MUSCAT, Oman—The specter of U.S. army intervention helped carry Iran again to the negotiating desk. Its hobbled financial system is more likely to preserve it there.
Iran’s forex is among the many weakest on the earth. Inflation stays nicely above 30%. Younger individuals are struggling to search out work, and a pissed off center class can now not afford to purchase imported items.
These troubles look set to accentuate underneath a second Trump administration, which resumed its marketing campaign of “most strain” to pressure Iran to rein in its nuclear program and forestall it from creating a bomb. Already severely strained by sanctions and endemic corruption, political observers and analysts say an extra deterioration of Iran’s financial system might push its individuals to the brink.
“It is a nation that’s creaking underneath the strain of financial sanctions, sustained mismanagement and corruption,” mentioned Sanam Vakil, director of the Center East and North Africa program at Chatham Home, a assume tank in London. “Finally, what they search is sturdy sanctions aid, and so they imagine that Donald Trump might maybe ship that in a means that the Biden administration couldn’t.”
Officers from the U.S. and Iran convened within the Omani capital on Saturday for his or her highest-level talks in years, pledging to maintain a dialog going. Washington desires a brand new deal to curb Tehran’s uranium enrichment in change for lifting sanctions, after abandoning an earlier one throughout President Trump’s first time period.
Trump’s 2018 withdrawal from the Joint Complete Plan of Motion, agreed to by Iran and different nations in the course of the Obama administration in 2015, was adopted by a wave of crippling sanctions focusing on essential sectors similar to oil and finance. Since returning to the White Home, Trump has ratcheted up strain with extra sanctions in opposition to Chinese language terminal and ship operators that do enterprise with Tehran.
Mistrust is excessive on each side, however every has causes to need talks to succeed.
For Trump, a take care of Iran would burnish his peacemaker credentials, as his administration has made little progress towards ending the wars in Ukraine and Gaza as he promised. For Tehran, an easing of sanctions might reverse a yearslong downturn within the financial system that, if unaddressed, might threaten the authoritarian regime of Supreme Chief Ayatollah Ali Khamenei .
There are indicators that Tehran is apprehensive about unrest at a politically delicate time. The regime is quietly bracing for an eventual management change—Khamenei is 85 years previous and has a historical past of sickness. The attain of its army energy has diminished overseas. Israeli assaults have crippled Iran-backed militias within the Gaza Strip and Lebanon, whereas a revolution in Syria value Tehran a detailed ally. The election final yr of reformist President Masoud Pezeshkian signaled that Iran’s safety institution was open to a point of change.
“This was the Pezeshkian wager, and that of the individuals who allowed him to run and to win, that in the event that they don’t enable reform, the consequence shall be revolution,” mentioned Jon Alterman , director of the Center East program on the Heart for Strategic and Worldwide Research, a assume tank in Washington.
Alterman mentioned Iran’s financial troubles may very well be nearing a tipping level. “There’s a very seen class of Iranians who’re tied to the facility construction who drive costly sports activities vehicles, and so they’re billionaires,” he mentioned. “Many of the remainder of the nation is rising regularly extra impoverished, however they see that the youngsters of senior authorities officers dwell unthinkably luxurious lives.”
Economists say knowledge paints a worrying image, significantly for the agricultural poor and a shrinking center class. The price of meals, for instance, elevated 41% in March from the identical month final yr, based on the Central Financial institution of Iran. And whereas the financial system is increasing general, progress is slowing and is additional threatened by energy shortages.
Gregory Brew, a senior analyst for the Eurasia Group specializing in U.S.-Iran relations, mentioned sanctions imposed since 2018 didn’t trigger a sudden crash, however a sluggish strangling of financial exercise. Iranian customers accustomed to European items like cosmetics, garments and jewellery—issues that symbolized their ascendance to the center class—have needed to modify their tastes as commerce reoriented towards China and Russia.
In the meantime, many bizarre Iranians are discovering it tougher simply to get by. Mostafa Pakzad, an Iranian monetary adviser, mentioned that even residents of Tehran, who are usually extra prosperous than those that dwell exterior the capital, are struggling to deal with rising costs. Some have resorted to promoting free medication they get from the federal government to earn cash for necessities like rice and bread, he mentioned.
A 41-year-old man named Abbas, who lives within the central Iranian metropolis of Shiraz, informed The Wall Avenue Journal that he misplaced most of his financial savings when the nation’s inventory change crashed in 2023. A couple of yr later, he misplaced his job of 15 years as an accountant. What little he has left is quickly dropping worth because the forex continues its free fall and shopper costs rise.
“Cash is like ice, it melts very quick,” he mentioned.
“Inflation might be the No. 1 concern of the individuals proper now,” mentioned Djavad Salehi-Isfahani, a professor of economics at Virginia Tech who makes a speciality of Iran. “It’s very painful for individuals as a result of there’s a psychological ingredient of working onerous, getting a wage, after which going to a retailer simply to see it disappear,” he mentioned.
Regardless of the strain, he’s uncertain Tehran will decide to main change. Extra doubtless, he mentioned, the regime will give sufficient to maintain talks going and extract small financial concessions from the U.S. whereas regularly chipping away at its calls for.
“They’ve tolerated lots of hardship, and so they haven’t surrendered but,” he mentioned.
Write to Benoit Faucon at benoit.faucon@wsj.com and Feliz Solomon at feliz.solomon@wsj.com
