Battered by war, Iran’s rulers wary of more economic pain and unrest if US tightens pressure

DUBAI - Even as Iran projects resilience in the war with the United States, its leaders are worried that a threat of more economic punishment by Donald Trump could increase hardships, reignite unrest and further erode the Islamic Republic’s legitimacy.

The US president vowed on Aug 14 to hit Iran hard economically, a day after Treasury Secretary Scott Bessent said Washington would impose measures on Tehran that have "never been seen" as early as next week. Washington has not said what those measures will entail.

For all the bravado of Iran's leaders after holding out in nearly six months of conflict and effectively closing the Strait of Hormuz, a vital global oil supply route, they face mounting pressure at home that could result in nationwide unrest, according to three Iranian officials.

The officials, two political insiders, a former Iranian official and a dozen ordinary Iranians spoke to Reuters for this story on condition of anonymity, either for fear of retribution or because they are not authorised to speak to media.

Iran entered the war with high inflation, a weakening currency, energy shortages, sanctions and deep structural weaknesses, and must now contend with damaged infrastructure, disrupted trade, lost production and the cost of rebuilding.

Arshia, a civil engineer, spent a decade working in Iran’s construction industry before the war that began with the US and Israeli attacks on Feb 28 brought projects largely to a standstill.

He is now struggling to find work as projects are delayed or cancelled and costs soar, with little prospect of a rapid recovery.

“I’m worried. If Trump imposes more sanctions, how will ordinary people survive? I don’t want my country to be punished militarily or economically. We’re already struggling,” said the father of two from the central city of Isfahan.

A man uses an ATM in front of a bank in Tehran, Iran. The country entered the war with high inflation and a weakening currency, and must now contend with lost production and the cost of rebuilding. PHOTO: REUTERS

His plight reflects a broader reality across Iran, where US strikes damaged factories, power plants, transport networks and other critical infrastructure, adding to pressure on an already strained economy.

Mohsen, 53, was forced to shut his small import-export business with Gulf countries after Iran retaliated against US strikes by targeting American bases and assets in the region.

“I had to lay off 10 employees. It was painful, but I had no choice. I could no longer afford to pay their salaries, and now I’m relying on my savings to support my family,” he said from the southern port city of Bandar Abbas.

Inflation, uncertainty hit households

Iran’s annual inflation rate reached 66 per cent in July, while consumer prices were 87.9 per cent higher than a year earlier, according to Iran’s Statistical Centre. Food inflation hit 128 per cent year-on-year.

People walking on a street in Tehran, on Aug 3, 2026. Iran’s annual inflation rate reached 66 per cent in July, while consumer prices were 87.9 per cent higher than a year earlier. PHOTO: REUTERS

For Iran’s rulers, the greater threat may be not economic pain itself, but the risk that worsening hardship reignites mass unrest, said the two insiders and one official.

The appointment of Hossein Taeb last week, a key architect of past crackdowns, to lead Iran’s Basij militia is one of the clearest signs yet of growing concern over a resurgence of unrest, a former reformist official said.

The Basij, a paramilitary volunteer militia, is affiliated with Iran’s powerful Revolutionary Guards, which have both been used by the clerical rulers to quell protests.

Economic grievances have repeatedly spilled into nationwide protests in Iran in recent years.

In January, nationwide protests over economic hardships were crushed by the IRGC and the Basij force, with thousands killed.

In recent months, Iran’s clerical rulers have responded to fears of renewed unrest with executions, arrests, summonses and lengthy prison sentences targeting journalists, lawyers, activists, human rights advocates and students, rights groups say.

Officials say the measures are needed to maintain stability during wartime. Critics say they could deepen the divide between the clerical establishment and a public frustrated by rising economic pressures.

Salary ‘gone within days’

Families are cutting back on meat and other staples, opting for cheaper alternatives.

“I’m ashamed in front of my children. My salary is gone within days. Meat and chicken have disappeared from our table. I have no idea how we’re going to get by,” said Hossein, a government employee in the central city of Yazd.

Rents rose 31 per cent year-on-year in March, according to the Statistical Centre, while state media reported Tehran housing prices at roughly 50 per cent above 2025.

Iran’s minimum wage was raised by about 60 per cent in 2026, but continued rial depreciation has eroded purchasing power, with the dollar value of the minimum wage falling from about US$105 to US$86 (S$134-S$110) since late March.

Bijan, 40, earned about US$1,000 a month as an engineer when he entered the job market 15 years ago. He has since turned to online tutoring to make ends meet. Now, he and his wife struggle to make about US$400 a month and have left Tehran for a cheaper province.

“I used to work maybe five or six hours a day … Now, it’s all work or looking for work, or feeling anxious about not having enough work,” said Bijan.

For many Iranians, fear of renewed conflict has made planning for the future increasingly difficult.

US naval blockade ratchets up costs

Iran has sought to keep essential goods moving through alternative routes, including land corridors and the Caspian Sea, but those alternatives are also coming under strain.

Strikes on bridges have disrupted overland transport, increasing the cost and time needed to move goods into Iran.

President Masoud Pezeshkian last week acknowledged the squeeze, saying: “Our problems have multiplied several times over, while our income has also fallen.”

Goods that once arrived by ship now take longer routes into Iran, driving up prices, he said, adding that Iran is selling less oil and collecting less tax revenue from damaged or struggling businesses.

The blockade has also effectively cut off Iran’s petrol imports, lawmaker Reza Sepahvand told Iran’s ILNA news agency on Aug 15, adding that Iran’s daily petrol output had reached its limit at about 130 million litres, compared with consumption of 137 million litres. REUTERS