Executive Summary

Key insights and market outlook

Iran's economy is facing severe challenges as its currency, the rial, has plummeted to a record low, losing around 45% of its value against the US dollar in 2025 ¹

. This dramatic devaluation has led to soaring inflation, particularly in food prices, which have risen by 70% year-on-year according to Gavekal Research ². The crisis has been exacerbated by global sanctions, poor economic management, and drought, pushing half of Iran's population to consume less than the standard 2,100 calories per day ¹.

Full Analysis

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Deep Dive Analysis

Iran's Economic Crisis Intensifies as Currency Hits Historic Low

Severe Currency Devaluation and Inflation

Iran is grappling with a severe economic crisis as its currency, the rial, has reached an all-time low against the US dollar ¹

⁴. The rial has depreciated by approximately 45% in 2025 alone ¹, creating significant challenges for the Iranian economy. This sharp decline has led to a substantial increase in the cost of imports, including essential goods such as wheat, cooking oil, and pharmaceuticals, which has in turn driven inflation rates higher ¹.

Economic Impact and Social Consequences

The inflation rate, particularly for food, has surged to 70% year-on-year according to estimates by Gavekal Research ²

. This has resulted in widespread hardship, with reports indicating that half of Iran's population is consuming less than the standard 2,100 calories per day ¹. The economic strain is compounded by high youth unemployment, reaching 19.7%, with many workers in precarious employment situations ³.

Causes and Contributing Factors

Several factors have contributed to Iran's economic woes. The ongoing impact of global sanctions has been a significant factor, limiting Iran's access to international financial markets and trade ¹

. Additionally, poor economic management and corruption have exacerbated the situation, with the government's handling of the economy being widely criticized ². The drought and mismanagement of water resources have also played a role, negatively affecting domestic food production and further pressuring prices ².

Government Response and Market Reactions

In response to the crisis, the Iranian government has made some adjustments, such as revising fuel subsidy mechanisms in December 2025, but this has led to further price increases for households and businesses ¹

. The government's attempt to control the situation by eliminating the NIMA foreign exchange system has also had mixed results, effectively forcing importers and exporters to trade at negotiated rates, which has added to the currency's volatility ¹.

References