War weighs on Iran’s economy as US intensifies sanctions

DUBAI/CAIRO – Iranian leaders are acknowledging the economic toll of war with the US, with the supreme leader urging the government to address the hardship and the president saying foreign trade has shrunk by a third because of American sanctions and blockade.

Yet Tehran signalled no retreat on Aug 29, vowing to withstand US pressure, pursue diplomacy and maintain what it said was control over the Strait of Hormuz, the strategic waterway giving Iran leverage through its ability to disrupt global energy markets.

The government said in a statement on state media that addressing economic pressures caused by sanctions and war was a central focus, including curbing inflation, managing markets, creating jobs, directing investment towards domestic production and gradually cutting dependence on the dollar.

Six months after the US and Israel launched the war, negotiations are at an impasse, and US President Donald Trump’s administration has stepped up efforts to punish Iran financially with what it has billed as an “economic D-Day”.

Sanctions

Washington has warned countries to cut business ties with Iran or face secondary sanctions, though the Treasury Department stopped short of imposing penalties against major Iranian trade partners such as China and India, which could have repercussions for the US and other economies worldwide.

The Treasury imposed sanctions on Egypt’s Banque Misr for doing business with Tehran, proposing a rule that would cut off the bank’s branches in the United Arab Emirates from dollar transactions.

Egypt’s central bank said it and the Foreign Ministry were in contact with US officials concerning the matter, adding that the measure was limited to Banque Misr UAE’s US dollar transactions with correspondent banks.

The US issued sanctions targeting an entity based in Hong Kong and a person linked to Iran’s Bank Melli, according to a notice on the Treasury website.

The sanctions drive compounds the toll of the war on Iran’s economy, where annual inflation hit 66 per cent in July.

Supreme Leader Mojtaba Khamenei – who has not been seen publicly since he was injured in the initial Feb 28 attack that killed his father and former supreme leader Ali Khamenei – called on the government to tackle the economic hardship.

“There is the need to seriously address the chain of economic and livelihood challenges, such as inflation, unemployment, management of prices and the market for goods and services,” according to a written statement attributed to the younger Khamenei.

President Masoud Pezeshkian told state media that Iranian exports and imports had slumped nearly 35 per cent because of US sanctions and a naval blockade of Iranian ports.

But he said Iran was able to sell about 90 million barrels of oil during the short-lived memorandum of understanding (MOU) that the US and the Islamic republic signed in June, when Washington permitted Iranian oil sales.

Diplomacy and defence

With the US focused on its economic pressure campaign, others have sought to revive diplomatic efforts to end the war.

Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani met with Iranian leaders in Tehran on Aug 27. He said he had stressed during the meeting the importance of returning to the pre-war status of open shipping through the Strait of Hormuz.

Iranian Foreign Minister Abbas Araghchi on Aug 28 described the talks with Al Thani as “creative”.

In the Aug 29 statement, Iran said diplomacy and defence were “two complementary, coordinated and inseparable wings” for protecting the country’s national interests, security and territorial integrity. It said it would pursue both tracks in a balanced manner.

Qatar, a US ally and Iran’s Gulf neighbour, and Pakistan helped broker the June MOU that led to a brief ceasefire before disagreements over the vital strait caused it to unravel. Before the war, the waterway carried 20 per cent of the world’s oil and liquefied natural gas.

US military commanders say American forces have cleared sea mines from the strait that had been laid months ago by Iran’s Islamic Revolutionary Guard Corps.

Trump has repeatedly said the Strait of Hormuz is open, but the Revolutionary Guards’ navy said in a statement that such claims “are an obvious lie”, reiterating that the waterway remained closed to ships without Iranian permission.

Only seven commodity vessels transited the strait on Aug 27, down from 17 a day earlier and below the 10-day average of 15, preliminary shipping data showed on Aug 28. REUTERS