
As a result, it had to prioritize its military and security concerns, including opting for nuclear weapons and the country’s economy did not get the needed attention.
Second, an over-dependence on oil and limited diversification of its economy over a long-period have made the Iranian economy stagnant.
Added to these was the long-term strict US economic sanctions on Iran, including its oil exports. Such sanctions have wounded Iran’s economy profusely over the years.
Third, the economic domination of the Iranian Islamic Revolutionary Guard Corp (IRGC) over the country’s economy is a major cause of economic distress of Iran.
The IRGC owns and runs a parallel powerful economy in the country. Over the years, it has expanded its economic activities significantly.
During the reconstruction phase of Iran in the aftermath of the wars with Israel during the 1990s, Khatam-al Anbiya, the engineering subsidies of the IRGC started to get big government projects in the oil and gas sector, physical infrastructure, ports, telecommunication, mines, and logistics and through the process, built an empire.
Because of awarding contracts to IRGC without any competitive bidding and with very limited civilian supervision on these activities, a dual economy has emerged in Iran -- one economy was the supervised civilian sector, and the other one was a parallel system, under the military and security groups’ control.
With super high inflation, high unemployment, deeper poverty, and widened inequalities, the record level of low exchange rates, the recessionary Iranian economy is now in serious distress.
Lives of the Iranian people are in peril -- their backs are against the wall. Consequently, the citizens of Iran took to the street during the last week of December 2025.
Nearly 4,000 Iranians have reportedly been killed during the month-long uprising. President Trump’s recent threats, after his invasion of Venezuela, and Iran’s counter threats have added new dynamics to the Iranian situation, which is now quite volatile.
In the meantime, Trump has declared that any country which does business with Iran will face a new 25% tariff hike, which will put the Iranian economy into further turmoil.
Already, the US actions in Venezuela have disrupted the global oil market, which has created new instabilities in the international system. These will negatively impact the Iranian economy, making the lives of millions of Iranian people even more vulnerable.
Selim Jahan is Former Director, Human Development Report Office and Poverty Division, United Nations Development Program (UNDP), New York, USA.
