The Iranian economy was in a precarious state before U.S. President Donald Trump embarked on Operation Epic Fury. For more than eight years, Iran has faced “maximum pressure” sanctions that have stymied growth and stoked inflation. Iran’s now-deceased supreme leader, Ali Khamenei, long promised to defeat Western sanctions by creating a self-sufficient “resistance economy.” But Iranian economic policymakers instead took a decidedly laissez-faire approach.

Trusting the power of markets and influenced by business lobbies, Iranian economic policymakers refused to impose capital controls, curtail foreign trade, implement industrial policy, or direct state investment to soften the blow of sanctions. What resilience the Iranian economy demonstrated under sanctions was mainly the result of bottom-up forces as firms and households found ways to make ends meet. In short, although Iran faced an economic war, Iranian leaders did not implement the kind of centralized economic planning or rationalization characteristic of a war economy.

The Iranian economy was in a precarious state before U.S. President Donald Trump embarked on Operation Epic Fury. For more than eight years, Iran has faced “maximum pressure” sanctions that have stymied growth and stoked inflation. Iran’s now-deceased supreme leader, Ali Khamenei, long promised to defeat Western sanctions by creating a self-sufficient “resistance economy.” But Iranian economic policymakers instead took a decidedly laissez-faire approach.

Trusting the power of markets and influenced by business lobbies, Iranian economic policymakers refused to impose capital controls, curtail foreign trade, implement industrial policy, or direct state investment to soften the blow of sanctions. What resilience the Iranian economy demonstrated under sanctions was mainly the result of bottom-up forces as firms and households found ways to make ends meet. In short, although Iran faced an economic war, Iranian leaders did not implement the kind of centralized economic planning or rationalization characteristic of a war economy.

Today, Iran is facing a real war, and the Trump administration is considering the use of military force to cause Iran further economic hardship—for example, by enforcing a blockade of Iranian oil exports or by destroying the main oil export terminal at Kharg Island. As the war’s disruptions to the global economy multiply, the president is under significant pressure to hit Iran’s oil and gas infrastructure directly.

Last week, Trump ordered strikes on military targets on Kharg, making it clear that while he opted not to “wipe out the oil infrastructure on the island,” he will do so if Iran continues to interrupt maritime traffic through the Strait of Hormuz. President Trump reportedly authorized the Israeli strikes that hit a major natural gas processing facility linked to the South Pars Gas field Wednesday. Iran retaliated by striking Qatar’s Ras Laffan LGN plant, the world’s largest, causing extensive damage. Under pressure from Qatari authorities, Trump has announced that there will be “NO MORE ATTACKS MADE BY ISRAEL” on the South Pars facilities. But the fact that Trump has threatened the oil terminal on Kharg Island and authorized an attack on the South Pars complex indicates that the president is being presented options to widen the war to civilian targets—the temptation to hit Iran’s economy directly will only grow.

U.S. Sen. Lindsey Graham has opined that “seldom in warfare does an enemy provide you a single target like Kharg Island that could dramatically alter the outcome of the conflict.” Graham believes that if the oil terminal on Kharg is destroyed, Iran’s economy will be “annihilated.” Graham, like most American policymakers, has a poor understanding of the Iranian economy and the impact that the loss of oil revenue might have on the course of this war. While it is true that a blockade of Iranian oil exports or the destruction of key oil and gas infrastructure would make it impossible to maintain normal economic conditions in Iran, and while such an attack would hobble Iranian economic development for years to come, targeting Iranian oil exports will not shorten this war.

The closure of the Strait of Hormuz is already exacting a toll on the Iranian economy—data from Iran’s customs administration indicates that around 64 percent of Iran’s trade volume flows through the country’s Persian Gulf ports. Considering the disruptions, the challenge Iranian officials face is not the maintenance of normal levels of trade, but the adjustment of the country’s trade balance in line with the exigencies of a war economy.

While on paper, Iran continues to run a healthy trade surplus and maintains significant hard currency reserves, in practice the central bank has struggled to provide liquidity to Iran’s foreign exchange market. In three of the last four years, the Central Bank of Iran has allowed a sharp devaluation of the rial, seeking to stem pressure in the market and to convince exporters to sell their hard currency to importers at the new price. The last such devaluation, which occurred in December last year, triggered protests by disgruntled shopkeepers. These protests grew into the national mobilizations that rocked the country in January before being brutally repressed.

Not long after those protests, U.S. Treasury Secretary Scott Bessent took credit for the “free fall” in the rial exchange rate. It is understandable why the Trump administration believes it can keep tightening the screws by interrupting Iran’s oil exports using military force. Further reducing Iran’s export revenues would exacerbate the country’s artificial balance-of-payments crisis. But Trump administration officials are only considering one half of Iran’s trade balance. The devaluation of the rial and the attendant inflationary pressures are not only the result of pressure on export revenues. They are also the result of stubborn demand for imports.

Iran’s import bill has surged in recent years, hitting $72 billion in the Iranian calendar year ending March 2025, a 65 percent increase from 2017, the last full year during which Iran benefited from broad sanctions relief. Imports rose under sanctions for two reasons. First, the Iranian manufacturing sector has proved resilient, sustaining demand for intermediate goods, particularly as companies built up inventories to mitigate sanctions-related supply chain disruptions. Second, for many companies, imported goods offer a hedge against inflation. Industrial firms secured foreign exchange allocations from the central bank, enabling them to convert cash into inventories that preserve value on balance sheets. For Iran’s economic policymakers, this situation represented a kind of vicious cycle—the rational behavior of firms made it more difficult to defend the value of the rial.

As the war continues, the slowdown in the Iranian economy will reduce demand for imports, likely alleviating some pressure on Iran’s foreign exchange markets. Evidence for this can be seen in the most recent statistical report published by Iran’s industry ministry, which includes data from March through November 2025. During this period, Iran experienced the so-called 12-day war, which shook consumer and business sentiment. Industrial activity was also interrupted in the late summer as demand for electricity outpaced supply during a heat wave, causing rolling blackouts. Given these disruptions, imports declined 14 percent year-on-year. The fall in imports was driven primarily by a decline in imports of intermediate goods, such as materials and components, and capital goods, like machinery and equipment. While the value of imports of consumer goods declined 6 percent year-on-year, imports of intermediate goods declined 13 percent and imports of capital goods declined 25 percent.

The drop in imports is an important leading indicator: The Iranian economy is poised to contract and living standards will fall. But the overall contraction in economic activity and industrial output does not mean that Iran will face binding constraints that will change the course of the war. Iran will not become poor enough fast enough to cease posing a threat.

Looking to customs data for the first 10 months of the current Iranian calendar year, Iran’s non-oil exports averaged around $4.5 billion per month. Around 40 percent of this trade takes place through Iran’s Persian Gulf ports. The other 60 percent is processed overland, via Turkey, Iraq, and Afghanistan, or through Iran’s ports on the Caspian Sea. Even if all exports through the Persian Gulf ports are halted, Iran can conservatively sustain export revenues of around $2 billion per month through its other customs exits.

This level of revenues can furnish the foreign exchange needs of the war economy. Since the start of this Iranian calendar year, the country’s import bill has averaged just under $5 billion per month. But this total includes imports that could be reduced or eliminated as part of a war-related rationalization, which can be implemented through the tighter control of foreign exchange allocations or the imposition of import quotas.

If Iran aims to sustain normal levels of critical imports, which would include food and medicine and the intermediate goods on which the country’s industrial base depends, the total import bill would fall to just under $3 billion per month. This would leave a trade deficit, albeit a small one. Any such deficit is likely manageable over the short term, given that the back-of-the-envelope math does not include any redirection of non-oil exports from the Persian Gulf through other customs exits, nor any rationalization of industrial imports for the defense industry, nor drawdowns of accessible reserves, nor, as a last resort, monetization of the deficit.

In other words, even if the U.S. takes decisive action to eliminate Iran’s oil export capability, Iran can persist in this war. Strangling Iranian trade flows and exacerbating the trade deficit would add economic pressure, but to sustain a war of attrition Iran merely needs to keep a minimal level of economic activity, meeting the essential needs of the population while sustaining weapons production and core military capabilities.

To have a decisive impact on Iran’s ability to afford the war, the U.S. would need to target industrial facilities, such as Iran’s steel furnaces, and utilities infrastructure, such as power plants. But doing so will push the conflict into a new phase—as seen in the aftermath of the South Pars strike, Iran would respond by targeting similar infrastructure in the Gulf states and Israel. In this sense, targeting the physical structures of the Iranian economy would overcome the limitations of the efforts to interfere with trade, thereby accelerating the end of the war. But even if the duration of the war is curtailed, the damage borne by the global economy could be far greater.

In 2019, Trump gloated in an interview that Iran’s economy was “absolutely broken.” He warned that if Iranian officials failed to cut a deal, they would “live in a shattered economy for a long time to come.” Years later, Trump’s war may shatter the Iranian economy in ways that sanctions could not, but Iran can still make sure that the U.S. cuts itself on the shards.