Why Iran’s economy is irreparable under the Islamic Republic – analysis

The devaluation of the rial has persisted throughout the entire history of the Islamic Republic, with or without sanctions.

By Dalga Khatinoglu, Middle East Forum

Iranians face deepening and severe financial crises, a reality that has fueled nationwide protests and to which the Islamic Republic’s security forces have responded with bloody repression, killing up to 20,000 civilians.

Against this backdrop, Supreme Leader Ali Khamenei stated on January 17, 2026, in remarks that reflect a misunderstanding of economic fundamentals, that “government officials must work with greater seriousness—twice as hard as before—in areas such as supplying essential goods, livestock feed, and the basic commodities the people need.”

His comments come as the government abolished subsidized cheap dollars for food imports and instead allocated only $7 per month in cash assistance for each citizen.

Meanwhile, the U.S. dollar is now trading at 1,450,000 rials—double its value compared with January 2025.

Khamenei did not explain how, even with cheap dollars provided to importers, food prices still doubled, nor how a monthly $7 allowance for roughly 70 million low-income Iranians out of a total population of 90 million could improve their living standards.

He also offered no guidance to the vast financial institutions under his own authority—entities that are tax-exempt and provide no public accounting—and instead directed his advice solely at the government.

Yet the government effectively has been bankrupt for years, running annual deficits of roughly one-third of its budget, which it covers through bank borrowing and unchecked money printing.

To better understand the scale of Khamenei’s shadow economy, consider the statements of two former senior officials:

Behzad Nabavi, a former minister in the 1980s and parliamentarian in the 2000s, has estimated that the economic and military foundations and companies under the Supreme Leader’s control account for 60 percent of Iran’s gross domestic product.

Mohsen Safaei-Farahani, a former deputy economy minister and member of parliament, has similarly estimated their share at 65 percent of gross domestic product.

Islamic Republic officials—especially Khamenei, who once called sanctions a “blessing” and a driver of national self-sufficiency—now blame sanctions for the country’s economic collapse.

However, Transparency International’s historical data show that even before the 2012 international sanctions, Iran already ranked among the world’s most corrupt countries on the Corruption Perceptions Index.

The devaluation of the rial has persisted throughout the entire history of the Islamic Republic, with or without sanctions.

A century ago, during the final years of the Qajar dynasty, one U.S. dollar was worth ten rials. Over the fifty-three-year rule of the Pahlavi dynasty, the rate rose only to seventy rials by 1979.

Today, after forty-seven years of Islamic Republic rule, the dollar is worth roughly 1.5 million rials.

The highest inflation rate recorded in the past century (excluding World Wars I and II) occurred in 1995 under technocratic President Ali Akbar Hashemi Rafsanjani, at a time when Iran was neither at war nor under sanctions.

During Rafsanjani’s presidency, the rial lost 80 percent of its value. Under the subsequent reformist government, it lost half of its remaining value.

Thus, across all factions of the Islamic Republic—reformist, technocratic, or hardline—the collapse of the currency and high inflation have been constant.

When Khamenei defines economic improvement merely as delivering livestock feed to farms and food to domestic markets while ignoring transparency, accountability, sustainable development, and democracy, it is unrealistic to expect resolution to the country’s economic crisis.

Even the argument that large oil revenues could rescue Iran’s economy does not hold. Central Bank data show that Iran’s oil export revenues rose sharply from 2003 and reached a historic peak of $115 billion in 2011.

Yet Transparency International data indicate that Iran’s corruption ranking simultaneously worsened from seventy-eighth to 168th in the world during that period.

Higher oil income in this system has led only to more corruption, not economic recovery.

For these reasons, Iranians have concluded that economic and livelihood improvements are impossible within the framework of the Islamic Republic.

The only viable path forward is a transition to a democratic and transparent system.