Iran's Comprehensive Situation Analysis

The Economic Situation of Iran: A Comprehensive Analysis (2024-2025)

1. Executive Summary

The Iranian economy is currently facing a critical juncture, marked by a confluence of high inflation, subdued economic growth, and a persistent depreciation of its national currency.1 Projections from the International Monetary Fund (IMF) indicate a near-zero economic growth rate for 2025 2, a stark contrast to the ambitious development goals set by the Iranian government.2 This economic crisis is primarily driven by the enduring impact of international sanctions, coupled with deep-rooted internal challenges such as systemic corruption and economic mismanagement.1 While the service sector has demonstrated some resilience and the energy sector holds considerable potential, significant hurdles remain in the agricultural and manufacturing sectors.1 This report provides a detailed analysis of Iran's macroeconomic environment and key economic sectors, highlighting the major challenges and offering insights into the complex factors shaping the nation's economic trajectory. Ultimately, addressing these multifaceted issues will necessitate comprehensive reforms and strategic policy adjustments to navigate the current precarious economic landscape.1

1. Macroeconomic Environment

2.1 Analysis of Gross Domestic Product (GDP)
Historical data reveals a trend of mediocre economic growth in Iran, with a notable stagnation when viewed in United States dollar terms.1 While the Iranian economy experienced an approximate 4% expansion in Rial terms during the year ending in March 2024, its nominal value in US dollars showed no increase, and per capita GDP actually declined.1 This divergence underscores the significant impact of currency devaluation on the real economic standing of the nation in the global context.
The IMF's updated projections for 2025 indicate a near standstill in economic growth, forecasting a mere 0.3% expansion.2 This represents a substantial downward revision from the IMF's earlier estimate of 3.1% 2, a figure that was already below the average growth rate for the broader Middle East and North Africa (MENA) region.7 The sharp reduction in the growth outlook is largely attributed to the tightening of international sanctions and the continuation of voluntary oil production cuts under the OPEC+ agreement.2 The commencement of a new presidential term in the United States and the associated implications for economic policies, including tariffs, are also considered contributing factors to this revised forecast.2
This somber outlook from the IMF stands in stark contrast to the Iranian regime's own economic aspirations. The Research Center of Iran's Majlis (parliament) had projected a growth rate between 2.5% and 2.8% for the Persian year 1404 (starting March 21, 2025) based on the regime's draft budget.2 Furthermore, the Seventh Development Plan, spanning from March 2024 to March 2029, ambitiously targets an economic growth rate of around 8% per annum.2 The significant disparity between the IMF's assessment and the Iranian government's goals suggests a potential overestimation of the economy's capacity for growth by official sources, possibly influenced by political considerations or differing economic models.
Adding to the evidence of a weakening economy, a report from the Central Bank of Iran indicated a halving of economic growth.2 While the exact figures were not specified, the report aligns with the IMF's downward revision, suggesting an internal acknowledgment of deteriorating economic conditions. Further data from the Statistical Center of Iran revealed that economic growth in autumn 2024 had already slowed to 1.6%, the lowest level recorded since winter 2021.2 This figure, while still higher than the IMF's 0.3% projection for 2025, signifies a clear deceleration in economic activity.
Looking at the broader context, the World Bank had projected a 1.0 percent contraction in Iran's real GDP for 2024.9 This forecast of economic decline in the preceding year establishes a challenging foundation for the near-zero growth anticipated in 2025, indicating a sustained period of economic stagnation or contraction. The confluence of these projections from international and domestic sources paints a concerning picture for Iran's immediate economic future.
2.2 Inflation Dynamics
The IMF has projected a significant increase in Iran's inflation rate, forecasting it to reach 43.3 percent in 2025.2 This figure stands considerably higher than the 30 percent inflation rate projected in the Iranian national budget for the same year.2 The substantial difference of 13.3 percentage points between the IMF's projection and the national budget's estimate suggests a potential underestimation of the inflationary pressures by the Iranian government, possibly due to differing economic outlooks or methodologies.
Since 2018, Iran has experienced persistently high official annual inflation rates, consistently exceeding 30%.1 This sustained inflationary environment has severely eroded the purchasing power of the Iranian middle class, pushing a significant portion of the population into poverty.1 The prolonged nature of this high inflation, spanning over seven years, represents an unprecedented period in Iran's economic history 1, indicating a deep-rooted and challenging economic problem.
The inflation rate further escalated to 37.1 percent in March 2025.8 This increase coincided with the Iranian Rial reaching a record low value against the United States dollar 8, trading at 1,000,000 rials to the dollar. This depreciation of the national currency directly contributes to inflationary pressures by making imported goods more expensive, thereby increasing the overall cost of living for Iranian citizens and diminishing their purchasing power.
Even within Iran, there is a consensus that high inflation will persist. The Iranian Parliament's Research Center has projected that inflation will remain above 35% in the most optimistic scenario for 2025, while more pessimistic forecasts warn that it could surpass 50%.11 This wide range of projections underscores the uncertainty surrounding Iran's economic future and the potential for a significant worsening of the inflationary situation.
More recent data from the Statistical Center of Iran indicates that the average inflation rate for the twelve-month period ending on April 20, 2025, stood at 33.2 percent.12 While this figure is slightly lower than the inflation rate recorded in March, it remains significantly high. Furthermore, the Statistical Center reported a 0.7% increase in the headline inflation rate in April compared to March, and a 3.9% increase on a monthly basis 13, suggesting that inflationary pressures are still active.
Adding to the economic burden, food inflation in Iran reached 42.7 percent in April 2025.14 This high rate of food price increases disproportionately affects lower-income households, as food constitutes a larger share of their overall expenditure. The persistent rise in food costs can lead to increased food insecurity and exacerbate existing socio-economic inequalities.
2.3 Unemployment and Labor Market
The unemployment rate in Iran showed a decrease to 7.20 percent in the fourth quarter of 2024.15 This figure, reported by the Central Bank of Iran, represents the lowest unemployment rate recorded since 2001.15 While a decrease in unemployment is generally seen as a positive economic indicator, it is important to consider that this low rate might mask underlying issues such as underemployment, where individuals are working part-time or in jobs below their skill level, or the withdrawal of individuals from the labor force altogether due to a lack of suitable opportunities or discouraging economic conditions.
Despite the relatively low overall unemployment rate, the unemployment rate among university graduates presents a different picture. In winter 2025, the unemployment rate for individuals with higher education reached 10.7 percent.16 This higher rate among graduates, as reported by the Iranian regime's Statistical Center, suggests a potential mismatch between the skills and qualifications of university graduates and the demands of the Iranian job market. It also indicates that the economy may not be generating enough jobs that require higher education, potentially leading to frustration among the educated youth and hindering the country's long-term development.
Looking ahead, the IMF has projected that the unemployment rate in Iran will rise to 9.5 percent in 2025.5 This forecast suggests a potential deterioration in the labor market outlook, possibly linked to the projected near-zero economic growth for the same year. A stagnant or slow-growing economy typically results in reduced hiring by businesses and may even lead to job losses, contributing to an increase in the unemployment rate.
Furthermore, significant gender disparities exist within the Iranian labor market. The unemployment rate for females in 2024 was reported at 15.6 percent 17, substantially higher than the overall unemployment rate. This indicates that women in Iran face greater challenges in finding employment compared to men, potentially due to a combination of social, cultural, and economic factors that limit their participation in the workforce.
Adding another layer to the analysis, the World Bank has noted a low labor force participation rate in Iran despite the falling unemployment figures.18 This observation suggests that the decrease in the unemployment rate might not necessarily reflect an improvement in the overall health of the labor market. A low participation rate implies that a significant portion of the working-age population is not actively engaged in the labor force, which could be due to factors such as discouragement from seeking work, engagement in informal sectors not captured by official statistics, or other socio-economic reasons.
2.4 Currency Performance and Exchange Rate
The Iranian Rial has experienced a dramatic devaluation, losing 62% of its value in the twelve months leading up to January 2025.1 This sharp decline in the national currency's value reflects significant economic pressures and a lack of confidence in the Rial. The situation further worsened in March 2025, when the Rial reached a record low of 1,000,000 against the United States dollar.8 This unprecedented low underscores the severity of the economic challenges facing Iran, as a weaker currency fuels inflation by making imports more expensive and erodes the purchasing power of Iranian citizens.
The exchange rate of the Rial to the dollar reached its most unfavorable level during the Persian calendar year 1403, which spanned from March 2024 to March 2025.11 This sustained weakness of the national currency throughout the year indicates persistent underlying economic vulnerabilities and a continuous lack of confidence in the Rial's stability. The freefall of the Rial has not only contributed to soaring inflation but has also created significant instability in financial markets.
In the early part of 2024, the US dollar saw a rapid increase in value against the Rial, rising by 35% in less than two months and surpassing the 60,000 tomans mark.19 This sudden and substantial appreciation of the dollar highlights the extreme volatility present in Iran's foreign exchange market. Such volatility creates a challenging environment for businesses, hindering their ability to plan and manage costs effectively, and also erodes the value of savings held by individuals in the local currency.
Furthermore, expectations indicate that Iran's nominal GDP will likely drop below $400 billion in the Iranian year ending in March 2025.1 This projected decline reflects the continued weak economic performance of the country. The fact that the GDP is expected to fall below this significant threshold in US dollar terms underscores the combined impact of sluggish economic growth in Rial terms and the substantial depreciation of the Rial against the dollar. This trend has negative implications for Iran's standing in the global economy and further reduces its per capita income when measured in international currency.

1. Sectoral Analysis

3.1 Energy Sector
3.1.1 Oil
Iran holds the distinction of being the third-largest oil reserve holder in the world as of 2024.20 This vast wealth of petroleum resources, however, is accompanied by significant constraints on the sector's ability to fully realize its potential.20 These limitations are primarily imposed by international sanctions, which restrict foreign investment and access to advanced technologies crucial for maintaining and expanding production capacity.
Despite these challenges, Iran's crude oil production saw a slight increase in February 2025, reaching 3.308 million barrels per day (bpd), a rise of 34,000 bpd from the previous month.21 This modest growth indicates Iran's ongoing efforts to sustain or even slightly increase its output in the face of persistent U.S. pressure aimed at curbing its oil exports. The country appears to be finding ways to navigate the sanctions regime, likely through non-traditional channels and by focusing on markets with a continued demand for Iranian crude.
Looking at the broader trend, the average crude oil output for Iran in 2024 was 3.257 million bpd, an increase from the 2.884 million bpd produced in 2023.21 This upward trajectory over the past year suggests that Iran has been gradually increasing its production levels, possibly due to a combination of factors such as a recovery in global oil demand, particularly from Asia, and intensified efforts to circumvent the impact of sanctions.
In a move to further tighten the pressure on Iran's primary source of revenue, the United States imposed sanctions in March 2025 targeting Iran's Oil Minister and its "shadow fleet" of tankers.8 The stated aim of these sanctions is to reduce Iran's oil exports to zero, indicating a continued and aggressive U.S. policy aimed at deterring Iran's nuclear ambitions and regional activities. This action will likely present a significant hurdle for Iran in its efforts to maintain current export volumes and revenue streams.
A notable aspect of Iran's oil export strategy is its heavy reliance on China as its primary customer. Nearly all of Iran's crude oil and condensate exports, estimated at 1.6 million bpd, are directed to China.22 This concentration of its export market makes Iran particularly vulnerable to economic and political decisions made by Beijing. Moreover, it allows China to exert considerable influence on the terms and pricing of Iranian oil, potentially reducing Iran's profit margins.8
The long-term sustainability of Iran's oil production capacity is also a concern. A report from Iran's Ministry of Oil in December 2024 indicated that the sector requires an investment of $3 billion to recover the production capacity lost since 2018 due to sanctions and underinvestment.22 The report further warned that if current trends persist, Iran's crude oil production could decrease to 2.75 million bpd by 2028.22 This potential decline raises concerns about Iran's ability to meet its growing domestic energy demand while also sustaining its oil exports, which are crucial for generating foreign exchange revenue.
Despite the increase in export volumes, Iran's oil companies earned approximately $53 billion in net oil export revenues in 2023, a figure similar to the revenue generated in 2022.23 This suggests that while Iran managed to sell more oil in 2023, it likely did so at discounted prices, particularly to its main buyer, China.8 The fact that revenue remained flat despite increased volume underscores the limitations of Iran's ability to fully benefit from its oil exports under the current sanctions regime.
3.1.2 Natural Gas
Iran holds the world's second-largest proven reserves of natural gas.20 This vast resource, second only to Russia, represents a significant potential asset for Iran. However, similar to its oil sector, Iran faces challenges in fully realizing the economic benefits of its natural gas reserves.20 These challenges include high domestic consumption and insufficient investment, particularly foreign investment due to international sanctions.
Natural gas plays a critical role in Iran's domestic energy consumption, accounting for about 86 percent of the country's electricity generation as of 2023.25 This heavy reliance on natural gas for power production makes Iran's electricity sector particularly vulnerable to fluctuations in gas supply, especially during periods of peak demand in the summer and winter months.
The growth rate of Iran's natural gas production has seen a significant slowdown in recent years. From 2021 to 2024, the average annual growth rate has fallen to around 2%, a considerable decrease from the rates above 5% experienced in the decade prior to 2021.29 This decline in production growth could be attributed to a combination of factors, including underinvestment in maintaining and developing gas fields, technological limitations, and the impact of sanctions on accessing necessary equipment and expertise.
Looking to the near future, the International Energy Agency (IEA) forecasts that Iran's natural gas production will rise by just over 1% in 2025.29 This modest projected growth is unlikely to significantly alleviate the domestic gas shortages that Iran experiences, particularly during high-demand periods. The low growth rate suggests that the underlying issues affecting gas production are expected to persist in the short term, potentially leading to continued energy deficits.
In a paradoxical situation, despite possessing the world's second-largest natural gas reserves, Iran has found itself in a position where it needs to import natural gas, including supplies from Russia.28 This necessity to import gas underscores the inefficiencies and challenges within Iran's gas sector. High domestic consumption, driven in part by subsidized energy prices, coupled with limitations in production and infrastructure, contribute to this situation. Additionally, geopolitical agreements or constraints might also play a role in Iran's need for gas imports.
3.1.3 Renewable Energy
Iran possesses substantial untapped potential in the field of renewable energy, with estimates suggesting a capacity of 60,000 MW for solar power and 30,000 MW for wind power.31 This abundance of renewable resources presents a significant opportunity for Iran to diversify its energy mix and move towards a more sustainable energy future.
By the end of December 2024, Iran's installed renewable energy capacity had reached 1,520 MW.32 While this represents a notable increase, it is still a relatively small fraction of the country's overall potential. Solar power is the dominant renewable energy source in Iran, accounting for 781.86 MW or 60 percent of the total renewable capacity. Wind power contributes 376.3 MW (29 percent), followed by small hydroelectric plants with 104.04 MW (8.0 percent), biomass power plants with 22.13 MW (two percent), and expander turbine plants with 9.6 MW (one percent).32
The Iranian government has set ambitious targets for the expansion of renewable energy, aiming to generate 10 percent of the country's electricity from renewable sources by the end of 2025, and further increasing this share to 30 percent by 2030.33 Achieving these targets would require a significant acceleration in the deployment of renewable energy technologies and a substantial shift away from the country's heavy reliance on fossil fuels.
However, the development of renewable energy in Iran faces several challenges. These include deeply entrenched subsidies for fossil fuels, which make renewable energy less economically competitive; international sanctions that restrict Ira