Iran’s economy is coming under more pressure as the country’s currency sinks to record lows, inflation surges and economic output contracts sharply.
The Iranian rial traded at around 2.688 million to the US dollar on the open market on Oct. 3, which extended a steep decline that wiped out more than half of the currency’s value over the past year.
Iran’s central bank responded by announcing plans to sell as much as $2 billion in foreign currency through state-controlled banks in an attempt to stabilize the rial. So far, however, the intervention has struggled to restore confidence.
Many Iranians have turned to foreign currencies and gold to preserve the value of their savings. The currency crisis comes as inflation places even greater pressure on households.
Iran’s point-to-point inflation rate climbed to roughly 90% in September, while broader annual inflation remained above 70%. Food, imported products and other everyday expenses have become very difficult for households to afford.
Iran’s Economy Shrinks as Oil Sector Comes Under Pressure
The problems extend far beyond inflation and the currency market. Recent economic data showed Iran’s gross domestic product contracted 10.1% year over year between March 21 and June 20.
The oil and gas sector was particularly hard hit, and contracted by more than 26%, while industrial and mining activity also suffered a double-digit decline. Even excluding oil, economic output fell by around 4.6%.
The downturn comes as sanctions, restrictions on Iranian trade and disruption to the country’s oil exports reduce Tehran’s access to foreign currency.
Washington also continued expanding economic pressure against Iran by targeting industries and networks that generate revenue for the government. As a result of this, Iran’s economic problems are becoming more interconnected.
Lower oil revenue reduces the supply of foreign currency entering the country, which puts more pressure on the rial. A weaker rial then increases the cost of imports, pushing inflation higher and encouraging households to convert savings into dollars or gold. This can place even more pressure on the currency.
Iran’s central bank now faces the difficult task of defending the rial while the wider economy contracts.
Unless oil revenues recover or authorities restore confidence in the currency, Iran risks staying trapped in a cycle of falling purchasing power, high inflation and weakening economic activity.
