New details are emerging about the economic impact of the 12-day war between the Islamic Republic and Israel, highlighting how fragile Iran’s economy has become. Even before the June 2025 war, the Iranian economy was in a tough spot. In the first quarter of Iran’s fiscal year, which began on March 21, government revenues reached only 40 percent of planned levels, while foreign trade declined.
Although Israel’s strikes targeted military sites and spared major civilian infrastructure, the shockwaves hit Iran’s economy hard. Customs data show Iran’s non-oil exports in June dropped by 34 percent to just $3.4 billion. Meanwhile, Kpler shipping data reported a 16 percent fall in Iranian oil deliveries to China, down to 1.36 million barrels per day.
In the first quarter of Iran’s fiscal year, which began on March 21, government revenues reached only 40 percent of planned levels.
The war effectively shut down the country for nearly two weeks, while widespread internet restrictions imposed by Iranian authorities disrupted online businesses. This combination reduced both export revenues and tax income for the state. Because of these realities, Iranian state media have avoided publishing such figures. Tehran seeks to downplay its own losses while exaggerating the damage to Israel by pushing reports about the “crippling costs” of the war on Israel’s economy.
Official Iranian statistics and statements from Iranian agencies reveal a different picture. For example, on August 22, Tasnim News Agency—a media outlet affiliated with Iran’s Islamic Revolutionary Guard Corps—admitted that only 40 percent of the first-quarter government budget had materialized. Normally, Iran’s annual budgets fall short by around 30-35 percent because of U.S. sanctions and weak oil revenues but this spring, the shortfall reached a staggering 60 percent.
According to the International Monetary Fund, Iran’s economy was worth about $625 billion in 2012 before international sanctions took hold, nearly equal to Saudi Arabia’s gross domestic product at the time. This year, Iran’s gross domestic product is expected to shrink to $341 billion, while Saudi Arabia’s economy will be three times larger. Iran’s public debt also has surged, rising eighty-five-fold since 2012. By the end of this year, debt will equal about 40 percent of Iran’s gross domestic product, and the International Monetary Fund projects it will reach 45 percent of the economy by the end of the decade.
Chronic budget deficits and heavy domestic borrowing have fueled explosive money supply growth, driving inflation above 40 percent. Meanwhile, the Iranian rial has lost more than 98 percent of its value since 2012. For comparison: In 2012, one U.S. dollar was worth 16,000 rials. Today, it has soared to around one million rials.
In 2012, one U.S. dollar was worth 16,000 rials. Today, it has soared to around one million rials.
The currency crisis has deepened in recent days as European members of the 2015 nuclear deal move closer to activating the “snapback mechanism”—a clause that allows the automatic reinstatement of all United Nations sanctions on Iran if Tehran is judged to be violating its nuclear commitments.
The falling economic indicators do not leave room for the government to address multiple public service shortages the population faces, including lack of sufficient electricity and water. In Tehran, journalists reported on August 27 that the power cuts twice per day. These cuts also affect industrial production and all retail businesses, in a vicious cycle that adds to unemployment, a weaker currency, and more inflation.
Iran’s public diplomacy strategy might remain bluster and denial, but it is foolish for the Iranian leadership to believe that will be a winning strategy when the lights go out and the faucets run dry.
