War deepened Iran's economic decline

Iran's economy shrank by 10.1% year-on-year in the first quarter of the current Iranian year, which came amid a significant portion of the war with the US and Israel. The sharpest decline was recorded in the oil sector and industry.

According to the Statistical Center of Iran, this pertains to the period from March 21 to June 20, 2026. Excluding the oil sector, the country's GDP contracted by 4.6% compared to the same period last year.

The largest decline occurred in crude oil and natural gas extraction, at 26.4%. Industry and mining contracted by 14.7%, and the services sector by 4.8%.

The only major sector showing growth was agriculture, which expanded by 2.3%.

The Statistical Center did not directly attribute the GDP decline solely to the war. However, the reporting quarter almost entirely coincided with the first months of the conflict, which began at the end of February and significantly disrupted the oil industry, transportation, foreign trade, and part of industry.

The oil sector, one of the main sources of foreign currency revenue for Iran, remains particularly sensitive. The war, problems with shipping through the Strait of Hormuz, infrastructure damage, and tightening sanctions restricted the country's ability to export energy.

The International Monetary Fund in July forecast Iran's economy to contract by 5.4% for the full year 2026. At the same time, inflation, according to IMF estimates, could be around 68.9%.

The World Bank also points out that even before the current phase of the war, Iran's economy was under pressure from sanctions, energy supply disruptions, weak investments, and trade restrictions. The further situation, according to the bank, will largely depend on the duration of the hostilities, the scale of infrastructure damage, and Iran's ability to restore oil exports.

New quarterly data shows that the actual economic decline at the beginning of the year was significantly deeper than the forecast average annual decline, with the main contribution to the deterioration coming from the oil industry and manufacturing.

Based on materials from: Al-Araby Al-Jadeed, IMF, World Bank.