Three weeks after Iran and the United States signed a memorandum of understanding to extend their ceasefire, the truce remains fragile. Recent attacks on three tankers in the Strait of Hormuz and renewed military strikes have heightened tensions. The US military launched large air attacks on Iran’s southern provinces, prompting missile and drone retaliations by the Islamic Revolutionary Guard Corps and Iran’s regular army targeting US interests in Bahrain and Kuwait.

Iran’s economy has been severely strained by years of local mismanagement, stringent Western and United Nations sanctions, and damage from two wars within a year involving the US and Israel. Additional pressures include deadly nationwide protests in January and the longest nationwide state-imposed internet shutdown in any country. The Statistical Center of Iran reported inflation rising by 88.6 percent in Khordad (ending June 21) compared to the previous year.

The damage from nearly 40 days of heavy bombardment, a US naval blockade of southern ports, and other disruptions have exacerbated economic woes. However, Mahdi Ghodsi, a senior economist at the Vienna Institute for International Economic Studies, noted that some recent job losses could be recoverable if military escalation halts, transport and logistics links are restored, energy and fuel access becomes more predictable, and internet and payment systems function properly. He said, “Some temporary layoffs in services, retail, transport, construction and small businesses could be reversed relatively quickly, because these activities are highly sensitive to uncertainty and disruptions rather than necessarily destroyed productive capacity.”

Last week, satellite imaging provider Planet Labs reinstated access to imagery for nearly 800 sites across Iran affected by the war, after lifting earlier restrictions imposed following a US government request.

Economist Ghodsi also highlighted Iran’s limited fiscal capacity as a central problem, with the government struggling to finance regular expenditures, salaries, and obligations across public and semi-public sectors. He stated, “This fiscal weakness has been one of the drivers of inflation, as budgetary pressures are partly shifted onto the banking system and the central bank through monetary financing.”

The fragile truce and ongoing economic challenges suggest a prolonged recovery period for Iran.

Sources