After all the sanctions and measures announced by US President Donald Trump’s administration and Treasury Secretary Scott Bessent targeting Iran’s economy, financing networks and trade channels, the country’s economic outlook appears extremely difficult, though not necessarily on the verge of immediate collapse.
The figures show that sanctions are hitting the currency, growth, inflation and purchasing power hard. At the same time, they also show that the United States has so far failed to close every outlet available to the Iranian economy, most importantly oil exports to China.
As a result, the central question has shifted from whether sanctions can weaken Iran to a more complex issue: how much economic attrition can Iran absorb before it develops into a political and social crisis that threatens the state’s ability to endure?
Washington Expands Pressure Beyond Iran
The latest US move, led by Bessent under what was described as an “economic decisive day”, sought to broaden sanctions against Iran and against parties that continue to support it economically, while threatening countries and companies that maintain dealings with Tehran.
The measures cover multiple sectors, including shipping, aviation, technology, gold and digital assets, in an effort to strike at Iran’s sources of revenue and the trade and payment networks that allow it to continue operating despite sanctions.
Washington also announced that parties dealing with Iran would be given specified periods to comply. This signals a shift in the sanctions strategy from targeting Iran directly to trying to suffocate the wider network of relationships that enables the Iranian economy to survive.
China Remains the Critical Obstacle
The central problem facing this strategy is China.
Beijing remains the most important external outlet for Iranian oil. No matter how widely US sanctions expand, they cannot fully achieve their objective unless Washington succeeds in forcing China to stop or dramatically reduce its dealings with Iran.
That is the dividing line between weakening the Iranian economy and choking it.
Recent reports indicate that the Trump administration has targeted companies linked to China and Hong Kong, but has so far avoided the broader step of targeting major Chinese financial institutions.
Washington appears unwilling to turn the Iranian issue into a comprehensive financial and trade confrontation with Beijing.
Estimates suggest that China may cooperate partially in order to avoid sanctions, but is unlikely to be willing to sever its economic and strategic ties with Iran entirely.
Iran Still Has Means of Economic Survival
This is where Iran’s ability to withstand pressure becomes clear.
Despite continuing sanctions and economic siege, the Iranian economy still receives resources from oil, regional trade, informal networks and intermediaries.
Tehran has also accumulated extensive experience over years of sanctions in circumventing financial and commercial restrictions.
But this capacity for survival carries a substantial economic cost, and one of its clearest manifestations is inflation.
The International Monetary Fund estimates that Iranian inflation will reach around 68.9 per cent in 2026, while real gross domestic product is expected to contract by around 5.4 per cent.
This means Iran is simultaneously confronting a severe economic contraction and exceptional inflation, one of the worst possible economic combinations because production and real incomes decline while prices continue rising rapidly.
The Rial Shows the Scale of Economic Attrition
Iran’s currency provides perhaps the clearest indicator of the pressure facing the economy.
The rial has fallen to record lows against the US dollar, while the gap between the official exchange rate and the market rate continues to widen.
The effects of currency collapse extend far beyond financial markets.
A weaker rial means higher import costs, declining purchasing power, rising prices for food, medicine and essential goods, and the transmission of those increases across the broader economy.
For this reason, the greatest danger facing Iran is not simply the decline in gross domestic product, but the erosion of household purchasing power.
An economy can contract sharply and continue functioning, and a state can redistribute its resources. But ordinary citizens cannot easily adjust to inflation approaching 70 per cent, particularly when food prices are rising faster than the general rate of inflation.
As the currency continues to weaken, inflation shifts from being an economic problem into a social and political one.
Survival Does Not Mean Economic Health
Even so, concluding that Iran will collapse economically because of these indicators would be premature.
Iran’s economic history over recent decades shows that the state has been able to manage prolonged periods of sanctions, inflation and currency depreciation.
The Iranian government also has tools to control consumption and imports, manage foreign currency, direct subsidies and prioritise spending.
It can also transfer part of the cost of the crisis onto society through inflation and currency depreciation.
This is why a distinction must be made between economic collapse and economic resilience.
Iran does not currently have a normal economy capable of generating sustainable growth under present conditions, but it does have an economy capable of surviving.
The distinction is fundamental.
An economy capable of growth requires investment, technology, external financing and open markets. An economy focused on survival primarily requires a minimum level of revenue sufficient to pay salaries, secure food and energy supplies, and maintain state, security and military institutions.
Oil Remains the Decisive Factor
From this perspective, oil remains the most important variable.
As long as Iran remains capable of exporting oil, even in reduced quantities, and China continues buying a significant share, the United States can increase the cost of those exports but faces greater difficulty eliminating them entirely.
If Washington succeeds in closing that route while simultaneously drying up payment and trade channels, the equation would change fundamentally.
China therefore currently functions as an economic safety valve for Iran.
But Beijing cannot shield the Iranian economy from attrition.
China can buy Iranian oil and provide some commercial channels, but it cannot prevent Iranian inflation, restore the rial to stable levels or fully compensate for declining investment and production.
Continued Chinese trade therefore means Iran can survive. It does not mean the Iranian economy can continue indefinitely in its present condition.
Economic Pressure Is Moving Into Society
At this point, the crisis begins to shift from the economy into society.
Reports have begun to refer to labour protests and concerns over shortages of some goods amid rising prices, currency weakness and wage problems.
Protests have appeared across different sectors, including workers, retirees and teachers, while rising prices are pushing more families to borrow simply to cover basic needs.
Even this stage does not necessarily mean the fall of the government.
Under conditions of war, an economic crisis can temporarily produce the opposite effect.
The government can portray economic hardship as the result of external confrontation, redirect part of public anger towards the United States and Israel, and use fears of chaos and foreign intervention as tools for social mobilisation.
The Real Question Is the Cost of Endurance
The real question, therefore, is not whether Iran can endure, but how much that endurance will cost and how long it can continue.
In the short term, Iran’s ability to survive appears relatively strong.
Core state institutions remain intact, revenue streams have not been cut off completely, China has not joined a comprehensive boycott of Iran, and Russia, India and some regional countries provide alternative outlets, even if these remain limited compared with the needs of the Iranian economy.
Recent developments also show that Washington itself faces difficulties in building a complete international coalition to isolate Iran economically, particularly when China is involved.
The medium term, however, is more dangerous.
If economic contraction continues through 2026, inflation remains close to 70 per cent and the rial continues to lose value, Iran could move from an “economy in pain” to an “economy consuming its own capacity to survive”.
At that stage, the state would increasingly be forced to choose between financing the civilian economy, subsidies, the security and military apparatus, and essential imports.
That is the point at which economic pressure could transform into political pressure.
2027 Could Become a Test of Endurance
From this perspective, 2026 can be described as the year of economic shock, while 2027 may become the year in which Iran’s capacity for endurance is tested.
That does not mean political collapse will inevitably occur in 2027.
Rather, it means that if current indicators persist for longer, managing the crisis will become significantly more difficult.
If Iranian oil continues reaching China and Tehran remains able to maintain payment and trade channels, the government is likely to continue surviving even as living standards deteriorate.
But if three factors converge at the same time, a larger collapse in oil exports, the severing of payment and trade channels with China, and continued high inflation alongside further rial depreciation, the state’s ability to manage society would face an entirely different test.
Washington Can Impoverish Iran, but Has Not Choked It
This is the central paradox in the Trump and Bessent strategy.
The United States is capable of impoverishing Iran, but it has not yet been able to choke its economy completely.
China is capable of preventing that chokehold, but it cannot prevent economic attrition.
Iran is capable of enduring, but it is paying for that endurance through its currency, economic growth and the living standards of its population.
The Iranian economy therefore does not appear to be facing immediate collapse. Instead, it is entering a prolonged war of economic attrition.
If US sanctions remain at their current level while China continues to provide an outlet for Iranian oil, the most likely scenario is continued Iranian economic and political survival, but on the basis of a weaker economy, a poorer population and persistently high inflation.
If Washington succeeds in forcing China to cut Iran’s oil and financial lifeline, Iran would enter a fundamentally different phase.
At that point, the issue would no longer be how much damage sanctions are inflicting on the economy, but whether the state can continue paying the cost of survival.
Ultimately, the key to Iran’s economic future lies neither in Washington alone nor in Tehran alone, but in the relationship between Washington and Beijing.
As long as China remains outside a comprehensive boycott, the strategy of “economic strangulation” will remain incomplete and the Iranian economy will retain the ability to survive, even at the cost of inflation, currency depreciation and deteriorating living standards.
But if US pressure produces a genuine rupture in Chinese-Iranian economic relations, Iran’s economic clock will begin moving much faster.
At that point, the crisis could shift from economic attrition to a direct test of the government’s social and political resilience.
