G7-linked tankers' share of Russian oil exports hits one-year high as Greece pushes back on sanctions
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Oil exports have fallen close to nothing, dairy consumption has collapsed by two-thirds since 2010, and patients are skipping treatment as prices outrun incomes.
Iran's economy is straining on multiple fronts at once as a renewed US blockade squeezes oil income and inflation erodes what households can still afford, according to Capital Economics. The war has hit Iran through four channels at once: output, oil income, inflation/real wages and the fiscal base.
The most painful change is that oil exports have fallen to close to zero in July, an income stream worth roughly 11% of GDP on an annualised basis, which is infecting the whole economy.
Five months of war have turned what was already a struggling Iranian economy into a deepening recession, simultaneously cutting the government's foreign-currency earnings, driving up prices and crushing household purchasing power.
The IMF now expects Iran's economy to shrink 5.4% in 2026, while consumer-price inflation averages 68.9%. The deterioration is substantially worse than expected before the fighting began: the World Bank's January outlook had forecast a contraction of about 1.5% in 2026/27, after an estimated 1.1% decline in 2025/26.
Early modelling by the UN Development Programme illustrates the potential scale of the shock. In March it estimated that disruption to trade, production and energy infrastructure could reduce Iranian GDP by 8.8–10.4 percentage points relative to a no-war scenario. That simulation assumed only a 28-day disruption; the conflict has now continued for more than five months.
For households the impact has been most visible in prices. Official figures showed year-on-year headline inflation reaching 71.8% in March, while food, beverages and tobacco rose 112.5%. Bread and cereals were up 140%, meat and poultry 135%, oils and fats 219%, fruit and nuts 104.2% and dairy products 116.8%. By June headline point-to-point inflation had reached about 88.6%, before edging down to 87.9% in July.
Tehran responded by raising the statutory minimum wage by about 60%, from roughly IRR103mn to IRR166mn rials a month, but even that increase has failed to keep pace with the cost of many necessities. The poorest households are particularly exposed: UNDP estimates they spend around 45% of total consumption on food, compared with 26% among the richest fifth of the population.
The government faces an increasingly serious fiscal squeeze as well. Iran entered the new fiscal year planning to obtain almost 52% of public resources from taxation, reducing its dependence on oil. But an economy ministry official warned in May that as much as 25% of projected tax revenue could now fail to materialise as recession hits companies and consumers. At the same time, oil exports — Tehran's principal source of hard currency — have been progressively choked off and by July had fallen close to zero.
That combination may prove the most economically damaging aspect of the war. Tehran is losing oil dollars just as inflation is eroding domestic incomes and recession is weakening the tax base needed to replace them. With usable foreign-exchange reserves already limited, the result is an increasingly severe adjustment being pushed on to Iranian households through higher prices, lower consumption and fewer imports.
The squeeze reaches the dinner table and the pharmacy
Annual dairy consumption has fallen from around 130 kg per person in 2010 to just 40 kg today, according to Ali Ehsan Zafari, head of Iran's Dairy Cooperatives Union, cited by Iran International. Dairy products cost around 147% more in July than a year earlier, per Iran's Statistical Center, leaving consumption well below the global average of roughly 117-119 kg a year, according to the UN Food and Agriculture Organization.
The same dynamic is showing up in healthcare: Iranians are increasingly forgoing treatment as drug shortages spread and insurance coverage falls short of rising costs, Iran International reported, citing patient accounts. One person undergoing tests for an abdominal and pelvic mass said CT and MRI scans cost 210mn rials ($113) — a bill that, for many Iranians, can consume most or all of a month's income even when covered by the state social insurer.
A shrinking economy with fewer buffers left
Iran's crude export pipeline on Kharg Island, its main oil terminal, is at a "complete halt" under the US blockade, with all of the island's terminals currently empty, according to maritime intelligence firm Windward, cited by Al Jazeera. Iranian tankers have been among the few that have been able to leave the Persian Gulf since the war started in March, earning Tehran considerable income. That business has been curtailed now.
Capital Economics estimates the country's oil exports fell to close to nothing in July after the blockade was reimposed and Kharg was shut for at least a week — a loss of income that, before the war, accounted for around 11% of Iran's GDP on an annualised basis.
To offset the lost export income without foreign borrowing, Capital Economics estimates Iran's imports need to fall by a roughly equivalent 75%, forcing a collapse in domestic demand; Chinese export data for April and May already point in that direction. The Iranian rial has fallen around 50% against the dollar on the parallel market over the past year, feeding into a food-price spiral that has already turned even Iran's favourite kebab into a luxury item.
Iran also has less of a cushion to fall back on than it did during the first blockade in April. Its usable foreign-exchange reserves were estimated by the IMF at $22.6bn in 2024 and were probably lower by the time this war began; its stock of at-sea oil that can be sold to raise hard currency has fallen from around 170-180mn barrels before the first blockade to roughly 60mn barrels in early July, and tightening financial sanctions are making even that oil harder to sell. President Donald Trump has signalled Washington intends to let this economic pressure do the work rather than negotiate on Iran's terms, a strategy Capital Economics said appeared to contribute to Iran's decision to agree to June's Hormuz-reopening memorandum with the US.
Whether pressure translates into concessions this time depends on Iran's internal politics: President Masoud Pezeshkian and other relative moderates appear worried about economic collapse and reportedly pushed for the June memorandum, but the regime remains divided, with hardliners currently in the ascendancy. Capital Economics noted that plenty of regimes — Cuba after 1959, Venezuela since 2012 — have kept power through economic collapse via repression and patronage, meaning economic pain alone is no guarantee of a policy shift.
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