Iran Economy Faces Fresh Pressure As US Conflict Disrupts Trade Beyond Strait Of Hormuz

Iran’s economy is expected to face increasing pressure as the conflict with the United States continues to disrupt critical maritime routes, restrict oil exports and compound existing domestic economic problems. Although mediated talks between Tehran and Washington have resumed and military operations have temporarily paused, uncertainty persists as the risk of further disruptions across international waterways remains high.

According to Al Jazeera, the near-total closure of the Strait of Hormuz, continued disruptions in the Red Sea linked to Iran-aligned Houthis in Yemen and a Ukrainian strike on an Iranian-linked vessel in the Caspian Sea have broadened the conflict’s economic implications, raising concerns over Iran’s trade, energy exports and regional shipping routes.

The Iranian government is simultaneously grappling with difficult domestic decisions, including a possible fuel price increase, while the US military enforces a naval blockade of Iran’s southern ports for a second time amid growing economic and social discontent.

Iran’s Ministry of Petroleum said on Saturday that the country had sold $11.5bn worth of crude oil during the war, without specifying the exact period. It added that $6.5bn was earned during the now-suspended memorandum of understanding (MoU) signed with the US last month, with the combined total accounting for 60 percent of the oil revenue target set in this year’s budget.

The June 17 MoU resulted in the partial reopening of the Strait of Hormuz and the lifting of the US naval blockade on Iran, easing pressure on global oil markets and allowing Tehran to export crude stored on supertankers waiting in its territorial waters. The Petroleum Ministry said higher oil prices generated about $3bn in additional value during the first half of the year, while $11bn from the proceeds had already been transferred to government coffers despite US sanctions.

However, a prolonged second blockade threatens to cut export revenues once again. During the previous blockade, imposed on April 13 and lasting a little over two months, Iranian authorities said crude oil exports had fallen to near zero.

About 90 percent of Iran’s crude exports pass through Kharg Island, and prolonged restrictions could place additional pressure on the island and other storage and export facilities. Any disruption could also affect petrochemical production and make restarting operations slower and more expensive.

The US military’s Central Command (CENTCOM) said that by Saturday it had redirected 12 commercial vessels attempting to breach the blockade, which has been in place since mid-July. It said two vessels that failed to comply were disabled, while another two were boarded to “ensure total compliance”.

CENTCOM also released footage showing heavily armed troops descending from a helicopter onto the deck of the Charminar, an Iran-linked oil tanker sanctioned by the US last year over its alleged links to the Shamkhani network. Washington says Iranian oil magnate Mohammad Hossein Shamkhani plays a central role in Iranian and Russian shadow fleet operations.

Iran has said it continues redirecting several vessels each day to keep the Strait of Hormuz closed, with its armed forces insisting they will not yield to pressure. Iranian media reported on Sunday that a vessel exploded after striking a naval mine in the strait.

Even as tensions remain high, US forces have halted extensive bombing operations against Iran for two consecutive nights. US Ambassador to the United Nations Mike Waltz said President Donald Trump was giving talks with Tehran “some space”.

Iran has also suspended retaliatory attacks across the region. Al Jazeera reported that Foreign Ministry spokesman Esmaeil Baghaei said discussions with Oman on reopening the Strait of Hormuz had been productive.

Domestic economic pressures

Beyond the disruption to oil exports, Iran continues to face long-standing economic problems stemming from structural weaknesses, domestic mismanagement and years of international sanctions.

Infrastructure has also sustained significant damage during the war launched by the US and Israel in late February, with officials warning that conditions could deteriorate further if the conflict escalates.

The government said last month that US and Israeli strikes had cut around 230 million cubic metres per day from Iran’s pre-war natural gas production of roughly 650 million cubic metres per day, worsening electricity shortages and disrupting petrochemical production.

Sekhavat Asadi, managing director of the Pars Special Economic Energy Zone, said on Sunday that Iran expects to restore more than 100 million cubic metres per day of the lost production capacity in the coming months.

Iran is also managing a petrol deficit of more than 20 million litres per day. Authorities have addressed the shortfall through limited but costly imports, blending fuel components, drawing on inventories accumulated before the war and repeatedly urging citizens to reduce consumption.

The Petroleum Ministry warned that tighter monthly fuel consumption limits could be introduced if the imbalance continues. The government also said this week it is seriously considering doubling the price of a third tier of monthly petrol quotas allocated to individuals.

The prospect of another fuel price increase has renewed concerns because previous hikes triggered widespread unrest. Another increase introduced in December was followed weeks later by nationwide protests, during which thousands of people were killed in a government crackdown in January. An overnight petrol price rise in November 2019 also sparked deadly protests across the country.

Rolling electricity cuts continue across Tehran and other cities, disrupting water supplies and communications. President Masoud Pezeshkian said he had ordered that industries should not face electricity cuts until late September in an effort to avoid placing further strain on employment.

The closure of the Strait of Hormuz has also affected trade with China, Iran’s largest trading partner and biggest buyer of its oil, with Beijing significantly reducing crude imports in response to conditions created by the conflict.

According to Al Jazeera, non-oil trade between Iran and China also deteriorated sharply, falling by 75 percent between March and June compared with the same period a year earlier, according to Chinese customs data.

Two near-total internet shutdowns imposed by Iranian authorities — first during the January protests and later during the war — further weakened economic activity as the country continued to battle chronic inflation and declining purchasing power.

A report published last year by the Saba Pension Strategies Institute, a think tank affiliated with Iran’s state-run pension fund, found that just over 30 percent of Iranians lived below the poverty line five years ago. It projected that the figure would reach 45 percent this year and continue rising.

Disruptions spread to Bab al-Mandeb and Caspian Sea

After repeatedly warning that an escalation could spread maritime disruptions beyond the Gulf, Iran last week saw its Houthi allies in Yemen declare a blockade against Saudi Arabia. The group turned back or attacked vessels transiting near the Bab al-Mandeb Strait while also targeting Saudi oil facilities.

Although dozens of commodity vessels, including Chinese supertankers, have continued using the route, rising war-risk premiums have increased insurance and import costs.

Saudi Arabia, which leads a coalition supporting Yemen’s internationally recognised government against the Houthis, has responded with major air strikes across Yemen.

Further north, Ukraine confirmed it had struck a vessel in the Caspian Sea, with President Volodymyr Zelenskyy alleging it was carrying Iran-linked military cargo.

Iranian authorities said the vessel was a commercial ship transporting iron from Astrakhan, a Russian port on the Volga River, to Bandar Anzali in northern Iran. They said one sailor was killed and three others were injured.

Iran’s Foreign Ministry summoned Kyiv’s chargé d’affaires in Tehran to lodge a formal protest and warned that “the act will not go unanswered”.

The incident has fuelled concerns that the Caspian Sea, long regarded as a relatively secure trade route, could also become another arena for military confrontation.

Iran’s Caspian trade is primarily conducted with Russia, Kazakhstan, Turkmenistan and Azerbaijan. Imports include wheat and other grains, corn, barley, animal feed, timber and fertiliser, while exports consist of construction materials, steel products, agricultural goods and some refined petrochemical products.

According to Al Jazeera, the widening disruption across multiple maritime routes has prompted hardline state-linked analysts to argue for stronger strategic partnerships with China and Russia.

“We can now say that the two war fronts in the Middle East and Ukraine are increasingly intertwined,” Mahdi Kharratiyan, a political analyst linked with Iran’s Islamic Revolutionary Guard Corps, wrote on X on Sunday.