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

In Iran, the ongoing war has shifted from being discussed in terms of military actions to focusing on the economic hardships faced by families. Housewife Mina explained that their family's financial situation has worsened daily since the conflict began, with red meat becoming a luxury and basic food items considered as necessities rather than savings targets.

The International Monetary Fund predicts a 5.4% contraction of Iran's economy this year, with inflation potentially reaching 69%, a figure corroborated by World Bank warnings about the detrimental effects of conflict, reduced trade, and prolonged uncertainty on the nation's economy. Ahmad Alavi, a Sweden-based economist, asserts that the war has intensified the existing economic crisis rather than triggered it, citing Iran's already high inflation (above 40%), weakening currency, budget deficits, and years of sanctions before hostilities started.

Official data reveals an annual inflation rate of 66%, with year-on-year inflation nearing 88%, and food prices surging by over 200%, including bread and cereals (140%), meat and poultry (135%), dairy products (116%), and edible oils (200%). Economist Ahmad Alavi notes that while lower-income households have been hardest hit, the middle class is also increasingly feeling the pinch as incomes fail to keep up with inflation.

Since the conflict escalated, approximately 3.5 to 4.5 million more Iranians have fallen into poverty, bringing the total number of impoverished citizens to over 40 million. The challenges are not limited to households; Iran's private sector is also grappling with difficulties. Trader Mortaza highlighted the shift in regional trade routes following difficulties in shipping through the Strait of Hormuz, with China filling part of the gap but causing issues for Iranian traders due to the collapse in the rial's value and soaring inflation, making it hard for merchants to maintain profitability and grow their businesses.

Mortaza expressed deep uncertainty about Iran's economic future, stating that the ongoing tensions make it difficult to foresee any positive developments. Despite higher global oil prices, Alavi contends that Iran is unlikely to see significant benefits, as sanctions, export restrictions, and higher transport costs continue to constrain the country's oil revenues.

He suggests that government measures, including subsidies, price controls, and foreign exchange interventions, might provide temporary relief but are unlikely to resolve the underlying issues. Alavi argues that without restoring investor confidence, lifting sanctions, and addressing structural problems, these measures remain short-term solutions.

He emphasizes that uncertainty itself poses a significant challenge for economic recovery, as many businesses delay investments due to a lack of confidence in future economic conditions, while households become increasingly cautious about spending, expecting prices to keep rising, and their incomes to decline further. Alvi predicts that unless inflation eases, the exchange rate stabilizes, and trade conditions improve, many households will remain under financial strain, even if military tensions subside.

He expects living standards to deteriorate further if current trends continue, with more families cutting spending on protein, healthcare, and education, while business closures and unemployment may continue to rise.