Iranians are bracing for price hikes and layoffs as the US-Israeli war plunges the Islamic republic’s already troubled economy into a new crisis.
Annual inflation, which was above 40 percent before the war, rose to 50 percent on April 4, shortly before a fragile ceasefire took effect, the central bank said.
Consumers have continued to feel the pain in the weeks since the ceasefire took effect, during which the US has blocked the Strait of Hormuz in an effort to disrupt Iranian trade.
A 56-year-old housewife in Tehran said the price of a block of cheese rose to IR6.7 million ($5.09) this week, up from IR5.2 million a week earlier. “It feels like everything has become much more expensive than before the war,” she said.
Prices of other essentials, including rice, eggs and chicken, have also risen in shops in Tehran. According to several online car dealers, a new Peugeot 207, a popular car, has risen from around IR18 billion to IR25 billion since the start of the war.
Local media have reported that authorities are expected to approve a 40 percent increase in government-imposed cement prices.
Analysts expect the war to widen the gap between wage growth and inflation. Business consultant Siamak Ghassemi said in a social media post that “any wage increase of less than two times” would not offset the increased cost of living.
Ghassemi told Iranians not to keep their savings in rials. The currency, which had remained largely stable during the war, hit a low on Wednesday, trading at IR1.8 million per dollar, further fueling public panic over declining purchasing power.
Some companies are warning that they will have to lay off workers to survive. A small factory outside Tehran that relies on petrochemicals has laid off eight people, almost a third of its workforce.
Similarly, a clothing company owner in Tehran admitted that he could no longer afford government-mandated wage increases. Its turnover was around IR2 billion, while its costs in recent weeks amounted to IR5 billion. “This is not sustainable,” he said.
During the weeks of war, the US and Israel bombed civilian infrastructure including roads and gas, petrochemical and steel plants that employ tens of thousands of people, further depleting an economy weakened by years of sanctions, mismanagement and corruption.
While the ceasefire has halted the fighting, talks on an agreement to end the conflict have stalled, with Tehran insisting that Washington lift the strait blockade before negotiations can continue.
Iranian politicians and analysts believe that after decades of dealing with high inflation and sanctions, the Islamic republic will have a higher pain threshold than Washington and hope the US will eventually relax its demands.
But many Iranians fear that this situation, which locals describe as ‘no war, no peace’, will usher in a new phase of stagnation and inflation.
Even before the war, economic distress was a major source of unrest, leading to mass anti-regime protests in December and January that ended in a brutal crackdown that left thousands of people dead.
The government of Iranian President Masoud Pezeshkian has assured the public that its strategic food reserves are sufficient to survive the blockade and that supermarket shelves will remain stocked. The country also says land borders and northern port cities along the Caspian Sea are being used to circumvent the US blockade of the strait.
During the protests, Iran introduced food vouchers for almost all citizens to soften the impact of rising food prices, with each person receiving IR10 million (approximately $7) per month.
Although many workers have turned to Social Security benefits as economic pressures increase, these payments are portrayed in the media as insufficient to cover basic living costs.
Larger industries, such as gas, petrochemicals and steel, have avoided mass layoffs, but analysts have warned they are under significant pressure. The Iranian newspaper Etemaad estimated that steel production had fallen by 30 percent.
The country may also have to significantly reduce oil production if storage facilities fill up and the blockade succeeds in stifling exports, foreign analysts said.
Ali Khodaei, member of the Supreme Labor Council, a government body, told local media that efforts are being made to prevent further layoffs. Before the war, unemployment was 7.6 percent.
Iran’s Deputy Labor Minister announced on Wednesday that 191,000 workers, who lost their jobs due to the direct or indirect consequences of the war, have applied for unemployment benefits.
Despite the bleak outlook, Iranian government officials have vowed to resist what they characterize as “excessive demands” from the US, including that Tehran halt uranium enrichment for 20 years and reopen the Strait of Hormuz.
Iran insisted it would retain control of the strait and said it had the right to enrich uranium as a signatory of the nuclear non-proliferation treaty.
Fatemeh Mohajerani, the government spokesman, said on Tuesday that the country had prepared for disruptions before the conflict began, without giving details.
“We have continued to sell, import and export even under the pressure of the conflict,” said a steel industry entrepreneur, whose medium-sized company trades across land borders and has so far avoided laying off workers.
“We do not yet feel vulnerable, but we are concerned about the continuation of this uncertain situation.”
