NOURNEWS: The word “collapse” has entered political and media discourse about Iran’s economy more frequently over the past year than ever before. Amid escalating sanctions, 12-day and 40-day wars, threats of a naval blockade, pressure on oil exports, financial restrictions, and, most recently, the overt launch of a new U.S. economic war against Iran, some foreign media outlets—following President Donald Trump’s own assumptions—have spoken of the “imminent collapse of Iran’s economy.” The narrative was aimed at creating the impression that Iran’s economy had lost the ability to sustain itself and that only one more shock would be enough to bring it down.
In recent days, the U.S. president, along with the U.S. Treasury secretary, has repeatedly described Iran’s entire economy as being destroyed, crippled, or on the verge of collapse, making claims of 300 percent inflation, an inability to pay wages and salaries, shortages of essential goods, and other such scenarios. But the question is whether Iran’s economy, despite all its ups and downs and structural weaknesses, is actually on the verge of collapse. Are there reliable signs showing that the Iranian economy has reached—or is approaching—such a stage?
Economic Collapse: Near or Far?
Recent remarks by the governor of Iran’s Central Bank may offer an answer. Speaking at an Islamic banking conference on Tuesday, Abdolnaser Hemmati outlined some of the realities facing the country’s economy and presented a more measured picture of the situation. Rejecting claims of a “monetary deadlock and economic collapse,” he said $18 billion in foreign currency had been allocated for imports of essential goods and raw materials. He also said the Central Bank was prepared to supply up to $2 billion in foreign currency to the market, pointed to significant growth in bank lending, and said the pace of inflation had been brought under control. Despite all the difficulties, he stressed, Iran’s economy had not collapsed. There have also been reports of strong foreign-exchange reserves, which could provide the economy with sufficient resources for months.
But beyond this assessment by the head of the country’s monetary policymaking institution—which to some extent reflects the Iranian economy’s national resilience—the central question remains: What exactly constitutes an economic collapse, and based on scientific criteria, is Iran’s economy really at that point today?
The first step is to distinguish between an “economic crisis” and an “economic collapse.” Any economy can face inflation, recession, currency depreciation, or even a foreign-exchange crisis. Economic collapse, however, is a much deeper stage. In economic literature, collapse occurs when an economic system can no longer perform its basic functions: the banking and payment systems become severely dysfunctional, the government is unable to provide essential goods and services, trade and production largely grind to a halt, and the national currency loses its function as a medium of exchange. The experience of countries such as Venezuela shows that collapse is generally the result of several major crises occurring simultaneously: hyperinflation, the breakdown of the banking system, a collapse in production, widespread shortages, and the loss of public confidence in the national currency.
Measured against these criteria, Iran’s economy, despite all its problems, does not resemble a collapsed economy. The Iranian economy is sick, but it is still functioning.
The reality is that Iranians have been paying the price of a highly volatile economy for years. Persistent inflation has eroded household purchasing power; housing, medicine, food, and services have become more expensive at a faster pace than incomes, while a large segment of the middle class has shrunk. Chronic imbalances in energy, the budget, the banking system, and pension funds have also placed enormous pressure on the economy. Low investment, weak productivity growth, and uncertainty about the future are other undeniable realities of the Iranian economy.
Denying these problems is neither possible nor useful. Yet alongside these realities, there are also signs that are inconsistent with the concept of economic collapse.
The banking system and payment network remain operational and did not shut down even during the most difficult days of war and cyberattacks. Imports of essential goods, medicines, and raw materials have continued, with the Central Bank reporting that $18 billion in foreign currency has been allocated to these sectors since the beginning of the year. A significant portion of foreign trade, albeit with considerable costs and restrictions, continues to flow, while the government has retained the capacity to meet the economy’s basic needs. This is precisely the distinction between an economy in crisis and one that has actually collapsed.
Inflation or Hyperinflation? Collapse or Erosion?
One of the most important tests facing Iran’s economy in recent months has been the threat of hyperinflation. As external pressure intensified, many predicted that Iran would enter a phase in which prices would rise by tens of percent every month and the value of the national currency would rapidly evaporate.
That did not happen.
This does not mean that inflation has been brought under control or that people’s lives have become easier. Rather, it suggests that policymakers have managed, through a combination of monetary tools, foreign-exchange interventions, restrictions on bank balance-sheet growth, and precautionary policies, to largely prevent the uncontrolled inflationary surge that had been anticipated by foreign observers.
There is an important distinction between reducing inflation and slowing the pace of inflation. People continue to feel the rising cost of living, and the overall price level remains high. But at certain points, the rate at which prices have increased has been lower than the scenarios that had been forecast. While this distinction is not enough to ease the pressure on people’s livelihoods, it is significant from a macroeconomic perspective.
At the same time, the Central Bank governor’s comments about a 69 percent increase in bank lending and greater financing for the productive sector require closer scrutiny. If the increase in lending is driven by money creation and banks’ excessive borrowing from the central bank, it could fuel future inflation. But if financing is provided through mechanisms such as supply-chain finance, GAM bonds and factoring, its inflationary impact would be significantly lower. The Central Bank’s claim that non-inflationary financing for production chains will reach 700 trillion tomans by the end of the year, if realized, could represent one of the few policies capable of striking a balance between supporting production and containing inflation.
The danger, however, is that rejecting the narrative of collapse could lead to another narrative suggesting that Iran’s economy is in a desirable and stable condition. That, too, would be far from reality.
Perhaps the more accurate description of Iran’s economy today is “chronic erosion”: an economy that has not collapsed, but has been losing part of its capacity for years.
Economic erosion means a gradual decline in investment, the migration of capital and human resources, falling productivity, a shrinking middle class, declining confidence among economic actors, and rising costs of governing the country. This process is gradual, but if left unaddressed, it could prove far more costly in the long run than a temporary crisis.
From this perspective, it can be argued that the U.S. maximum-pressure campaign has not achieved all of its objectives. The primary goal of these pressures was not simply to reduce oil revenues; it was also to create economic instability and turn economic pressure into an internal crisis.
For various reasons—including the development of alternative trade routes, the capacity of the informal economy, and government intervention in the foreign-exchange and essential-goods markets—Iran’s economy has so far managed to prevent such a scenario from materializing.
That resilience, however, has not come without a cost. The Iranian people have paid for it through inflation, declining living standards, falling real incomes, and growing uncertainty about the future. This is concerning enough. But whatever it is, it is not, at least for now, an economic collapse.
Iran’s economy today is neither Venezuela nor a stable, developed economy. The reality is an economy that has withstood some of the most severe external pressures with relatively high resilience and has prevented its vital mechanisms from collapsing, while simultaneously being worn down by a combination of structural imbalances, inefficiencies, corruption, rent-seeking, and debilitating external pressure.
The greater danger for Iran is not the grandiose and politically charged term “collapse,” but the normalization of this very erosion—a situation in which crisis is no longer news, but simply becomes part of everyday life.
If the goal is to assess Iran’s economy realistically, both extremes must be rejected. Iran’s economy has not collapsed, but neither can the signs of its deep erosion be dismissed with optimism. The space between these two narratives is precisely where the future of Iran’s economy will be determined.
That is the exact opposite of the rhetoric and exaggerated portrayals put forward by Trump.
Nournews