The regime has impoverished Iran, and Trump is waiting for the situation to get worse

After five months of war, Iran has slipped into an economic recession even deeper than before. The International Monetary Fund forecasts that GDP will contract by 5.4 per cent this year, whilst annual inflation stood at 87.9 per cent in July. To resolve the conflict in the Middle East in which he has become bogged down, President Donald Trump has decided to stake his hopes on crippling Iran’s economy. “We’re keeping a low profile; we’re just semi-negotiating with them,” he told Axios on Sunday. “We’re looking at Iran with its massive inflation and the fact that they have no money.” Having suspended military operations against the violent Pasdaran regime, the United States is now relying on the economic attrition of the system. (Mattone continues in insert III)

According to June estimates by the Washington-based think tank Foundation for Defence of Democracies (FDD), Iran suffered losses of around $144 billion in the first few months of the war – approximately 40 per cent of its pre-war GDP – although, according to the authors themselves, the figure remains uncertain and could be as high as $300 billion. The Al Habtoor Research Centre in Cairo, which uses some of the same data, estimates instead that the economic cost to Tehran could reach around $187 billion by December. In both cases, the figures include revenue lost due to the US naval blockade as well as damage caused by air strikes on critical infrastructure not solely linked to oil, such as petrochemical complexes and steelworks. Furthermore, according to FDD analysts, Iran’s share of world trade has plummeted from 2.2 per cent to less than 0.02 per cent this year. The country is effectively isolated.

In June, as soon as the US blockade was suspended following the brief truce, oil exports had risen to $4.5 billion according to figures from United Against Nuclear Iran (UANI), whilst in July they had fallen to $2.44 billion after attacks by the Pasdaran on commercial vessels prompted the United States to reinstate the blockade. However, since then, almost no loaded Iranian oil tankers have left the Gulf, except for those bound for China at a discount of $10–12 per barrel, according to UANI.

Selling oil was one of the main ways in which the regime obtained dollars to fund various allied terrorist groups in the region, but also to pay for imports of wheat, medicines and machinery, and to prop up a stronger rial. To circumvent the sanctions, Iran has built up and relied on a parallel network of currency exchange bureaux, shell companies and financial platforms, thereby creating a shadow banking system essential for converting oil revenues, which are largely received in yuan. However, in recent months, the US Treasury has repeatedly targeted this network. In July, it sanctioned both the currency exchange houses that were moving hundreds of millions of dollars on behalf of Iranian banks and the front companies used to conceal the transactions. Last Friday, it was the turn of the cryptocurrency circuit, specifically Aban Tether and Shelbit, accused of transferring millions on behalf of the Pasdaran. The Treasury thus stated that the regime is “desperately seeking foreign currency”.

But the longer the blockade continues, the more the situation deteriorates. Iran’s oil sector is, in fact, buried in debt, as even officials in Tehran themselves have admitted, according to a report by Reuters. The state-owned company has had its accounts frozen for unpaid taxes, and the government has just restructured €55 billion of debt owed to banks, which is in turn covered by the Central Bank.

Printing money at the government’s request has become almost standard practice. The rial, which was already trading at 1.39 million to the dollar when fierce protests by Tehran’s traders broke out in late December, had plummeted to 1.9 million by the end of April. According to the World Bank, food inflation, a shortage of imports and falling real incomes will only serve to increase poverty. In the spring, there were nearly 800,000 more people out of work, according to Iran’s Statistical Centre, and according to Miad Maleki, a former US Treasury official, only 35 per cent of the working-age population is in employment, whilst the minimum wage does not even cover a quarter of the cost of living.

As long as the state of war continues, the regime can blame everything on the external enemy, but Trump’s crackdown is exposing the vulnerabilities that the regime had already created at the expense of its citizens, through years of deficits covered by the Central Bank, under-investment and resources diverted to allied militias.