Amid international sanctions, the aftermath of Israel’s 12-day war in June, and internal problems, Iran’s economy is sinking into recession.

The World Bank projects that Iran’s GDP will contract by 1.7% in 2025 and by 2.8% in 2026. In April, the Bank had forecast that the economy would grow by 0.7% this year.

In contrast, the Bank expects the MENAAP region — the Middle East, North Africa, Afghanistan and Pakistan — to grow 2.8% in 2025.

Iran has been facing the challenge of relatively low global oil prices, in conjunction with the comprehensive sanctions levied by the US since 2018. While China remains Iran’s largest customer, Tehran has been offering discounts to maintain the exports.

At the end of September, the UN’s “snapback” sanctions took effect over Iran’s nuclear programme. The restrictions were imposed because of the Islamic Republic’s breaking of the terms of the 2015 agreement with the 5+1 Powers, raising uranium enrichment to 20% and then 60%, following the American withdrawal from the pact.

Iran has caused further discord by restricting inspections and the provision of information to the International Atomic Energy Agency. Tehran was censured by the IAEA Board of Governors just before Israel’s deadly assault in June.

That war not only crippled Iran’s nuclear facilities, with bombing by the US as well as Israel, but also caused substantial damage to infrastructure.

Already at a historic low, the Iranian currency sank because of the war. Rocked further by the snapback sanctions, the rial stands at 1,162,000:1 v. the US dollar.

In early 2018, before the US withdrawal from the nuclear agreement and comprehensive sanctions, the rial was 45,000:1 v. the dollar.

Trying to cover the scale of the depreciation, Iran’s Parliament has voted to remove 4 zeroes from the currency, bringing the rial to 116:1.

A further shock may be on the way with the loss of Iran’s last major European market for its gas.

Turkey may meet more than half of its gas needs by the end of 2028 by ramping up production and increasing US imports. The Trump Administration has urged Ankara to move away from Iran and Russia, with Donald Trump press Turkish President Recep Tayyip Erdoğan in a White House meeting on September 25.