Iran Economic Forecast

After a likely weak performance in the 2022 calendar year, Iran’s economy has seemingly softened since December. Oil output rose just 1% in annual terms in Q1, half the growth rate recorded in 2022, as U.S. sanctions crimped the energy sector. Moreover, exports to China—Iran’s key trading partner—tumbled 41% in the quarter, and crude prices are down so far this year, which will be weighing on government coffers. Economic activity is being further dampened by sky-high inflation, interest rate hikes, a weakening black-market currency, intensifying strike action and the recent imposition of further Western sanctions. A sliver of positive news has come from the normalization of relations with Saudi Arabia following a seven-year hiatus, although tangible economic benefits are not likely in the near term.

Inflation rose to 53.4% in February from 51.3% in January. Price pressures have been pushed up recently by the weak parallel-market rial, a large monetary expansion and the elimination of the subsidized exchange rate. Looking forward, our analysts see inflation averaging the second-highest in the region this year on currency weakness and elevated money supply growth.