U.S. Sanctions Tighten the Grip on Iran's Economy: 35% Drop in Trade, 66% Inflation... Why Tehran Still Won't Back Down

The "Economic War" That Began Away from the Battlefield

As the military conflict between the United States and Iran drags on, another front of the war has become clearer.

That front is the "economy."

About six months into the war, the Iranian leadership has become more explicit than ever in acknowledging the deterioration of the domestic economy. According to Iranian President Masoud Pezeshkian, U.S. sanctions and a naval blockade have led to a roughly 35% decrease in Iran's exports and imports.

Even more severe is the rise in prices.

Iran's annual inflation rate is said to have reached 66%, making issues like prices, employment, market stability, and maintaining domestic production increasingly akin to national security concerns for the government.

More than the damage to military facilities and infrastructure, the long-term economic burdens accumulating in citizens' daily lives could potentially shake the regime.

Food, fuel, imports, housing, business activities—.

If inflation remains high, the goods and services that can be purchased with the same income will decrease. Companies will also find it harder to procure imported parts, secure funding, and obtain foreign currency, increasing the likelihood of reduced investment and employment.

The Iranian leadership's emphasis on price control, job creation, and investment in domestic production as critical issues has more significance than mere economic measures.

Stabilizing the economy is directly linked to the stability of the regime itself.

The U.S.-Led "Economic D-Day"

Targeting these weaknesses in Iran, the U.S. government is rapidly intensifying economic pressure alongside military operations.

On August 24, the U.S. Treasury Department launched a new economic campaign against Iran called "Operation Economic Outcast."

The U.S. positions this as a comprehensive operation to further isolate Iran from the international financial and trade systems.

Notably, the sanctions are not limited to within Iran.

Pressure is also applied to networks existing in third countries, including companies, financial institutions, ships, and intermediaries that transact with Iran.

This is known as "secondary sanctions."

The power of secondary sanctions is significant.

If companies and banks face the possibility of losing access to the U.S. market and dollar transactions by continuing business with Iran, they are more likely to decide to halt transactions with Iran altogether.

In other words, the U.S. aims to force foreign companies, which cannot be legally prohibited from trading with Iran, to choose between

"continuing transactions with Iran or maintaining access to the U.S. and dollar financial systems."

This can be seen as a strategy to constrict Iran's foreign currency income and trade routes without using military force.

This can be seen as a strategy to constrict Iran's foreign currency income and trade routes without using military force.

Pressure Begins to Extend to Financial Institutions

The new sanctions strategy has already reached the financial sector.

The U.S. Treasury Department is proceeding with measures to restrict access to the U.S. financial system for the UAE branch of Egypt's major bank, Banque Misr, due to suspicions of involvement in Iran-related transactions.

Such measures against financial institutions could have a greater ripple effect than sanctions on individual companies.

In international trade, selling goods alone does not complete a transaction.

Numerous financial services, such as payment settlements, letters of credit, remittances, insurance, and shipping finance, are required.

Therefore, if banks begin to avoid Iran-related transactions, it could become difficult to trade even goods that are not formally subject to sanctions.

This is precisely what the U.S. is targeting.

Not only stopping the oil itself but also severing payment, transportation, insurance, and brokerage services surrounding it one by one.

It is a strategy akin to narrowing the "veins" that support economic activities.

However, There Are Areas the U.S. Cannot Easily Enter

However, the U.S. cannot expand sanctions indefinitely.

A particularly significant issue is the relationship with major economic countries like China and India.

For Iran, oil is an extremely important means of earning foreign currency, and whether it can completely cut off transactions with its major buyers will determine the effectiveness of the sanctions.

On the other hand, if the U.S. targets major financial institutions and companies in China and other countries for full-scale secondary sanctions, the impact will not be limited to Iran.

It could reverberate in the international financial market, crude oil market, shipping, global trade, and even the U.S. economy.

Therefore, the U.S. government needs to carefully calculate the side effects on the global economy while showing a tough stance.

This is the greatest dilemma of the current economic sanctions.

The stronger the sanctions, the greater the pressure on Iran.

However, if the U.S. truly tries to cut off transactions with Iran on a global scale, there could be significant costs to the global economy itself.

The "35% Trade Reduction" Directly Hitting the Iranian Economy

On the other hand, looking at the numbers from Iran's side, the economic impact cannot be considered light.

According to President Pezeshkian, exports and imports have decreased by about 35%.

A nearly one-third reduction in a country's trade in a short period is a significant change.

A decrease in imports is not just a problem of fewer foreign products on store shelves.

It could also affect machinery, parts, raw materials, and medical supplies needed for manufacturing.

The decrease in exports is even more serious.

If foreign currency earned from exports decreases, the ability to support the national currency also declines.

This could lead to a vicious cycle where import prices rise, further driving up inflation.

The Iranian government's call for "reducing dependence on the dollar" is not unrelated to this issue.

As long as the U.S. uses the dollar-centered financial system as a sanction tool, Iran has a strong motivation to expand payment methods and trade routes other than the dollar.

However, even if an alternative system is built, it is not easy to completely detach from the influence of the dollar, the world's largest settlement currency, in a short period.

Nevertheless, Oil Remains a Lifeline

Even in this situation, oil remains one of Iran's largest economic cards.

During a period when a temporary memorandum between the U.S. and Iran was in effect in June, the U.S. temporarily allowed the sale of Iranian crude oil.

According to President Pezeshkian, Iran sold about 90 million barrels of oil during that short period.

This figure symbolizes how significant sanction relief is for the Iranian economy.

If oil exports resume, the Iranian government can earn a large amount of foreign currency in a short time.

Conversely, from the U.S. perspective, restricting oil exports is a powerful means to directly pressure the Iranian government's funding sources.

Therefore, oil is not just an energy commodity.

In negotiations between the U.S. and Iran, oil itself has become a diplomatic card.

The "Strait of Hormuz" as Iran's Greatest Negotiation Tool

Even more than oil, the world is focused on the Strait of Hormuz.

It is a crucial route for tankers heading from the Persian Gulf to the global market, significantly impacting the world's energy supply.

Iran currently treats its influence over this strait as an important strategic card for the country.

If the U.S. restricts Iran's oil exports through sanctions, Iran will use the Strait of Hormuz to pressure global oil distribution.

If this structure continues, the sanctions on the Iranian economy and global energy prices will become interconnected.

This is where it becomes difficult for the U.S.

If increased sanctions to squeeze the Iranian economy lead to heightened tensions over the Strait of Hormuz and rising crude oil prices, U.S. consumers themselves may pay the price in the form of higher fuel prices.

For Iran, the Strait of Hormuz can be seen as an "asymmetric card" to bridge the overwhelming economic power gap with the U.S.

Why the June 17 Provisional Agreement is Important

Understanding the current situation requires recognizing the provisional memorandum established on June 17.

This agreement temporarily eased sanctions on Iran, raising expectations for economic benefits such as the release of frozen assets and oil sales.

However, the agreement did not last long.

A major point of contention was the handling of the Strait of Hormuz.

For Iran, the management rights and influence over the strait are important weapons not only for security but also for diplomatic negotiations.

Therefore, it is not a card that can be easily relinquished in exchange for economic benefits.

It is noteworthy that President Pezeshkian is currently showing a positive stance toward reviving the provisional agreement.

This suggests that there may be a growing recognition within the Iranian government of the need for an "economic breather."

However, Tehran is not expressing full concessions to the U.S.

While continuing diplomatic negotiations, they maintain negotiation cards such as the Strait of Hormuz.

They are trying to advance both simultaneously.

Iran Wavers Between "Resistance" and "Economic Reality"

Iran's current stance appears contradictory at first glance.

On one hand, it claims not to succumb to U.S. pressure.

On the other hand, the government itself acknowledges serious issues like inflation, employment, and trade contraction, and seeks the revival of a provisional agreement that includes sanction relief.

However, these two are not necessarily contradictory.

Showing weakness externally could lead to further demands for concessions from the U.S.

Therefore, while maintaining a stance of "resistance," it is necessary to explore economic compromises behind the scenes.

In negotiations, it is also important not to let the opponent think you are cornered.

The current tough statements serve as political messages for domestic audiences and also have a tactical aspect in negotiations.

Debate on "Is the Iranian Economy at Its Limit?" on Social Media

The current economic situation has sparked active debate on English-speaking social media.

On Reddit, in particular, posts have emerged addressing the theme "Is the Iranian economy really on the brink of collapse?"

One perspective is that considering inflation, currency depreciation, and trade decline, the Iranian economy is in a very dangerous state.

Opinions such as "If such price increases continue, the pressure on the people's lives cannot be ignored" and "The combination of sanctions and a naval blockade is different from past sanctions" are observed.

On the other hand, there is also strong opposition.

A representative point is that

"The fact that economic sanctions make people's lives difficult and the government politically surrendering are separate issues."

This is the argument.

There have been countries that maintained their regimes despite severe economic sanctions in the past, and it is too simplistic to think that economic hardship alone will lead to regime collapse or military surrender.

Thus, even on social media,

while there is relatively consistent recognition regarding "whether the economic impact is significant,"

opinions are greatly divided on

"whether it will lead to political concessions."

This is where opinions are greatly divided.

Social Media's Divided Evaluation of the Strait of Hormuz

Opinions are also divided regarding the Strait of Hormuz.

Some argue that influence over the strait is Iran's greatest negotiation card, and as long as the U.S. cannot completely ignore it, Iran still has room for negotiation.

However, from other participants,

there are also points made that "as time passes, the world will establish alternative routes and supply networks, weakening the Strait of Hormuz's negotiating power."

This is a very important point.

Immediately after the start of the war, the inability to pass through the Strait of Hormuz itself would have a huge impact on the global energy market.

However, if the crisis continues for months or years, companies and governments will proceed with alternative routes, reserves, and crude oil procurement from other regions.

Thus, while Iran's card is powerful, it does not necessarily hold the same strength indefinitely.

On social media, discussions continue on whether this "time" is advantageous to Iran or the U.S.

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