War and sanctions compound economic pressure on Iran as trade plummets

Six months into a conflict that began with the assassination of Supreme Leader Ayatollah Ali Khamenei, Iran’s economy has buckled under the combined weight of American military operations and what the Trump administration calls “economic D-Day.”

On 29 August 2026, President Masoud Pezeshkian admitted that Iran’s foreign trade has dropped by up to 35%. He acknowledged the economic pain many Iranians are feeling, which has become hard to overlook.

The admission that changed the narrative

Pezeshkian’s appearance on state television marked a departure from the standard rhetoric that sanctions merely inconvenience Iran rather than cripple it. “We have had a decrease of between 25% and 35%. Our exports have decreased, but imports have decreased more,” the president stated, according to a translation of the Tasnim News transcript. The careful phrasing revealed a deeper problem: Iran cannot sell as much as it once did, but more critically, it cannot buy what it needs.

The president’s frustration became evident when he addressed those within Iran’s political establishment who continue to downplay the sanctions’ impact. “What do these statistics mean? Then some people say that sanctions have no effect at all! I really don’t know what to tell these people,” Pezeshkian stated. “I just want to say this, saying that sanctions have no effect is not consistent with these facts.”

The admission was an important moment for Tehran’s leaders. They have long claimed that American economic pressure is just a minor annoyance. However, the situation on the streets of Iran tells a different story.

Washington tightens the noose

On the same day that Pezeshkian spoke, the US took action to weaken Iran’s economy. The Treasury Department imposed penalties on Egypt’s Banque Misr for doing business with Tehran. They proposed a rule that would block the bank’s branches in the United Arab Emirates from using US dollars in transactions with other banks.

Egypt’s central bank quickly confirmed it was in contact with American officials, noting the measure was limited to Banque Misr UAE‘s dollar transactions with correspondent banks only.

The Treasury also issued sanctions targeting an entity based in Hong Kong and a person linked to Iran’s Bank Melli.

The US has warned countries to stop doing business with Iran or face secondary sanctions. However, the Treasury Department has not yet imposed penalties on major trade partners of Iran, like China and India, which could have repercussions for the US and global economies.

Economic hardship mounts domestically

The sanctions drive compounds the toll of the war on Iran’s economy, where annual inflation reached 66% last month. Reports from southeastern Iran indicated severe gasoline shortages, with several fuel stations in Chabahar closed and kilometre-long queues forming at the city’s main fuel station on 29 August. Local reports stated that the Hur’an, Fisheries, Free Zone and Tis stations had stopped supplying gasoline, leaving the main station as the only outlet serving residents.

Supreme Leader Ayatollah Mojtaba Khamenei, who has not been seen publicly since he was injured in the initial 28 February attack that killed his father, Supreme Leader Ayatollah Ali Khamenei, called on the government to tackle the economic hardship.

“There is the need to seriously address the chain of economic and livelihood challenges, such as inflation, unemployment, management of prices and the market for goods and services,” Mojtaba Khamenei stated in a written statement.

The Iranian government confirmed through state media that its main focus is to address economic challenges caused by sanctions and war.

This includes lowering inflation, managing markets, creating jobs, directing investment to domestic production, and reducing reliance on the dollar.

A brief window that closed too quickly

President Pezeshkian noted that Iran managed to sell approximately 90 million barrels of oil during the short-lived memorandum of understanding that the US and Iran signed in June, when Washington temporarily permitted Iranian oil sales.

The interim deal, signed on 17 June, offered a glimpse of what economic normalisation might look like before it quickly unravelled amid disagreements over implementation. Pezeshkian called on state television for a revival of the agreement, though Tehran signalled no retreat from its broader strategic positions.

It is worth noting that Iran’s 90 million barrels of oil exports were only a small part of what it used to sell before sanctions were tightened. This revenue helped the government temporarily, as it struggled to pay for basic services and keep the country stable.

After the agreement collapsed, Iran had trouble finding buyers willing to take the risk of facing American penalties. The number of these buyers has decreased significantly because the US has shown it will impose sanctions on major banks.

Defiance amid deterioration

The Iranian government is determined to resist pressure from the US, continue its diplomatic efforts, and keep control over the Strait of Hormuz. This strait is very important for Iran’s economy because it allows the country to potentially disrupt global oil supplies. About one-fifth of the world’s oil passes through this waterway every day.

Six months after the US and Israel launched military operations following the 28 February assassination, negotiations remain at an impasse. The Trump administration is still applying pressure, and Iran is not willing to make the concessions that the US wants.

The success of Washington’s strategy depends on three main factors – stronger sanctions, continued military actions, and how well the Iranian government can handle its economic challenges.