Iran's Economy on Brink of Collapse Amidst Regional Tensions and Elections

Iran's economy is facing a severe crisis, with rising energy prices and increasing attacks on tankers in the Strait of Hormuz exacerbating its financial woes. Despite the regime's outward show of strength, its economy is reportedly on the verge of collapse, struggling under strategic strangulation and the need for political survival. Analysts note that oil prices exceeding $110 per barrel reflect market concerns about renewed escalation with Iran, which understands that neither Jerusalem nor Washington is eager for another full-scale war.

The flow of oil through the strategic waterway has significantly decreased, dropping from approximately 17 million barrels per day in early October to about 9.1 million barrels per day recently, according to UBS data. This reduction contributes to the rising prices in the international energy market. However, Iran's own economic situation is dire. While the central bank governor denied impending collapse, energy information firm Kepler reported that due to U.S. sanctions, no Iranian oil remains outside the Strait of Hormuz, with the last tankers unloading in China. The International Monetary Fund projects Iran's economy to shrink by 7.6% by year's end, with Kepler forecasting oil and condensate revenues, typically $3-6 billion monthly, to reach zero by mid-December.

Iranian President Masoud Pezeshkian has acknowledged the internal situation and the "pressures from the country's enemies," warning that failure to control the situation could lead to the closure of many state institutions. Experts suggest that the regime's focus on projecting strength in the Persian Gulf masks a desperate attempt to navigate between strategic isolation and political survival. The increasing use of the Caspian Sea for cargo transport, due to attacks in the Strait of Hormuz and Bab al-Mandab, is seen as a strategic alternative, with the World Bank projecting a significant increase in cargo volume through the Caspian Sea by 2040.

Experts like Eila Rosenberg from the Jerusalem Center for Foreign Affairs and Security (JCFA) suggest that the fall of the Ayatollah regime, while anticipated, could occur unexpectedly and potentially worsen the situation. She points to a "deep disconnect between the leadership and the people," noting that while some within the regime acknowledge the economic consequences, it's unclear who is truly in charge. The IRGC's resource extraction is compared to the late Soviet Union, with an understanding that the system is collapsing but no clear plan for the aftermath. The current economic catastrophe, marked by soaring inflation (89.8% annually), a 250% increase in cooking oil prices, over 30% annual rent growth, and the Iranian rial losing two-thirds of its value against the dollar, raises fears of food and heating shortages this winter, potentially reigniting protests.

Conversely, some experts believe Tehran prefers to maintain instability in Israel and the U.S. rather than escalate tensions. Ben Sabeti from the Institute for National Security Studies (INSS) argues that Iran sees the political landscape, particularly upcoming elections in Israel and the U.S., as key. They reportedly favor a Democratic majority in the U.S. and wish to avoid actions that could justify attacks from Trump or Israel, which would further harm the regime. Therefore, Iran is expected to allow elections to proceed without interference, as Israeli electoral turmoil suits a regime focused on daily survival.