Iran War: Is Iran’s middle class being pushed into poverty?

In Iran, the ongoing war has increasingly affected the middle class, pushing them towards poverty, according to a housewife named Mina. She explained to DW that her family's financial situation has deteriorated daily since the conflict began last year. They have replaced red meat with chicken, and even that luxury is now unaffordable for them.

Mina stated that they no longer consider saving money, focusing solely on paying rent and purchasing food. The International Monetary Fund projects Iran's economy to decline by 5.4% in the current year, while inflation is projected to soar to around 69%. The World Bank warns that conflict, weakened trade, and prolonged uncertainty are heavily impacting Iran's economy.

Ahmad Alavi, a Sweden-based economist, asserts that the war did not create Iran's economic crisis but rather exacerbated it. Iran entered the conflict with inflation already exceeding 40%, a weakening currency, chronic budget deficits, and years of sanctions. The war acted as an external shock, causing infrastructure damage, trade disruption through the Strait of Hormuz, internet shutdowns, and rising inflation expectations, all contributing to a sharp decrease in purchasing power.

Official figures reveal that annual inflation has reached 66%, and year-over-year inflation has neared 88%. Food prices have skyrocketed, with bread and cereals increasing by 140%, meat and poultry by 135%, dairy products by over 116%, and edible oils by more than 200%. Alavi points out that lower-income households have suffered the most due to falling incomes that fail to keep pace with inflation.

Many salaried workers and pensioners have slipped below the poverty line for the first time. The private sector is also grappling with the crisis. Iranian trader Mortaza mentioned that regional trade routes have rapidly changed due to difficulties in shipping through the Strait of Hormuz. China has stepped in to fill the gap left by suppliers in Dubai, utilizing rail links across Central Asia to bypass maritime transport risks and delays.

However, Mortaza believes the shift has not benefited Iranian traders as the collapse of the rial, soaring inflation, and constant uncertainty have hindered market growth. With ongoing tensions, he lacks confidence in the future of business in Iran. Despite higher global oil prices, Alavi contends that Iran is unlikely to gain significant benefits due to sanctions, export restrictions, and higher transport costs.

He argues that government measures like subsidies, price controls, and foreign exchange market intervention may provide temporary relief but are unlikely to address the underlying structural problems. Alavi emphasizes that uncertainty poses the most significant barrier to economic recovery, as many businesses delay investments due to lack of confidence in future economic conditions.

Households are also becoming cautious about spending, anticipating further price hikes and further devaluation of their incomes. Alavi anticipates that living standards will deteriorate further if current trends persist, with more families cutting back on protein, healthcare, and education. Business closures and unemployment may continue to rise.

Mina, echoing Alavi's concerns, says they no longer discuss the future; they only hope to afford next month's rent.