Economy

The Economic War on Iran Is—and Isn’t—Working

Foreign Policy July 28, 2026

The U.S. Sanctions and Other Attacks on Iran Are—and Aren't—Destroying Its Economy There appears to be a

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Washington, D.C., 20005. Powered by WordPress VIP Analysis The Economic War on Iran Is—and Isn’t—Working

Devastating costs have been imposed on the Iranian economy—to unclear strategic ends.

Vohra-Anchal-foreign-policy-columnist18 Anchal Vohra By Anchal Vohra, a columnist at Foreign Policy. A woman looks on as

residents and emergency workers sift through rubble of a residential building hit in an airstrike in Tehran on March 27.

A woman looks on as residents and emergency workers sift through rubble of a residential building hit in an airstrike in

Tehran on March 27. Majid Saeedi/Getty Images U.S. Foreign Policy Economics Iran Middle East and North Africa Anchal

Vohra July 28, 2026, 2:09 AM Iran has stood up to two of the world’s most powerful militaries, held its position on

the nuclear issue, and continued to back its Lebanese proxy. But if that represents a victory, it’s a Pyrrhic one when

considered from an economic perspective. Iran has faced staggering losses to its military infrastructure and economy.

Inflation has skyrocketed, the Iranian rial has plummeted, unemployment is high, and a U.S. blockade threatens trade in

and out of the country. Iran has stood up to two of the world’s most powerful militaries, held its position on the

nuclear issue, and continued to back its Lebanese proxy. But if that represents a victory, it’s a Pyrrhic one when

considered from an economic perspective. Iran has faced staggering losses to its military infrastructure and economy.

Inflation has skyrocketed, the Iranian rial has plummeted, unemployment is high, and a U.S. blockade threatens trade in

and out of the country. “The enemy has realized that it cannot force the Iranian nation into submission through

military strikes,” Iranian President Masoud Pezeshkian said recently. “The economy and people’s livelihoods are

the most important front in confronting the enemy.” What sounds like a boast could be taken as a warning. The United

States and Israel have failed to force Iran to capitulate militarily. But it remains an open question how Iran will

manage its debilitating economic losses. Its adversaries clearly hope that economic pressure will still force the

Iranian government to make substantial concessions in negotiations—or even lead to an uprising that topples the

regime. It’s possible, however, that the continuation of war will instead push Iranians’ economic woes to the

background, strengthening hard-liners amid a weakened economy. Iran has suffered hundreds of billions of dollars in

losses since the start of the war even though the scale of the damage is disputed. In April, Iran’s government put

the losses at $270 billion, while the Washington-based Foundation for Defense of Democracies estimated $144

billion—with a range stretching from $50 billion to $300 billion. Iranian Deputy Labor Minister Gholamhossein

Mohammadi said in April that more than a million jobs were lost as a result of the war, while an Iranian economist upped

that figure to 10 million to 12 million jobs at risk, or roughly half of Iran’s workforce. Whatever the exact loss,

the numbers are grim. U.S. President Donald Trump speaks in more absolute terms, claiming that Iran’s navy and air

force were totally destroyed. “Their navy is totally gone—100 percent,” Trump told Fox News in late May. “Their

air force is totally gone—100 percent.” A BBC investigation confirmed in June that more than 50 military sites had

been damaged across Iran, including air bases, naval assets, and compounds of the Islamic Revolutionary Guard Corps

(IRGC) and the paramilitary Basij, which is tasked with crushing dissent. Nearly a fifth of Iran’s industrial base

suffered damage, and rebuilding the petrochemical hubs at Mahshahr and Assaluyeh could take more than a decade. The

Iranian rial had been weakened by years of sanctions and in April fell to a record low of 1.9 million per U.S. dollar.

By June, consumer prices were up by more than 88 percent, according to data released by Iran’s Fars news agency. The

economic shock is severe, but Iran is not exactly new to such crises. Then-Iranian President Hassan Rouhani said in

2020 that sanctions had cost Iran $150 billion. The impact of Trump’s withdrawal from the Iran nuclear deal in 2018

and reimposition of sanctions, combined with years of governmental mismanagement, culminated in large protests in

December, with Iranians demanding better standards of living. Thousands were killed in a subsequent government

crackdown. The U.S.-Israeli war followed this uprising. Statements from Trump and Israeli Prime Minister Benjamin

Netanyahu suggest that both saw military intervention as a way to encourage Iranians to return to the streets and, with

U.S. and Israeli air support, potentially overthrow the government. That didn’t happen. Even those who opposed the

government still didn’t back the bombing of their universities or appreciate Trump’s threat of eliminating them as a

civilization and controlling their country’s oil resources. The bombing of a girls’ school early in the war, which

preliminary investigations conclude Washington was responsible for, has ruled out any chance of Iranians standing up in

any way that could be seen as supportive of the United States. As the economic crisis worsens, the United States and

Israel are once again wondering whether it can rattle the government, albeit with different end goals in mind. Israeli

Finance Minister Bezalel Smotrich recently counted the cost of the war on Iran and said the current situation was the

best situation for Israel: “[We] must remember that the ultimate goal of Israel, and not necessarily the United

States, is to undermine and weaken the regime in Iran—to the point of overthrowing it.” Smotrich’s comments

suggest that he believes economic collapse could eventually contribute to the fall of the Iranian government, which

remains a key Israeli objective. Trump, however, revised his goals later on in the war: denying Iran a nuclear weapon

and freeing the Strait of Hormuz, not regime change. The U.S.-Iran memorandum of understanding called for sanctions

waivers, the resumption of Iran’s oil exports, phased access to more than $100 billion in frozen assets, and the

creation of a $300 billion reconstruction fund to help reduce Iran’s economic suffering. Even though it was called

off when clashes resumed, it reflected that Trump isn’t opposed to Iran’s economic recovery—if he gets what he

wants. But he isn’t shy about inflicting economic pain either and sees it as a way to achieve his objectives. Trump

has suggested that Iran will be unable to withstand economic losses and sooner or later accept U.S. terms. In April,

he told Axios that the U.S. blockade of Hormuz, which aims to strangle the Iranian ability to export, was “somewhat

more effective than the bombing.” Yet most experts believe that Iran will not relent on its nuclear program or give up

control of Hormuz and that increasing economic pain in the middle of a war will neither usher in sustainable political

change nor soften Iran’s hard-liners. There are several reasons. First, Washington’s determination to keep up the

pressure may not match the capacity of Iran’s hard-liners to keep fighting. It would also be foolish to expect the

IRGC to sit on its hands as the bombing escalates and Iran’s economy crumbles. Iran could attack more cargo vessels,

killing sailors and causing panic in the shipping industry with a cascading effect on the global economy. It could lay

more mines on the seabed, hit U.S. bases more frequently, and kill more U.S. soldiers, testing Trump’s resolve to keep

going. Iran has already activated its allies in Yemen, the Houthis, who are poised to control the Bab el-Mandeb, the

region’s other major maritime chokepoint. Last week, Iran flexed its muscle and gave a taste of how the war could

widen when the Houthis fired missiles and drones at Saudi oil facilities on the Red Sea. Moreover, Iran has been dealing

with Western sanctions for years and has figured out ways to work around them. It uses hundreds of ships that are part

of a shadow fleet and difficult to track when they turn off their transponders. Iran also evades sanctions by

transferring oil mid-sea—from ship to ship. Some accounts suggest that the Iranian people have suffered enormously but

that has also increased the threshold of pain they can endure. While rising costs, declining business activity, and

layoffs have punctured their pockets, Iranians are currently preoccupied with the war. “This trend of inflation has

been going on for decades—people are shocked for a while, then they move on,” a U.K.-based Iranian told me. He said

his sense after talking to his family back home in Tehran was that people found it “harder to protest” during the

war. Neither Trump nor Netanyahu has articulated a convincing strategy for the day after—or for the many conditions

that would have to be in place to achieve their respective objectives. Israeli strategists admit that despite their best

efforts, the Iranian government hasn’t been sufficiently weakened. “The state has been weakened but not enough,”

said Yaakov Amidror, a former national security advisor to Netanyahu. “End of the day, it’s not about weakening the

state for the sake of weakening but for Iranians to topple the regime. That didn’t happen yet.” There is no surefire

way of toppling the Iranian government, surely not a quick one. An external actor has only a limited number of options.

But that has been known for a while. There was a reason U.S. President Barack Obama adopted a different strategy. The

2015 nuclear deal envisaged that economic benefits would improve Iranians’ standards of living over time, strengthen

the moderates, and create conditions for political change from within. Trump instead deployed “maximum pressure”

against Iran, followed by a war and a blockade. It might create conditions that culminate in massive outrage against the

government and sudden uprisings. But there is no guarantee that would overthrow the government in the absence of an

organized political opposition. For now, Trump is strengthening Iran’s hard-liners, who will no doubt outlast his term

in office. The attacks and the blockade give them a reason to remain on a war footing—and the effects of a crumbling

economy are likely to fall more heavily on the people than on the government and its revolutionaries. U.S. Foreign

Policy Economics Iran Middle East and North Africa Anchal Vohra Anchal Vohra is a Brussels-based columnist at Foreign

Policy who writes about Europe, the Middle East, and South Asia. She has covered the Middle East for the Times of

London and has been a TV correspondent for Al Jazeera English and Deutsche Welle. She was previously based in Beirut

and Delhi and has reported on conflict and politics from over two dozen countries. X: @anchalvohra Read More On

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