February 20, 2025
Vali Kaleji
The Trump administration has reimposed its maximum pressure campaign on Iran, triggering a currency crash, soaring inflation, and worsening energy shortages, while Tehran scrambles to offset the impact by reducing dependence on oil exports (resistance economy) and strengthening economic ties with China and Russia.
Vali Kaleji
The Trump administration has reimposed its maximum pressure campaign on Iran, triggering a currency crash, soaring inflation, and worsening energy shortages, while Tehran scrambles to offset the impact by reducing dependence on oil exports (resistance economy) and strengthening economic ties with China and Russia.
On 4 February, US President Donald Trump signed a National Security Presidential Memorandum, effectively reinstating the “maximum pressure” policy of his previous term on Iran.
This executive order revives comprehensive sanctions following Trump's 2018 unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear talks, and tasks multiple US agencies, including the Department of the Treasury, State Department, Department of Commerce, Department of Justice, and the US Permanent Representative to the UN, with enforcing the policy.
A key aim is to reduce Iran's oil exports to zero, particularly to China, and to end certain exemptions, such as those for the Chabahar Port, which links Iran to the Oman Sea.
The aggressive reimplementation of maximum pressure has provoked a strong reaction from Iran's Supreme Leader Ali Khamenei. While he initially avoided confrontational rhetoric after Trump’s re-election, he took a firm stance in a public meeting with Iran’s Air Force commanders on 7 February.
Khamenei dismissed negotiations with the US as “neither rational, nor intelligent, nor honorable, and [Iran] should not engage in negotiations with it,” asserting that past experiences – referring to the JCPOA – had proven that engaging with Washington would not solve Iran’s problems. He also highlighted that “the United States is an exception in negotiations.”
Economic freefall: The fall of the rial and the rise of gold
Iran's economy reacted swiftly to these developments, particularly given the uncertainty surrounding future nuclear negotiations and sanctions relief. The foreign exchange market and gold prices experienced sharp volatility.
The Iranian rial plunged to a historic low of 850,000 rials ($1) on 6 February following Trump's executive order. Within days, the currency further weakened to 940,000 rials ($1) before slightly strengthening to 880,000 rials ($1).
Since the inauguration of President Masoud Pezeshkian on 28 July 2024, the rial has lost nearly 57 percent of its value, having stood at 590,000 rials ($7) at the time.
Parallel to currency devaluation, Iran's gold market has also experienced turmoil. The price of the Bahar Azadi gold coin skyrocketed to 740 million rials ($800), while gold per gram reached 60 million rials ($65) – an all-time high.
In response, the Central Bank of Iran announced plans to pre-sell one million Bahar Azadi gold coins to stabilize the market. However, the effectiveness of this move remains uncertain, as Iran’s gold and currency markets are heavily influenced by political and psychological factors, especially the status of nuclear talks and sanctions. Severe fluctuations in the currency and gold markets led the Iranian parliament to approve the impeachment of Iran's Minister of Economic Affairs and Finance, Abdolnaser Hemmati. He is scheduled to be impeached on March 2nd in a special session of the Iranian parliament, and if he cannot convince the opposition and critical representatives, he will be the first minister of the moderate government of Masoud Pezeshkian to step down from his cabinet.
Inflation and budget deficits
The economic strain extends beyond currency and gold markets, fueling high inflation. In recent years, Iran's annual inflation rate has fluctuated between 30 percent and 40 percent. The latest data from the Statistical Center of Iran (SCI) recorded an annual inflation rate of 32 percent for the 12-month period ending on 20 January 2025, reflecting a slight decline of 0.5 percent from the previous period.
However, the greatest burden falls on essential sectors such as housing, food, and medicine, where wages fail to keep pace with inflation. To mitigate economic hardship, the Iranian government has been issuing monthly cash subsidies since 2010.
In June 2023, the government established the National Credit Network, Iran’s food rationing and electric coupon program. In this regard, the government of Masoud Pezeshkian has decided to allocate electronic coupon [Electronic Kala Barg] to 30 million people in two stages in Ramadan and Nowruz (Iranian New Year in the middle of March). Iran's Supreme Leader, Ali Khamenei, also agreed to withdraw $1 billion from the National Development Fund (NDF) to finance the allocation of electronic vouchers.
According to official figures, 78.7 million Iranians out of a population exceeding 85 million receive 26.32 trillion tomans ($6.2 billion) in monthly subsidies.
A major consequence of ongoing sanctions is Iran’s deepening budget deficit. The Iranian parliament’s Research Center reported a budget shortfall of 19 trillion tomans ($2.2 billion) in the first four months of the Iranian year 1403 (April–July 2024), which is projected to reach 270 trillion tomans ($31.5 billion) by March 2025. The shortfall primarily stems from unrealized oil revenues (142 trillion tomans, equivalent to $16.5 billion)) and underperformance in state asset sales (53 trillion tomans, equivalent to $6.2 billion).
Energy crisis worsens
Another crisis exacerbated by sanctions is Iran’s growing energy imbalance, particularly in the gas and electricity sectors. Frequent gas pressure drops and power outages have forced industrial plants to switch to burning mazut, a low-quality, heavily polluting fuel.
Power shortages have led to factory shutdowns, with 22 of Iran’s 31 provinces experiencing blackouts last week alone. While domestic inefficiencies contribute to the crisis, sanctions have stifled foreign investment needed to modernize Iran’s energy infrastructure. As a result, Iran lags behind regional competitors like Qatar and Iraq in exploiting shared oil and gas fields. Of Iran’s 28 joint fields, only 15 are operational.
To overcome these challenges, Iran has decided to import gas from Turkmenistan and Russia, despite being one of the richest countries in the world in energy resources. Iran has the second-largest gas reserves behind Russia – 17 percent – and 9.54 percent of global oil reserves.
Fuel subsidies further strain Iran’s budget. Deputy Oil Minister Houshang Falahatiyan estimated in January 2024 that Iran spends $80–100 billion annually on energy subsidies. Gasoline and diesel are heavily subsidized, yet consumption levels continue to rise.
Presenting the outline of the country's budget to parliament on 22 October, President Pezeshkian warned that “if current consumption trends continue, Iran will need to import 130 trillion tomans (over $2 billion) worth of gasoline next year.”
Rising gasoline prices and reduced subsidies can also cause economic shocks and price increases. Memories of the 2019 protests, sparked by a 200 percent hike in fuel prices, make the government reluctant to cut subsidies. Adding to the challenge, the US may soon impose sanctions on gasoline exports to Iran, further tightening the supply.
Iran still ‘Looks to the east’
In response to mounting economic pressure, Iran is doubling down on its “Look to the East” and “Neighborhood Policy” strategies. Key measures include strengthening its “resistance economy” – reducing dependence on oil exports and insulating itself from global markets.
Iran has also signed a 25-year strategic agreement with China, a 20-year partnership with Russia, and secured membership in organizations like the Shanghai Cooperation Organization (SCO) and BRICS. Additionally, Iran is finalizing a free trade agreement with the Eurasian Economic Union (EAEU) and working to integrate its banking system with Russia’s to bypass US sanctions. These efforts aim to facilitate trade in local currencies and expand barter agreements.
Despite these countermeasures, Iran’s economic challenges under the renewed maximum pressure campaign appear more severe than during Trump’s first term. Inflation has surpassed 40 percent, and energy imbalances in gas, electricity, and fuel persist.
Unlike the previous sanctions regime, US exemptions such as those for Chabahar Port and Iran’s energy exports to Iraq have been revoked. Moreover, Trump’s proposal to impose a 100 percent tariff on BRICS member states could deter India, the UAE, Egypt, Saudi Arabia, and South Africa from supporting Iran’s de-dollarization efforts.
However, Tehran is betting on its upcoming free trade agreement with the EAEU, which will eliminate tariffs on approximately 5,000 goods, as well as the strategic International North South Transportation Corridor (INSTC) linking Eurasia and the Persian Gulf region.
If tensions between Iran and the US – or Israel – do not escalate into direct military confrontation, Tehran may once again withstand the pressure campaign, albeit at a high cost.
However, continued sanctions will hamper Iran’s long-term economic growth, infrastructure projects, foreign investment, and technological advancements, particularly in the oil and gas sectors. Tehran's ability to withstand these pressures will hinge on how well it deepens economic ties with China, Russia, and its neighbors while maneuvering through the challenges posed by US sanctions and shifting geopolitical realities.
This executive order revives comprehensive sanctions following Trump's 2018 unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear talks, and tasks multiple US agencies, including the Department of the Treasury, State Department, Department of Commerce, Department of Justice, and the US Permanent Representative to the UN, with enforcing the policy.
A key aim is to reduce Iran's oil exports to zero, particularly to China, and to end certain exemptions, such as those for the Chabahar Port, which links Iran to the Oman Sea.
The aggressive reimplementation of maximum pressure has provoked a strong reaction from Iran's Supreme Leader Ali Khamenei. While he initially avoided confrontational rhetoric after Trump’s re-election, he took a firm stance in a public meeting with Iran’s Air Force commanders on 7 February.
Khamenei dismissed negotiations with the US as “neither rational, nor intelligent, nor honorable, and [Iran] should not engage in negotiations with it,” asserting that past experiences – referring to the JCPOA – had proven that engaging with Washington would not solve Iran’s problems. He also highlighted that “the United States is an exception in negotiations.”
Economic freefall: The fall of the rial and the rise of gold
Iran's economy reacted swiftly to these developments, particularly given the uncertainty surrounding future nuclear negotiations and sanctions relief. The foreign exchange market and gold prices experienced sharp volatility.
The Iranian rial plunged to a historic low of 850,000 rials ($1) on 6 February following Trump's executive order. Within days, the currency further weakened to 940,000 rials ($1) before slightly strengthening to 880,000 rials ($1).
Since the inauguration of President Masoud Pezeshkian on 28 July 2024, the rial has lost nearly 57 percent of its value, having stood at 590,000 rials ($7) at the time.
Parallel to currency devaluation, Iran's gold market has also experienced turmoil. The price of the Bahar Azadi gold coin skyrocketed to 740 million rials ($800), while gold per gram reached 60 million rials ($65) – an all-time high.
In response, the Central Bank of Iran announced plans to pre-sell one million Bahar Azadi gold coins to stabilize the market. However, the effectiveness of this move remains uncertain, as Iran’s gold and currency markets are heavily influenced by political and psychological factors, especially the status of nuclear talks and sanctions. Severe fluctuations in the currency and gold markets led the Iranian parliament to approve the impeachment of Iran's Minister of Economic Affairs and Finance, Abdolnaser Hemmati. He is scheduled to be impeached on March 2nd in a special session of the Iranian parliament, and if he cannot convince the opposition and critical representatives, he will be the first minister of the moderate government of Masoud Pezeshkian to step down from his cabinet.
Inflation and budget deficits
The economic strain extends beyond currency and gold markets, fueling high inflation. In recent years, Iran's annual inflation rate has fluctuated between 30 percent and 40 percent. The latest data from the Statistical Center of Iran (SCI) recorded an annual inflation rate of 32 percent for the 12-month period ending on 20 January 2025, reflecting a slight decline of 0.5 percent from the previous period.
However, the greatest burden falls on essential sectors such as housing, food, and medicine, where wages fail to keep pace with inflation. To mitigate economic hardship, the Iranian government has been issuing monthly cash subsidies since 2010.
In June 2023, the government established the National Credit Network, Iran’s food rationing and electric coupon program. In this regard, the government of Masoud Pezeshkian has decided to allocate electronic coupon [Electronic Kala Barg] to 30 million people in two stages in Ramadan and Nowruz (Iranian New Year in the middle of March). Iran's Supreme Leader, Ali Khamenei, also agreed to withdraw $1 billion from the National Development Fund (NDF) to finance the allocation of electronic vouchers.
According to official figures, 78.7 million Iranians out of a population exceeding 85 million receive 26.32 trillion tomans ($6.2 billion) in monthly subsidies.
A major consequence of ongoing sanctions is Iran’s deepening budget deficit. The Iranian parliament’s Research Center reported a budget shortfall of 19 trillion tomans ($2.2 billion) in the first four months of the Iranian year 1403 (April–July 2024), which is projected to reach 270 trillion tomans ($31.5 billion) by March 2025. The shortfall primarily stems from unrealized oil revenues (142 trillion tomans, equivalent to $16.5 billion)) and underperformance in state asset sales (53 trillion tomans, equivalent to $6.2 billion).
Energy crisis worsens
Another crisis exacerbated by sanctions is Iran’s growing energy imbalance, particularly in the gas and electricity sectors. Frequent gas pressure drops and power outages have forced industrial plants to switch to burning mazut, a low-quality, heavily polluting fuel.
Power shortages have led to factory shutdowns, with 22 of Iran’s 31 provinces experiencing blackouts last week alone. While domestic inefficiencies contribute to the crisis, sanctions have stifled foreign investment needed to modernize Iran’s energy infrastructure. As a result, Iran lags behind regional competitors like Qatar and Iraq in exploiting shared oil and gas fields. Of Iran’s 28 joint fields, only 15 are operational.
To overcome these challenges, Iran has decided to import gas from Turkmenistan and Russia, despite being one of the richest countries in the world in energy resources. Iran has the second-largest gas reserves behind Russia – 17 percent – and 9.54 percent of global oil reserves.
Fuel subsidies further strain Iran’s budget. Deputy Oil Minister Houshang Falahatiyan estimated in January 2024 that Iran spends $80–100 billion annually on energy subsidies. Gasoline and diesel are heavily subsidized, yet consumption levels continue to rise.
Presenting the outline of the country's budget to parliament on 22 October, President Pezeshkian warned that “if current consumption trends continue, Iran will need to import 130 trillion tomans (over $2 billion) worth of gasoline next year.”
Rising gasoline prices and reduced subsidies can also cause economic shocks and price increases. Memories of the 2019 protests, sparked by a 200 percent hike in fuel prices, make the government reluctant to cut subsidies. Adding to the challenge, the US may soon impose sanctions on gasoline exports to Iran, further tightening the supply.
Iran still ‘Looks to the east’
In response to mounting economic pressure, Iran is doubling down on its “Look to the East” and “Neighborhood Policy” strategies. Key measures include strengthening its “resistance economy” – reducing dependence on oil exports and insulating itself from global markets.
Iran has also signed a 25-year strategic agreement with China, a 20-year partnership with Russia, and secured membership in organizations like the Shanghai Cooperation Organization (SCO) and BRICS. Additionally, Iran is finalizing a free trade agreement with the Eurasian Economic Union (EAEU) and working to integrate its banking system with Russia’s to bypass US sanctions. These efforts aim to facilitate trade in local currencies and expand barter agreements.
Despite these countermeasures, Iran’s economic challenges under the renewed maximum pressure campaign appear more severe than during Trump’s first term. Inflation has surpassed 40 percent, and energy imbalances in gas, electricity, and fuel persist.
Unlike the previous sanctions regime, US exemptions such as those for Chabahar Port and Iran’s energy exports to Iraq have been revoked. Moreover, Trump’s proposal to impose a 100 percent tariff on BRICS member states could deter India, the UAE, Egypt, Saudi Arabia, and South Africa from supporting Iran’s de-dollarization efforts.
However, Tehran is betting on its upcoming free trade agreement with the EAEU, which will eliminate tariffs on approximately 5,000 goods, as well as the strategic International North South Transportation Corridor (INSTC) linking Eurasia and the Persian Gulf region.
If tensions between Iran and the US – or Israel – do not escalate into direct military confrontation, Tehran may once again withstand the pressure campaign, albeit at a high cost.
However, continued sanctions will hamper Iran’s long-term economic growth, infrastructure projects, foreign investment, and technological advancements, particularly in the oil and gas sectors. Tehran's ability to withstand these pressures will hinge on how well it deepens economic ties with China, Russia, and its neighbors while maneuvering through the challenges posed by US sanctions and shifting geopolitical realities.
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