Iran’s economy under pressure as war wipes out two million jobs

Iran’s already fragile economy is being driven toward breaking point by the ongoing war, with an estimated two million jobs lost since February and the International Monetary Fund (IMF) forecasting a 6.1% contraction this year and no recovery before 2027.

The internal figures were disclosed this week by Deputy Labour Minister Gholamhossein Mohammadi, underscoring the scale of the economic fallout, as highlighted in an article by The National.

Tehran has put total direct and indirect war damage at roughly $270 billion since fighting began on February 28. The IMF expects only a modest rebound of 3.2% in 2027, contingent on an end to hostilities.

Mohammad Farzanegan, a Middle East economics professor at Philipps-Universität Marburg, said the projected downturn is severe but not without precedent.

“Iran experienced comparable declines during the 2012 sanctions episode and again in 2018 following the reimposition of US sanctions after the Joint Comprehensive Plan of Action. These episodes suggest that the economy has some adaptive capacity, particularly through trade reorientation, diversification of partners and routes, and greater reliance on informal and semi-formal channels,” he told The National.

However, he stressed that the current crisis is more complex.

“In addition to sanctions, the economy is now facing war-related disruptions, damage to infrastructure, and constraints on digital connectivity.”

Years of sanctions had already weakened Iran’s economic foundations, meaning the war has intensified existing pressures rather than triggering an entirely new crisis.

Reconstruction burden looms large

Iran now faces the costly task of rebuilding damaged infrastructure, including airports, bridges and oil facilities—raising questions about whether it has the financial capacity to recover.

Alex Vatanka, a senior fellow at the Middle East Institute in Washington, said Tehran is likely to rely on internal adjustments and limited external partnerships rather than broad international assistance.

“The scale of damage is enormous and will take years to recover from.”

Energy sector under strain

The country’s vital oil sector has also taken a hit, with disruptions linked to the conflict and restrictions around the Strait of Hormuz affecting exports.

A report by Rystad Energy estimates that the wider Middle East conflict could generate up to $58 billion in repair costs for energy infrastructure, including as much as $50 billion tied to oil and gas facilities alone—more than double earlier projections.

Despite the damage, Vatanka noted that Iran’s experience operating under sanctions could aid a partial recovery.

“The [oil] sector has taken hits, but Iran has experience operating under constraints and using alternative channels, so partial recovery could be relatively quick, though full normalisation will take much longer.”

By Nazrin Sadigova