Iran’s economy on ‘life support’ after one month of war
Subsidies and oil revenues sustain stability as structural damage mounts.
At the end of the first month of fighting, Iran’s economy presents a complex picture, challenging early predictions of a rapid collapse, yet pointing in a clear direction. On the surface, Tehran benefits from market conditions that provide financial “breathing space.” But a closer look at both macro and micro indicators suggests this is tactical survival at the expense of long-term stability.
While continued dollar inflows from oil exports and control of the Strait of Hormuz provide immediate liquidity, the war is eroding the real engines of the economy, creating cumulative damage that oil revenues alone cannot offset.
One of the most striking developments in the past month has been Iran’s apparent use of the Strait of Hormuz as a direct revenue source. According to reports, Tehran has leveraged its control over the strategic shipping lane to charge fees of up to $2 million per vessel for what it describes as “safe passage.”
This has generated tens of millions of dollars in additional income, reflecting an attempt to convert military leverage into liquid financial assets. However, the move carries significant long-term risks: it reinforces Iran’s image as a destabilizing force in global trade, potentially deterring investment and encouraging countries to develop alternative routes that could reduce Iran’s strategic importance over time.
At the same time, Iran has benefited from elevated oil revenues. On the eve of the war, oil income stood at around $150 million per day, and recent data suggests that figure has been maintained or even slightly increased, despite discounted pricing. With exports estimated at approximately 1.8 million barrels per day in March and oil prices exceeding $100 per barrel, Tehran is enjoying a level of dollar liquidity not seen since 2018.
A key factor has been the resumption of oil purchases by India, following a years-long pause and enabled by a temporary 30-day U.S. waiver. Indian authorities reported no difficulties in processing transactions, underscoring the effectiveness of Iran’s workaround mechanisms. However, this liquidity is largely wartime-driven and is quickly absorbed into financing the war effort and sustaining essential civilian supplies.
Domestically, the government has adopted a strict emergency economic model aimed at preserving stability. During the first 31 days of fighting, authorities released approximately $220 million worth of medicines and medical equipment from customs to maintain healthcare supplies. Subsidized loans have also been extended to small and medium-sized businesses in an effort to prevent widespread closures.
Iran entered the conflict with some financial resilience. By the end of February, it had collected roughly $11 billion in taxes, over 86% of its annual target, while non-oil exports reached $51.6 billion last year. However, this model is now under strain. Disruptions to land and maritime trade routes are beginning to erode non-oil revenues, increasing dependence on oil income.
The scale of economic damage becomes clearer when compared to the “12-Day War” last June, during which an estimated 650,000 jobs were lost. The current conflict is significantly broader and more prolonged. Damage to key industrial infrastructure, including steel facilities in Isfahan and Khuzestan, is disrupting sectors that employ millions. In petrochemicals, one of Iran’s primary sources of foreign currency, the gap between production capacity and actual output is widening due to gas shortages and operational disruptions.
Taken together, these factors point to a growing risk of mass unemployment that could reach into the millions, placing severe pressure on the state budget and social stability.
Iran now faces a stark economic paradox. On one hand, it continues to generate substantial revenues from oil exports and control of strategic trade routes. On the other, it is sustaining its economy through what amounts to economic “life support,” subsidies, emergency imports, and strict state intervention.
Oil revenues and maritime fees may provide short-term relief, but they cannot compensate for the erosion of industrial capacity and human capital. The economic dimension of the conflict is becoming a war of attrition, one in which Iran is steadily losing its productive base. Even if it withstands the military campaign, it is likely to emerge with a weakened economy, damaged industry, and a significantly poorer population.
