The Iranian rial weakened sharply in recent days, pushing the open-market US dollar rate beyond IRR1,360,000, as a mix of domestic policy strains, tightening foreign exchange supply and heightened geopolitical risks fuelled renewed volatility in the currency market.

Tasnim News Agency reported on December 30 that the dollar rose to IRR1,361,000, up about 1% on the day, while the euro climbed to IRR1,605,800 and sterling to IRR1,840,300. The UAE dirham also breached a new threshold, trading above IRR375,000 for the first time, underscoring the breadth of pressure across major currencies.

Mirhadi Rahgoshay, an economist, said the latest swings reflected the interaction of internal and external factors weighing on the market. On the domestic front, he pointed to rising demand for imports at a time when export revenues have been constrained by weaker non-oil exports and delays in the repatriation of foreign currency earnings.

“Challenges in foreign exchange resources and the drip-feeding of subsidised currency allocations have created persistent imbalances,” Rahgoshay said, adding that drought conditions and water shortages have reduced domestic output, increased reliance on imports of basic goods and animal feed, and further strained hard currency availability.

He also criticised policies allowing imports without documented foreign currency sources in border regions, arguing that they have diverted demand towards the informal market. Recent efforts to reorganise so-called suspicious commercial cards have, in the short term, reduced supply and amplified volatility, he added.

Externally, Rahgoshay cited intensifying sanctions pressure, renewed regional military tensions involving Israel, the risk of a “snapback” of international measures, and sustained war rhetoric as key drivers of rising inflation expectations. “These factors, combined with a targeted media campaign, have strengthened speculative demand in the unofficial market,” he said.

The Central Bank of Iran has announced new instruments under a “managed float” regime, including steps to block suspicious accounts and accelerate currency allocation for import orders below $100,000. While these measures are viewed positively, analysts warn they are unlikely to stabilise the market without broader improvements in foreign exchange inflows, fiscal discipline and policy credibility.

Until the gap between structural currency shortages and demand pressures narrows, most economists expect the rial to remain vulnerable to further bouts of instability.