War deepens economic strain in Iran as US sanctions tighten

DUBAI/CAIRO: Iranian authorities have acknowledged mounting economic pressure from the war with the United States and a tightening sanctions regime, with Supreme Leader Ayatollah Ali Khamenei calling on the government to address growing hardships and President Masoud Pezeshkian saying foreign trade has fallen sharply.

Pezeshkian said foreign trade had declined by 35% as a result of US sanctions and what Iranian officials described as an economic blockade.

Despite the mounting pressure, Tehran showed no sign of backing down on Saturday, saying it would resist US measures while continuing diplomatic efforts.

Iran also reiterated its claim of control over the Strait of Hormuz, a strategically important shipping route through which a significant share of global energy supplies passes. The waterway gives Tehran considerable leverage over international energy markets.

The Iranian government said economic relief measures had become a key priority, including efforts to contain inflation, stabilise markets, generate employment and encourage investment in domestic production.

Officials also said Iran would work to reduce its reliance on the US dollar as part of a broader response to the sanctions and wartime economic pressures.

The latest developments come six months after the United States and Israel launched military action against Iran. Diplomatic efforts have since stalled, while US President Donald Trump’s administration has intensified its campaign to impose further financial costs on Tehran.

Washington has described the latest phase of its sanctions strategy as an “economic D-Day”, signalling a significant escalation in pressure on Iran’s economy.

Iranian officials are therefore facing the dual challenge of sustaining the country’s economy under increasingly restrictive sanctions while maintaining their broader political and diplomatic position in the conflict.

Sanctions compound toll on Iran’s economy

Washington has warned countries to cut business ties with Iran or face secondary sanctions, though the Treasury Department stopped short of imposing penalties against major Iranian trade partners such as China and India, which could have repercussions for the U.S. and global economies.

The Treasury imposed sanctions on Egypt’s Banque Misr for doing business with Tehran, proposing a rule that would cut off the bank’s branches in the United Arab Emirates from dollar transactions.

Egypt’s central bank said it and the foreign ministry were in contact with U.S. officials concerning the matter, adding the measure was limited to Banque Misr UAE’s U.S. dollar transactions with correspondent banks only.

Banque Misr said later in a statement it was reviewing the U.S. Treasury notice, adding that its branch in the UAE continued to provide banking services to its customers in line with applicable rules and procedures.

The U.S. also issued sanctions targeting an entity based in Hong Kong and a person linked to Iran’s Bank Melli, according to a notice on the Treasury website.

The sanctions drive compounds the toll of the war on Iran’s economy, where annual inflation hit 66% last month.

Supreme Leader Ayatollah Mojtaba Khamenei, who has not been seen publicly since he was injured in the initial February 28 attack that killed his father and former 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,” according to a written statement attributed to Khamenei.

President Masoud Pezeshkian told state media that Iranian exports and imports had slumped nearly 35% because of U.S. sanctions and a naval blockade of Iranian ports.

But he said Iran was able to sell about 90 million barrels of oil during the short-lived memorandum of understanding that the U.S. and Iran signed in June, when Washington permitted Iranian oil sales.

Iran vows to pursue diplomacy and defence

With the U.S. focused on its economic pressure campaign, others have sought to revive diplomatic efforts to end the war.

Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani met with Iranian leaders in Tehran on Thursday. He said he had stressed during the meeting the importance of returning to the pre-war status of open shipping through the Strait of Hormuz.

Iranian Foreign Minister Abbas Araqchi on Friday described the talks with Al Thani as “creative”.

In Saturday’s statement, Iran said diplomacy and defence were “two complementary, coordinated and inseparable wings” for protecting the country’s national interests, security and territorial integrity. It said it would pursue both tracks in a balanced manner.

Qatar, a U.S. ally and Gulf neighbour to Iran, and Pakistan helped broker the June memorandum of understanding that led to a brief ceasefire before disagreements over the vital strait caused it to unravel. Before the war, the waterway carried 20% of the world’s oil and LNG.

U.S. military commanders say American forces have cleared sea mines from the strait that had been laid months ago by Iran’s Islamic Revolutionary Guard Corps.

Trump has repeatedly said the Strait of Hormuz is open, but the Revolutionary Guards’ navy said in a statement that such claims “are an obvious lie”, reiterating that the waterway remained closed to ships without Iranian permission.

Only seven commodity vessels transited the strait on Thursday, down from 17 a day earlier and below the 10-day average of 15, preliminary shipping data showed on Friday.