Two months in, the costs of the war continue to mount — in lives, physical destruction, and countless secondary effects. It is reshaping the global economy and straining alliances. There is no clear path to an end.
Iran has absorbed the sharpest blow. A country that entered the war already in deep economic trouble now faces mass unemployment, galloping inflation, a continuing internet blackout, and intensifying repression.
Read more below.
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Quote of the Week
“We reaffirm our appreciation for the efforts of both OPEC and the OPEC+ alliance and wish them success.”
— UAE Energy Ministry, in its statement announcing its departure from the group
TOP OF THE NEWS
Two months of conflict have produced what the IMF calls a global economy “in the shadow of war.” Global growth has been downgraded to 3.1 percent for 2026, and that forecast assumes the conflict is short-lived. Even if the Strait of Hormuz reopened today, the IMF’s chief economist warned, “we would still be looking at an oil shortfall for the year.” The countries absorbing the worst of it are not in the developed world but the Global South: energy-importing, low-income economies with no fiscal buffer.
Gulf energy cooperation is fracturing. The UAE announced Tuesday it is leaving OPEC effective May 1, citing its national interest after weeks of Iranian strikes and the blockade’s stranglehold on its exports. The exit widens a long-running rift with Saudi Arabia, which leads OPEC and has repeatedly constrained UAE production through quota disputes the war has now forced into the open. Kazakhstan may follow the UAE out the door.
Iran’s Economy: The War Within the War
The Numbers. The IMF projects a 6.1 percent contraction in Iranian GDP for 2026, with inflation approaching 69 percent. The rial has fallen to approximately 1.32 million per U.S. dollar at the official rate, with the free-market rate now approaching 1.76 million, after already losing 60 percent of its value in the aftermath of last year’s twelve-day conflict. Iran has not published GDP data since 2024, and the internet blackout has rendered domestic statistics effectively inaccessible to outside analysts. The Iranian government’s own estimate puts direct and indirect war damages at $270 billion since the war started on Feb. 28. The conservative newspaper Ettelaat cited that figure this week in an article calling on the government to acknowledge that the war’s damage is beyond the capacity of existing financial institutions to repair: “It will take more than a decade for Iran’s economy, which lacks an investment base, to compensate for these losses.”
‘Help wanted’ signs. Photo: fararu.com
Jobs. The job market has collapsed. Three million workers have lost income or jobs. Iran’s deputy labor minister, Gholamhossein Mohammadi, confirmed this week that one million jobs have been lost directly, with a further two million workers affected through reduced hours, suspended contracts, or lost income. Reformist site Fararu reported the deputy minister’s figures on Saturday alongside warnings that a second wave of “delayed unemployment” still lies ahead, hitting well after the end of the conflict. Official unemployment insurance data shows 147,000 new applicants in the two months since Feb. 28, roughly three times the rate during the same period last year. On Sunday, the vice-president for women’s affairs confirmed that a third of all claims have been filed by women, a disproportionate share given women’s lower formal employment rate.
Fararu’s reporting from this week tells of a musician waking up to find his streaming income had vanished overnight because of the internet shutdown: “I was busy making music in cyberspace and working for various distribution companies. Since the internet shutdown, I have been unable to distribute my work or produce new work.” A data analyst describes his entire company shutting down. A school minibus driver told the site he has been unemployed since Feb. 9, adding that he and his twenty coworkers each support families, and instead of twenty people, now at least sixty people will have to survive with zero income from their respective breadwinners. Fararu describes a cycle in which the internet blackout disabled the digital economy that might otherwise have cushioned the blow, while the war simultaneously destroyed the physical one.
Separately, Donya-ye Eqtesad reported this month that the unemployment wave is now hitting Tehran’s rental market, with tenants unable to make rent asking for payment deferrals or drawing on deposits, and some considering selling their cars or moving back in with parents. Moreover, landlords in this time of crisis are increasingly choosing tenants based on the stability of their employment.
At the real estate office. Photo: fararu.com
The Tehran Chamber of Commerce has publicly urged private sector firms not to use the war as cover for mass layoffs, calling on employers to retain workers even at reduced hours rather than adding to the unemployment rolls. It is also asking the government for tax, insurance, and customs relief. At the Chamber’s second assembly of the year, the head of its trade committee said that “even after the war ends, resolving the damage will take time” and that the Chamber must “transparently and directly” convey the economic situation to decision-makers. A member of parliament’s budget and planning commission warned on Monday that the bigger threat after the war will be inflation, not unemployment: If the government does not change course, he said, “we will definitely face very high inflation.”
Iran entered the war with a budget already under severe pressure, which the war has made acute. Iran’s current (March 2026 to March 2027) budget was built on revenue projections the Majlis found implausible and rejected before the conflict began: The joint budget commission rejected the draft, citing “the bill’s inflationary impact, concerns about livelihoods and the reduction in people’s purchasing power, and serious concerns about the failure to realize public revenues.”
With crude exports now sharply down since the blockade, the revenue base has collapsed. Donya-ye Eqtesad reported that even the original 25 percent nominal salary increase for state employees implied a real-terms wage cut of more than 20 percent, and the war has pushed inflation well past those projections.
Largest-denomination banknote in Iran’s history. Photo: Financial Times
Prices and Payroll. Inflation is already severe. The annual rate reached 72 percent in March by official figures, with the rate for essentials far higher. The rial is at its lowest recorded value. The central bank issued a ten-million-rial note last month – the largest denomination in the country’s history – a month after the five-million-rial note entered circulation. Residents of Tehran report that some prices have risen by as much as 40 percent since Feb. 28 alone, on top of food inflation that had already reached 105 percent in the months before the war began. And the government may have trouble making payroll.
Then there’s the Strait of Hormuz. The vast majority of Iran’s annual trade passes through it. The U.S. naval blockade compounds Iran’s own strait closure and could cut 70 percent of Iran’s export revenues. Regional energy infrastructure damage has been estimated at $58 billion. Russia and China have shown little appetite for economic rescue. One Iranian analysis published Tuesday asked how long the Hormuz closure will serve Iran’s interests, noting that its costs are falling most heavily not on America and Europe but on the Global South. It suggests that this will eventually erode the international sympathy Tehran has cultivated.
MBN Iran Briefing Podcast
Expert conversations unpacking the latest developments in Iran and how they are reshaping security, energy markets, and geopolitics across the Middle East.
Oil and the Blockade. Meanwhile, Iran has had to reduce its oil output because it has limited capacity to store it. It now has only 12 to 22 days of unused storage capacity remaining and may have to cut production by another 1.5 million barrels per day by the middle of May. Iran has already curtailed as much as 2.5 million barrels of daily output, Goldman Sachs said last week. Crude exports have plunged roughly 70 percent since the blockade took hold, from 1.85 million barrels a day in March to roughly 567,000 barrels now. The financial impact on revenues will lag by three to four months: roughly two months for cargoes to reach Chinese ports from Kharg Island, and another two months for buyers to settle payments. But it is coming.
Iranian strikes on desalination plants and energy infrastructure on Gulf states have cost the region an estimated $25 billion in repairs, and Qatar faces up to five years to rebuild its Ras Laffan LNG complex. Gulf capitals are already eyeing post-war reconstruction. Saudi Arabia and the UAE are pressing ahead with investment pledges and infrastructure financing that analysts expect to shape regional trade corridors once the fighting stops. The same states whose desalination plants Iran targeted stand to become the primary financiers of whatever Iran needs to rebuild. The UAE was Iran’s second-largest trading partner (after China) before the war, at $28 billion annually.
The Regime’s Bet. The regime appears to be making a bet: That the U.S. cannot sustain the blockade until the end of the year, and that the U.S. economy cannot tolerate the pressure. Even if the war ends soon, the economic damage will linger for months on both sides. Three months ago the regime was on the brink of collapse over the economy; it now uses the war to justify conditions it could not otherwise defend.
The regime’s calculation may be that American political tolerance for $4-a-gallon gas will run out before Iranian social tolerance for unemployment and collapsing wages. But that’s a risky bet at best.
Unemployment in Iran through the eyes of fararu.com
ESSENTIAL READING
Iran’s Economic Realities Amid War – Alex Vatanka, Middle East Institute, April 2026. Argues that the war has intensified, but not fundamentally transformed, Iran’s economic problems. War damages of $270 billion mean recovery will take years.
What Are the Hidden Costs of the War with Iran? – Emily Harding, Caitlin Welsh, Mona Yacoubian & Will Todman, CSIS State of Play, March 2026. Four CSIS analysts examine the war’s ripple effects beyond energy markets: food insecurity, humanitarian displacement across at least fourteen affected countries, and economic security inside Iran and the wider Gulf.
Iran, the Global Economy, and the Case Against Complacency – James M. Lindsay, Council on Foreign Relations, April 2026. Written against the backdrop of the IMF/World Bank Spring Meetings, where the Iran war dominated debate, this CFR analysis argues that the economic fallout is being systematically underestimated.
Iran: What challenges face the country in 2026? House of Commons Library Research Briefing, January 2026. An assessment produced for British parliamentarians at the start of the year.
Iran can still normalize its economy — but the path will be painful and slow – Bart Piasecki, Atlantic Council Econographics, February 2026. Written just before the war. The author traces Iran’s chronic inflation to its exchange-rate regime, fiscal deficits, and isolation driven by sanctions.
Andres Ilves
Andres Ilves is Iran Editor and Senior Adviser at MBN. His career as a journalist and writer includes two decades at the BBC and Radio Free Europe.
