Iran's economy was weak before the war, now it's worse

TEHRAN

Even before the war in sanctions-hit Iran, inflation was running at nearly 50 percent and anger over the economy had fuelled massive anti-government protests. After more than five weeks of conflict, problems have only mounted.

Beyond the daily fear of attacks, the most immediate effect of the war has been another upward spiral in the prices of everything from basic goods — food, drink, medicine or diapers — to lunches in trendy city cafes.

Amir, a 40-year-old Iranian from the Tehran suburbs, told AFP recently how the price of the brand of toast he usually buys had suddenly jumped from 700,000 rials to 1,000,000 (around $0.75).

A friend of his had to pay 180 million rials for a cancer treatment tablet that was around three million before the U.S. and Israeli attacks on the country began on Feb. 28.

"And they have to buy a tablet every 20 days," he explained.

Kaveh, an artist in the capital, explained how the popular cafe Dobar in downtown Tehran "increased prices by 25 percent on all items in a single day."

Even in the northwest of Iran, usually well-stocked with imports from neighboring Türkiye "some products cost three times their usual price," a 50-year-old woman told an AFP journalist.

In a sign of the galloping inflation, the central bank introduced a new ten-million rial banknote in the middle of March, the latest and largest denomination in circulation.

The month before that, it had unveiled a then-record five-million note, reflecting the sharp decline in the value of the currency which has plummeted since a first war with the US and Israel last June.

Economic hardship and devaluations of the rial were key factors behind the biggest anti-government protests in recent history at the start of the year, which began with strikes by traders in Tehran's famed bazaar.

Thousands of people were killed in the ensuing crackdown, according to rights groups.

While the recent price rises have put further strain on domestic budgets, many people have also found themselves out of work.

The war has led many businesses to close their doors, leaving employees in limbo and uncertain about whether they will receive their salaries.

Bazaars across the country have restricted their opening hours, while construction companies laid off workers en masse, many of them migrants from Afghanistan.

Anyone relying on the internet or running an e-commerce business has also struggled with more than five weeks of a communication blackout that has left only Iran's limited national network running.

"I'm honestly really scared about our future, especially economically," a 35-year-old woman who works in finance in central Isfahan told AFP last week. "Things are a disaster right now.

"Mass layoffs, widespread shutdowns... everything feels overwhelming."

Airstrikes on Iran's steel industry — which is vital for a whole range of industries — as well as petrochemical facilities, bridges and roads are also likely to have a long-term impact on the national economy.

Adnan Mazarei, a former senior official at the International Monetary Fund specialised in the Middle East, told AFP the banking sector post-war would also be a major area of concern.

"Prior to the outbreak of this war with Israel and the U.S. and Iran, the banking system was in a difficult situation, very vulnerable generally, with weak balance sheets," he told AFP.

He says the sector will take a further hit from the war, through consumers and businesses being unable to repay loans.

Limits were placed on cash machines during the war to prevent mass withdrawals, but cards and online banking services have generally functioned for most of the conflict.