Iran's digital economy battered by prolonged blackout

In a stark assessment delivered to the president in recent days, senior economic officials said the damage inflicted during the 40-day war with the United States and Israel—combined with Iran’s already fragile economic situation—could take up to 12 years to repair.

Several major airports were damaged during the conflict, while strikes also targeted oil facilities, refineries and petrochemical installations that are central to Iran’s export revenues and industrial supply chains.

Officials involved in the discussions warned that the destruction of production capacity could trigger a sharp surge in inflation in the coming months. According to the assessment presented to the president, inflation could reach as high as 180% if shortages of industrial inputs persist.

The same projections estimate that unemployment could rise by around two million people as factories, service providers and small businesses struggle to resume operations.

According to sources familiar with the discussions, central bank governor Abdolnaser Hemmati has been urging Pezeshkian to take urgent steps to stabilize the economy, including restoring full internet access and pursuing an agreement with the United States.

Tehran and Washington appear to be exploring the possibility of further talks following the one in Pakistan last weekend. Iranian economists have long argued that a diplomatic thaw and easing of sanctions could be the best path toward economic stabilization.

Iran has maintained a nationwide internet shutdown for weeks during the conflict, a move officials say was intended to counter cyber threats but which has also severely disrupted businesses that rely on global connectivity.

Iran’s digital economy accounts for roughly 5–6% of the country’s GDP, and the shutdown has cut off millions of entrepreneurs from customers, payment systems and online platforms.

Small businesses, freelancers and startup founders have been among the hardest hit. Many rely on services such as Instagram, messaging apps and foreign-hosted websites to reach clients.

Economists inside the government warn that prolonged restrictions could deepen the downturn and slow recovery even further.

The bleak economic projections have heightened concerns among members of Pezeshkian’s team, according to the sources.

Some officials fear that if the economic crisis worsens or the state faces financial collapse, powerful figures within the Islamic Revolutionary Guard Corps could seek to shift blame onto the president, they said.

Iran entered the war already under heavy economic strain from years of sanctions, high inflation and currency instability.

The blockade, targeting Iranian ports and imposing partial restrictions in the Strait of Hormuz, took effect at 10 a.m. Eastern Time.

Iran’s heavy reliance on southern shipping lanes leaves its economy exposed to maritime disruption, with more than 90% of its $109.7 billion annual trade passing through the Strait of Hormuz.

The blockade is expected to cut off nearly all of Iran’s seaborne trade, wiping out an estimated $435 million in daily economic activity and forcing oil field shutdowns within weeks.

A blockade would effectively zero out Iran’s export revenues within days and trigger cascading effects across its financial system.

Oil exports would be hit first

Crude oil shipments would be the first and most severe casualty. Iran has been exporting roughly 1.5 million barrels per day, generating about $139 million daily based on wartime pricing assumptions.

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  Iran keeps oil flowing to China as Hormuz pressure forces reserve release

Nearly all of that volume departs via Kharg Island, which handles over 90% of crude exports and lacks viable alternative routes outside the Persian Gulf.

A blockade would eliminate these flows almost immediately, cutting off the Islamic Republic’s primary source of foreign currency earnings.

Petrochemicals and non-oil trade

Petrochemical exports, valued at roughly $54 million per day based on recent trade data, would also be halted. Facilities at Assaluyeh, Imam Khomeini, and Shahid Rajaei ports all sit within the Persian Gulf and depend on uninterrupted maritime access.

Non-oil exports – including minerals and metals – would see similar disruption. Of approximately $88 million in daily shipments, around 90% would be blocked, removing another $79 million a day in revenue.

Ports play a central role in this vulnerability. Shahid Rajaei alone handles more than half of Iran’s cargo operations, while Imam Khomeini is a key entry point for basic goods imports.

Bushehr ports handled about 57 million tons of cargo last year, underscoring how deeply Iran’s trade is concentrated in southern waters.

Limited alternatives beyond the region

Efforts to develop alternative export routes appear insufficient to offset losses.

The Jask terminal, designed as a bypass to Hormuz, operates far below its intended capacity, with effective throughput estimated at around 70,000 barrels per day.

Chabahar port and Caspian Sea facilities handle only a fraction of the volumes moved through Persian Gulf ports.

Combined, these routes could replace less than 10% of current volumes.

Imports and inflation pressures intensify

On the import side, Iran brings in about $159 million in goods daily, including industrial inputs, machinery, and food.

Disruptions to these flows would likely accelerate inflation, which has already surged. Food prices have risen sharply, with staple items such as rice increasing up to sevenfold in recent months.

Any interruption to imports would deepen supply shortages and place further strain on household purchasing power.

Storage limits create shutdown risk

A critical constraint lies in Iran’s oil storage capacity.

Iran has approximately 50–55 million barrels of onshore oil storage capacity, about 60% of which is already filled. Spare capacity stands at around 20 million barrels.

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  Iran shields its oil exports as Hormuz flows falter

With surplus production of 1.5 million barrels per day that is normally exported, this capacity would be filled in about 13 days. After that, Iran would be forced to shut in oil wells.

This is highly significant because when mature oil wells are shut, water from below can intrude into the reservoir – a process known as “water coning.”

In this situation, some of the oil becomes permanently trapped within rock pores and can no longer be recovered. Iran’s oil fields are already declining at a rate of 5–8% per year.

Forced shutdowns could permanently eliminate 300,000 to 500,000 barrels per day of production capacity – equivalent to $9–15 billion in annual revenue lost forever.

Currency faces renewed pressure

The loss of export revenues would also affect Iran’s currency markets.

The rial has already weakened sharply, trading near 1.6 million per dollar in unofficial markets, with inflation running close to 50%.

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  Dollar-pegged pizza in Tehran points to a different kind of regime change

A halt in foreign exchange inflows would likely intensify depreciation, further limit access to cash, and could push the currency toward hyperinflation.

Banks have already imposed withdrawal limits, reflecting existing financial strain.

Economic pressure builds rapidly

Taken together, the figures suggest a blockade would impose roughly $13 billion in monthly economic damage, combining export losses and disrupted imports.

Iran’s economic structure, heavily dependent on the Persian Gulf transit routes and energy exports, makes continued resistance economically impossible under the US naval blockade.

The figures show how quickly pressure could build if shipping lanes are closed, with immediate fiscal impacts followed by longer-term damage to production capacity and financial stability.

Across Iran’s political spectrum—from senior officials to hardline lawmakers—the failure of the 21-hour negotiations has been framed not as the end of talks but as a moment to test leverage, particularly around the Strait of Hormuz and Washington’s newly announced naval blockade.

Speaker Mohammad-Bagher Ghalibaf, who was part of the Iranian delegation in Islamabad, placed responsibility for the breakdown squarely on Washington while leaving room for further engagement.

In a post on X, he wrote that distrust toward the United States stems from “the experiences of the previous two wars,” adding that Washington failed to convince Tehran while leaving open whether the Americans could “earn our trust.”

President Masoud Pezeshkian struck a softer tone, signaling conditional openness to diplomacy.

“If the American government abandons its totalitarianism and respects the rights of the Iranian nation, ways to reach an agreement will certainly be found,” he wrote on X.

All about Hormuz

The Strait of Hormuz—through which roughly a fifth of global oil flows—has rapidly emerged as both a bargaining chip and a symbolic red line in Tehran’s messaging.

President Donald Trump announced a US naval blockade aimed at preventing vessels from entering or leaving Iranian ports and intercepting ships that pay transit fees to Tehran.

US Central Command said the blockade would begin Monday and apply to vessels of all nations calling at Iranian ports.

Iran’s Islamic Revolutionary Guard Corps Navy warned that any escalation in the waterway could have severe consequences, cautioning that “any miscalculation will trap the enemy in deadly whirlpools in the strait.”

Hardline voices have increasingly framed control of the waterway as a source of revenue and national prestige.

“From now on… we will have a third source of income called the Strait of Hormuz,” lawmaker Amir-Hossein Sabeti said at a pro-government rally.

University professor and commentator Foad Izadi suggested in a post on X that future confrontation could transform the strait into Iran’s “most important source of income,” while hinting that alternative export routes could become targets.

‘Taboo broken’

Some Iranian analysts warn that the US blockade risks pushing both sides closer to military confrontation.

Political analyst Ruhollah Rahimpour described the move as “beating the drums of war,” arguing that Washington is effectively testing Iran’s economic lifeline.

“Iran’s economy is locked into the chokepoint of Hormuz, and now Trump has decided to test this lock with a hammer,” he said. “In such a situation, either the lock opens, or the whole door will be torn off.”

Reformist voices, however, emphasized the historic nature of the talks themselves.

Former lawmaker Mahmoud Sadeghi described the direct engagement as “a major taboo-breaking moment,” noting the significance of Iranian and American officials meeting at such a level after nearly half a century.

Journalist Ahmad Zeidabadi similarly argued that failure in Islamabad “does not mean a definite failure of diplomacy,” warning that a return to full-scale war would produce an “irreversible catastrophe for all parties.”

Former Vice President Mohammad-Ali Abtahi also struck a cautious tone, writing that “47 years of open hostility cannot be resolved in a few hours.

The issue has emerged as a major sticking point in the Islamabad talks, where disagreements over control of the waterway have contributed to a negotiating deadlock, according to media reports.

"The Strait of Hormuz is one of the issues under serious dispute," the IRGC-affiliated Tasnim News reported after the first round of talks in Pakistan, saying the negotiations were stalled by Washington’s “excessive demands.”

CNN also cited a Pakistani source as saying that a key dispute over control of the strait remains unresolved.

Iran's new supreme leader, Mojtaba Khamenei, in a written message on Thursday to mark the 40th day after his father's killing, briefly referred to plans for the strait.

"We will certainly usher the management of the Strait of Hormuz into a new phase," he wrote.

Iran has exercised de facto control over the passage since February 28, requiring vessels to coordinate directly with the Revolutionary Guards (IRGC). Commercial shipping has been rerouted through Iranian territorial waters, and transit fees have been imposed on the small number of vessels that are allowed to pass—reportedly averaging $2 million per tanker, payable in Chinese yuan or cryptocurrencies.

According to Bloomberg, shipowners must disclose cargo details, destination, and ownership through intermediaries linked to the IRGC. Iran then levies a “toll” of at least $1 per barrel, with higher rates depending on political considerations. Once approved, IRGC vessels escort ships through what has effectively become a controlled corridor.

A brief, Pakistani-mediated reopening on Wednesday highlighted the volatility of the situation. Tehran announced a two-week window for “safe passage,” albeit under strict coordination and “technical limitations.” Yet the opening proved short-lived. The IRGC halted tanker transit again, shortly after Israeli strikes in Lebanon.

The rapid reversal underscored how control over the strait remains central to both military calculations and diplomatic bargaining in Islamabad.

Hundreds of oil tankers are currently waiting inside the Persian Gulf. Since the announcement of the ceasefire and as of Thursday, fewer than a dozen ships have transited, according to tracking data from Kpler, Lloyd’s List Intelligence, and Signal Ocean—none of them standard commercial crude oil tankers.

In a statement, the IRGC warned that “any ship passing through the Strait of Hormuz without authorization would be targeted and destroyed.” The navy later cited “wartime conditions” and the possible presence of “anti-ship mines along the main transit route,” adding that alternative pathways had been designated.

US Central Command said on Saturday its forces have started setting conditions to clear sea mines in the Strait of Hormuz, with two Navy destroyers operating in the waterway as part of efforts to restore safe maritime transit.

Washington has tied de-escalation directly to maritime access. The US president said any pause in fighting depends on reopening the strait, framing it as essential to global stability.

Asked whether Iran could charge transit fees, Donald Trump told ABC News: “We’re thinking of doing it as a joint venture… It’s a way of securing it — also securing it from lots of other people.” He added: “It’s a beautiful thing.”

Strait as leverage

Iranian officials and media portray the strategy as a calculated use of geography. Nour News, an outlet close to security institutions, described the strait as “an unparalleled lever of power,” adding that Tehran had demonstrated “undeniable influence in international security and the global economy equations.”

The outlet emphasized that, regardless of negotiation outcomes, Iran has achieved “strategic success” by leveraging “native variables” to expand its influence.

Similarly, the conservative site Fararu called the strait “the point that changed the equation,” arguing that Tehran entered negotiations “not after defeat but from a position of resilience.”

Former diplomat Kourosh Ahmadi has suggested that restricting traffic could also serve as a deterrent against future attacks, arguing that “political guarantees are unreliable,” citing Ukraine’s post-1994 experience after relinquishing nuclear weapons.

Hossein Alaei, a former IRGC commander, has gone further, proposing a new legal framework for the strait. “Given that Iran’s control over the Strait of Hormuz was one of the most important factors in compelling Trump to agree to a ceasefire,” he wrote, Tehran should institutionalize a system in which it receives compensation for providing security—turning current practice into an internationally accepted norm.

Legal dispute

Iran’s actions have drawn scrutiny under the United Nations Convention on the Law of the Sea (UNCLOS), which guarantees transit passage through international straits. Critics argue that imposing tolls and restricting access violates these provisions.

However, some analysts contend that extraordinary circumstances justify extraordinary measures.

Ahmadi argues that external aggression allows Tehran to suspend normal legal regimes, including UNCLOS provisions and domestic maritime laws, framing current actions as defensive.

Lawmakers in Tehran are now reportedly drafting legislation to formalize Iran’s sovereignty claims over the strait and potentially institutionalize it as a regulated toll corridor.

The proposed law may be named after Alireza Tangsiri, the IRGC Navy commander recently killed in an Israeli attack—an indication of how military developments are shaping legal and political responses.

The ceasefire announced on April 7 has offered temporary relief to the United States and, by extension, the global economy. Oil prices have since fallen below $100 per barrel, the Strait of Hormuz may finally reopen, and global stock markets have rallied, recovering part of the losses recorded over the previous 40 days.

The coming days may prove crucial for stabilizing seasonal supply chains, particularly for fertilizer inputs transiting the strait during the peak planting period in the Northern Hemisphere.

Inside Iran, however, the outlook is far more complex.

The war effectively froze Iran's economic crises, shuttered markets, and halted price discovery. A similar pattern followed the 12-day conflict earlier in the war, when markets closed temporarily before reopening to renewed upward pressure as underlying imbalances reasserted themselves. This time, the damage is far greater.

During US-Israeli airstrikes on Iran’s strategic infrastructure, attacks on Mahshahr and Asaluyeh petrochemical facilities hit sites Iranian officials say account for 85% of the country’s petrochemical export capacity.

The steel industry was also hit. Since these sectors supply downstream industries from plastics to automotive manufacturing and construction, the full scale of disruption has yet to be assessed.

The Tehran Stock Exchange has been closed for more than 40 consecutive days.

The head of the Securities and Exchange Organization has indicated that war-damaged companies will return to trading at a later stage, meaning that even if the exchange reopens, a significant portion of major firms may remain inactive.

Reopening without viable export-oriented companies could trigger heavy selling pressure in a market where banks and automakers are already loss-making and reliant on state support.

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  Dollar-pegged pizza in Tehran points to a different kind of regime change

Inflation remains the most pressing crisis. Before the US-Israeli airstrikes, annual inflation had surpassed 70 percent — the highest since World War II. Food inflation reached triple digits, with bread and grains rising by 140 percent and cooking oil by more than 200 percent.

The war temporarily suppressed these pressures: demand fell amid unemployment, banking disruptions reduced the velocity of money, and property and automobile transactions slowed sharply.

With the Pakistani-brokered ceasefire, that suppressed demand is likely to return.

The fiscal picture offers no relief. The approved budget included a 65-percent rise in taxes, but roughly 60 percent of working-age individuals are currently unemployed.

In effect, the government is attempting to tax its way out of a fiscal crisis in an economy where the majority of working-age adults have no income to tax. Post-war military expenditures and reconstruction obligations have increased sharply, with no significant new revenue streams available.

Compounding this is the disruption of Iran's primary financial channel through Dubai, which for years served as a central hub for trade and currency transactions worth $16 billion to $28 billion annually.

Following recent attacks on Dubai, Emirati authorities reportedly detained dozens of currency dealers linked to Iran's Revolutionary Guard and shut down associated front companies.

Alternative channels in Herat and Erbil remain active but lack Dubai's scale. When suppressed demand for foreign currency returns, it will hit a narrower, less efficient set of channels, amplifying exchange rate volatility.

The ceasefire offered the world a reprieve. For Iran, it removed the only thing suppressing a crisis that had been building for months. When markets reopen, they will price in not only pre-war imbalances but the destruction of the export capacity that once generated foreign currency.

The rial will face a market that has every reason to reprice it sharply downward, and a state with fewer tools than ever to intervene. Iran's economy has not returned to its pre-war condition. It has moved past it.

Yet the ceasefire itself is fragile, reportedly violated several times within its first 48 hours. Even in the best-case diplomatic scenario, the technology and capital required for reconstruction will not materialize within weeks, and as long as the risk of renewed conflict remains, investors are unlikely to commit long-term capital.

What comes next at the negotiating table will shape whether any of it matters.