Iran experienced one of its worst economic and energy crises in 2025. Negative economic growth coincided with 49 percent inflation, shortages and rationing of energy and water, a collapse in the value of the national currency, an unprecedented government budget deficit, extreme urban air pollution, and a twelve-day war with Israel that inflicted heavy damage on Iran’s nuclear program—along with the return of United Nations sanctions.
Even in the opening months of Iran’s fiscal year, beginning on March 21, the country faced a budget deficit of around 40 percent.
Since the establishment of the Islamic Republic in 1979, Iran never has faced such a long list of simultaneous crises—even during the 1980-88 Iran-Iraq war. During that war, average annual inflation stood at around 20 percent, and the rial depreciated by only about 15 percent per year. The country did not suffer from massive energy shortages; major cities did not experience today’s extreme air pollution—where mazut burning leaves them with only between three and seven clean-air days per year—and Iran was not under comprehensive international sanctions.
Data from Kpler show that Iran’s discharges at customer-country ports of crude oil, gas condensates, and petroleum products including fuel oil and kerosene have fallen from around 2 million barrels per day last year to about 1.5 million barrels per day in recent months. At the same time, global oil prices have dropped by 22 percent to around $62 per barrel. More importantly, Iran’s oil discounts to China have surged to as much as $11 per barrel, while sales to Beijing have declined from 1.55 million barrels per day to 1.25 million.
Even in the opening months of Iran’s fiscal year, beginning on March 21, the country faced a budget deficit of around 40 percent. It remains unclear how large the deficit will become until March 2026 given the decline in oil revenues in recent months. Iran last experienced a 50 percent budget deficit in 1987, at the height of the war with Iraq, during the “Tanker War” when Iraq repeatedly attacked oil facilities and tankers. During the Iran-Iraq war, however, the Islamic Republic at least enjoyed a degree of public legitimacy, and society still held hope for the future—conditions that no longer exist today.
The labor force participation rate has fallen to 41 percent, 19 percent less than regional rates, as many unemployed people have lost hope of finding jobs or adequate income and have exited the labor market. The monthly minimum wage, which at the start of this year stood at 135 million rials—about $180—has now fallen to roughly $100. This places Iranian workers, after Afghanistan and Yemen, at the very bottom of the regional wage scale.
The labor force participation rate has fallen to 41 percent ... as many unemployed people have lost hope of finding jobs.
According to the International Energy Agency, global surplus oil production peaked at 4 million barrels per day in November and likely will average 3.84 million barrels per day throughout next year. This surplus is likely to push oil prices even lower, toward the $55 range. Given the intensification of President Donald Trump’s “maximum pressure” policy and the reinstatement of U.N. sanctions, Iran’s oil exports will, at best, remain at current levels. As a result, the country’s budget deficit and overall economic conditions will deteriorate.
Food inflation exceeded 60 percent in November, with some staples—such as bread, rice, chicken, and eggs—rising by as much as 100 percent. A recent 66 percent increase in gasoline prices, along with the elimination of subsidized gasoline quotas for many vehicles, will fuel higher inflation. Recently, Hossein Abdeh Tabrizi, an economist and former secretary-general of the Tehran Stock Exchange, warned of a potential surge in inflation to as high as 3,000 percent.
In early December, four independent labor associations in Iran issued a joint statement noting the soaring inflation and severe deterioration of living conditions for wage earners. They stressed that maintaining a middle-class standard of living next year would require at least 600 million rials per month (about $550)—meaning the minimum wage would need to quadruple. This is impossible, and based on experience, wage increases are unlikely even to match half the inflation rate.
Iranians should expect their living conditions to deteriorate even further next year.
