The combination of long-standing American sanctions and the economic shock of the current military campaign has put Iran’s economy under extraordinary pressure. Oil exports, already reduced by sanctions, face further disruption. The banking system, already isolated from the international financial system, faces new stresses. And the broader economy, already struggling with inflation and unemployment, faces the additional burden of a war that is destroying infrastructure and cutting off communication. Yet President Donald Trump’s hoped-for economic collapse of the regime has not materialized.
The military campaign accompanying the economic pressure has been formidable. American B-2 stealth bombers have struck Iran’s buried missile infrastructure with dozens of 2,000-pound penetrating munitions. A large Iranian naval vessel has been hit and possibly destroyed. Israel has issued mass evacuation orders in Lebanon covering over one million people and struck Hezbollah positions across Beirut. The defense secretary has promised a dramatic surge in US firepower. The IDF chief has promised new phases.
Iran has retaliated against the economic dimension of the conflict as well as the military one. Its missiles and drones have specifically targeted oil pipelines and other energy infrastructure in Gulf states alongside US military bases. The strikes on Gulf energy infrastructure have pushed global oil prices higher, providing Iran with increased revenue on any oil it can export — a perverse economic effect of the campaign that has not gone unnoticed by analysts. Iran has also targeted civilian infrastructure in Bahrain, suggesting a willingness to impose economic costs on US allies.
The broader economic consequences of the conflict have been global. Oil prices have surged. Tens of thousands of flights have been cancelled. Global stock markets have been volatile. Commercial shipping costs in the Gulf have risen. Insurance costs for regional operations have increased across multiple industries. The longer the conflict continues, the deeper and more durable these effects will become, affecting economies far removed from the Middle East.
Trump’s theory that economic collapse will accelerate political collapse in Iran has not yet been validated by events. Iran has survived decades of severe economic pressure without its government breaking. The combination of military and economic pressure is more intense than anything it has previously endured. But the history of sanctions and bombing campaigns suggests that populations tend to blame their governments’ enemies for their suffering rather than their governments themselves, making economic pressure a blunt and often counterproductive political instrument.