Donald Trump’s economic war pushes Iran toward a dangerous limit

With President Donald Trump threatening “economic D-day” measures in hopes of crushing Iran once and for all, the Islamic Republic retains some key advantages to weather the coming storm.

“This will be economic warfare and isolation on an unprecedented scale,” Trump posted Wednesday on Truth Social. “ANY country that allows its financial institutions, businesses, airports, or government entities to provide any type of lifeline to Iran will itself face TREMENDOUS Economic Consequences.

“This will be an economic D-Day, and we need all of our allies to stand with the United States of America to isolate, and defeat, the Iran threat.”

But Tehran has its limits. And should prolonged economic woes create an untenable situation, the response is more likely to come on the battlefield than the negotiating table.

Unlike in 2015, when U.S. and Iranian representatives came together to sign the Joint Comprehensive Plan of Action nuclear deal, there is exceptionally little appetite for diplomacy among Iran’s current leadership, which has twice been attacked in the midst of negotiations under the second Trump administration and said it sees few signs of serious commitment after the failure of a memorandum of understanding signed in June.

Amin Mokarrami, an Iranian journalist who closely covers the nation’s economic trends, told Newsweek that “the situation is very different now, and the political cost of making concessions to the U.S. in negotiations is extremely high.”

“My assessment is that Iran will currently try to resist economic pressure for as long as possible in an effort to discourage the U.S. from continuing down this path and persuade Washington to return to negotiations with a different approach,” Mokarrami said. “Iran would likely seek concessions such as sanctions relief, the release of frozen assets and an easing of restrictions.

“However, if the economic situation becomes truly critical—for example, if annual inflation rises above 100 percent, the rial collapses, or essential goods become scarce in stores—then, given Iran’s current political circumstances, I would consider a major escalation of military tensions by Iran far more likely than serious negotiations or significant concessions to the U.S.”

Iran’s goal, he argued, would be “to disrupt the current battlefield calculations and alter the strategic assumptions of the U.S. and its allies.”

“But what the outcome of another round of war would be is genuinely impossible to predict,” he said.

Iran’s Four Secrets to Survival

While Iran’s economy is already being pushed to the brink, Mokarrami pointed out four factors that contribute to the country’s resilience in the face of past and current efforts by the U.S. to sever trade and stunt growth.

The first, he said, is that “Iran has a broad and relatively diversified industrial, manufacturing and agricultural base.” A wide range of basic goods, from cars, household appliances and clothing to food products, steel and petrochemicals, are produced domestically and, while they may not necessarily compete in quality with imported products, he argued that, “under the current difficult circumstances, domestic production is still able to meet many essential needs.”

Secondly, Iran continues to enjoy strong trade relations with China, which Mokarrami described as “a major buyer of Iranian oil and an important supplier of the intermediate goods, machinery and spare parts needed by the industrial base I mentioned.”

And it’s not just China that has served as a lifeline for the Iranian economy. A third “important source of economic resilience” identified by Mokarrami has been “extensive trade relations with its neighbors,” bolstered by a “favorable geographic position and extensive land and maritime borders,” particularly with countries less vulnerable to U.S. sanctions.

But perhaps the most crucial tool in Iran’s arsenal is one that it continues to develop in the face of its most serious crisis to date.

“Finally, Iran has many years of experience dealing with sanctions and finding ways around them,” Mokarrami said. “Over time, this experience has enabled the government and businesses to develop and implement mechanisms that keep the economy functioning even under very difficult conditions.”

Where Iran Is Hurting Most

While Iran continues to bet on these combined elements to withstand U.S. demands for surrender, the economy has suffered notable blows in several sectors.

Even prior to the war, Iran’s economic woes had stirred domestic dissent, serving as the basis for demonstrations among merchants in Tehran’s Grand Bazaar that later swelled into a historic series of nationwide protests and a deadly crackdown by security forces in January. The carnage, which Iran has largely blamed on foreign infiltration, served as the initial pretext for Trump’s threats of intervention, which were ultimately carried out in tandem with Israel beginning on February 28.

Now, as Newsweek has reported, the Iran Chamber of Commerce’s whole-economy Purchasing Managers’ Index, having collapsed from a prewar reading of 46.4 to a low of 24.9 amid the height of the conflict, still lags at around 45.9, below the 50 threshold between contraction and expansion. The Consumer Price Index is up 32 percent, testing the limits of the Iranian government’s efforts to manage soaring inflation.

Meanwhile, Iran’s crude oil production is down nearly 30 percent, limiting one of the nation’s most lucrative areas of income.

Mokarrami pointed out that Iran has thus far avoided any major goods scarcities as a sharp increase in prices has led to a stark decline in consumer demand. But the drop in oil revenues, combined with a slump in tax income due to weaker performance of companies, constitutes “the government’s biggest economic challenge,” contributing “to faster liquidity growth and further inflation.”

As for ordinary Iranian citizens, the growing disparity between income and skyrocketing prices is “the main problem,” he said, one that also has reduced living standards and throttled revenue for businesses as the population concentrates primarily on essential spending.

The labor market has also taken a significant hit. The war and its economic fallout have led to a situation in which Mokarrami said “layoffs have increased significantly, finding a job has become much more difficult, and delayed salary payments, low wages and salary increases that do not keep pace with inflation have become increasingly common.”

“It is important to note, however, that many Iranians also rely on income from assets, which allows some households to cope with the situation to a certain extent,” he said. “Those who depend primarily on salaries to cover their living expenses, particularly renters, are under much greater pressure.”

It Could Get Worse

Given Iran’s record of withstanding the punishing economic measures the U.S. has inflicted in one form or another for nearly a half-century since the Islamic Revolution, Mokarrami pointed out that “in terms of sanctions, the U.S. has already used virtually every major tool at its disposal, so I doubt there is much more it can do on that front.”

But Trump has vowed to go even further with a resumption of a maritime blockade first deployed to cut off Iran from Persian Gulf trade in April in response to Tehran’s strategy of disrupting global energy trade through strangulation of the Strait of Hormuz. Now, Trump is also threatening “tremendous economic consequences” for any country that engages in trade with Iran.

Mokarrami assessed that “the maritime blockade now being imposed would clearly intensify the economic pressure, because it would severely disrupt Iran’s exports of oil, petroleum products and petrochemicals, while also having a major impact on imports.” Even if Iran were to rely more heavily on land routes, he said, “the capacity of overland transportation simply cannot be compared with the volume that can be moved by sea through the Persian Gulf and the Gulf of Oman.”

At least one country in the region appears to be aligning with Washington’s aims after being subject to Iranian strikes throughout the war.

Prior to Trump’s threat issued Wednesday, the United Arab Emirates (UAE) had announced a halt to all trade and financial ties with Iran after accusing Tehran of launching two ballistic missiles that Iranian officials instead blamed on a U.S.-Israeli “false flag operation.”

Mokarrami felt that “a decision by the UAE to halt financial and trade relations could significantly increase the pressure,” especially given that the nation has served as a route for around 30 percent of Iran’s trade.

And while capitulation may not be imminent, a prolonged crisis may not be sustainable, either.

“The U.S. objective in this economic war is to force Iran to surrender, reopen the Strait of Hormuz and abandon its nuclear program,” Mokarrami said. “But I have serious doubts that economic pressure alone can force Iran to capitulate within a period of a few months.

“At the same time, managing an economy under a maritime blockade for more than a few months would be extremely difficult, if not nearly impossible.”

The U.S. Could Stand to Lose, Too

But the bad news isn’t all for Iran. As Iranian officials increasingly see escalation rather than compromise as a solution, the U.S. is already experiencing economic challenges that could take a significant turn for the worse.

U.S. consumer sentiment, which was 71.7 when Trump began his second term in January 2025, is down to 51. What’s gone up since the war began are gas prices, consumer costs and a national debt that now exceeds $40 trillion, according to metrics reported by Newsweek. (Consumer sentiment is measured through surveys about personal finances, buying intentions and economic outlook; opinions are turned into standardized index numbers to gauge economic health.)

The White House also faces dwindling munitions stockpiles and public support for the war as midterm elections loom in November.

These are the figures that Iran’s decisionmakers pay attention to when Trump declares a new phase of the conflict, be it through bombs or blockades.

“Iran has demonstrated the capacity to retaliate to military action with effective strikes of its own,” Mehran Kamrava, a professor at Georgetown University in Qatar and expert on Iranian politics, told Newsweek.

“Does Iran also have tools to respond to heightened economic pressure, including Trump’s threats and the UAE’s announcement of cutting all trade? Relatively early on in the war, the Iranians managed to turn the military conflict with the U.S. and Israel, in which they were outgunned, into an economic conflict. The closure of the Strait of Hormuz, and attacks in the Red Sea on ships bound for Saudi Arabia by the Houthis, is part of this economic warfare.”

The entry of Yemen’s Houthis, officially known as Ansar Allah, into the conflict last month showed that Iran still had cards to play to the detriment of Saudi Arabia and other war-weary U.S. partners in the region questioning the extent of U.S. security guarantees.

What comes next will be an endurance contest pitting the latest iteration of the U.S. “maximum pressure” approach against Iran’s “resistance economy.”

“The assumption in Tehran is that Iran has a higher threshold for economic pain than Washington and its regional allies,” Kamrava said. “Given that Iran has been under sanctions for years, and that the Iranian economy has been operating far below its potential, that assumption may not be far off the mark.

“Whose assumption is correct, Tehran’s or Washington’s, is a question only time will answer.”

Contact Newsweek editors on this story: Tom O’Connor and Dave Siminoff.

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