Iran‘s economy is at risk of simultaneous hyperinflation and severe recession, officials and analysts say, as clerical rulers scramble to preserve stability with limited room to maneuver after a snapback of UN sanctions.

They followed a breakdown in talks to curb Iran‘s disputed nuclear activity and its ballistic missile program. Diplomacy to resolve the deadlock remains possible, both sides say, though Iranian Supreme Leader Ayatollah Ali Khamenei has rebuffed US President Donald Trump’s offer to forge a new deal.

Three senior Iranian officials, speaking on condition of anonymity, said Tehran believes the US, its Western allies, and Israel are intensifying sanctions to fuel unrest in Iran and jeopardize the very existence of the Islamic Republic.

Since the reimposition of UN sanctions on Sept. 28, multiple high-level meetings have been held in Tehran on how to avert economic collapse, circumvent sanctions, and manage simmering public anger, the officials told Reuters.

Deepening economic disparities between ordinary Iranians and a privileged clerical and security elite, economic mismanagement, galloping inflation, and state corruption – reported even by state media – have fanned discontent.

“The establishment knows protests are inevitable, it is only a matter of time … The problem is growing, while our options are shrinking,” said one of the officials.

Iran‘s leadership is leaning heavily on its “resistance economy” — a strategy of self-sufficiency and closer trade with China, Russia, and some regional states. Moscow and Beijing back Iran’s right to peaceful nuclear energy and condemned US and Israeli strikes on three Iranian nuclear sites in June.

But analysts warn that such workarounds may not be enough to shield the sprawling country of 92 million people from the renewed economic blow.

“The impact of the UN sanctions will be severe and multifaceted, deepening the country’s longstanding structural and financial vulnerabilities,” said Umud Shokri, an energy strategist and senior visiting fellow at George Mason University near Washington.

“The government is struggling to maintain economic stability as sanctions disrupt banking networks, restrict trade and constrain oil exports – the country’s main revenue source, resulting in escalating social and economic pressure.”

OIL LIFELINE UNDER THREAT AS UN SANCTIONS RETURN

Iran has avoided wholesale economic meltdown since 2018 when, during his first term, Trump withdrew the US from Tehran’s 2015 nuclear deal with six world powers and reimposed US sanctions.

But the revival of wider UN sanctions is inflicting shocks that will stymie economic growth, accelerate inflation, and the collapse of the rial currency, pushing the economy toward a recessionary spiral, one of the Iranian officials said.

Iran’s economy contracted sharply after 2018 due to renewed US sanctions. It rebounded in 2020 to grow modestly at times, largely due to oil trade with China.

But the World Bank this month forecast a shrinkage of 1.7 percent in 2025 and 2.8 percent in 2026 – sharply down from the 0.7 percent growth it had projected in April for next year.

While Tehran still relies heavily on oil exports to China – its biggest customer and one of the few countries still doing business with it despite Trump’s “maximum pressure” policy, doubts reign over the sustainability of that trade.

Although sold at a discount, crude remains a vital source of income for Tehran, with oil and petrochemicals making up about a quarter of GDP in 2024.

Despite public assurances that oil sales to China will continue, one Iranian official said the reimposed global sanctions could stifle that flow.

Shokri said that if China seeks to ease tensions with the Trump administration, it may tighten its stance on Iranian oil — demanding steeper discounts or cutting imports altogether.

For Tehran, the costs could be devastating. Every dollar shaved off the price of oil translates into roughly half a billion dollars in lost annual revenue, he said.

The rial has shriveled to 1,115,000 per dollar from 920,000 in August, stoking inflation to at least 40 percent and gutting purchasing power. Persistent currency depreciation and trade sanctions are driving up prices and sapping investor confidence.

HARDSHIP SPREADS, PUBLIC ANGER SIMMERS

Few Iranians can escape the attendant hardships. A sense of desperation is rippling through society, affecting urban professionals, bazaar traders and rural farmers alike.

“How much more pressure are we supposed to endure? Until when? I’m a government employee, and I earn just 34 million tomans (around $300) a month,” said Alireza, 43, speaking by phone from the capital Tehran. Like others, he asked not to be further identified for fear of retribution from authorities.

“My wife is jobless. The import-export company she worked for shut down last month. With just my salary and two kids, we’re struggling to even pay rent and school expenses. What are we supposed to do?” ”

Iran’s official inflation rate is around 40 percent though some estimates exceed 50 percent. Official data in September showed prices for 10 staple goods – including meat, rice and chicken – rose 51 percent in one year. Housing and utility costs have also surged. Beef now costs $12 a kilo – too expensive for many families.

The clerical elite increasingly worry that mounting public distress could reignite mass protests that have erupted periodically since 2017 among lower- and middle-income Iranians, the second Iranian official said.

Many Iranians like Sima, 32, a factory worker in the central city of Shiraz worn down by years of economic strain, worry that the expanded sanctions will push them past the breaking point.

“Now they say we’re facing new sanctions again, but we’re already struggling to provide for our three children. Prices go up every single day and we can’t even afford to buy meat for them once a month,” said Sima.

Many business owners fear deeper international isolation and further Israeli airstrikes if diplomacy fails to resolve the nuclear standoff.

“With the constant fear of a possible attack and not knowing whether I’ll even be able to export this month or next, how am I supposed to keep my business running?” said Mehdi, who ships fruit to neighboring countries.

Israeli Prime Minister Benjamin Netanyahu hinted on Wednesday at his opposition to any role for Turkish security forces in the Gaza Strip as part of a mission to monitor a US-backed ceasefire with the Palestinian terrorist group Hamas.

Speaking in Jerusalem alongside visiting US Vice President JD Vance, Netanyahu said they had discussed the “day-after” for Gaza, including who could provide security in the territory shattered by two years of war.

Vance, who said on Tuesday US President Donald Trump’s ceasefire plan was going better than expected, reiterated his optimism. “I never said it was easy. But what I am is optimistic that the ceasefire is going to hold and that we can actually build a better future in the entire Middle East,” he said.

With a fragile ceasefire in place for 12 days, focus has switched to the second phase of Trump’s Gaza plan.

This requires Hamas to disarm and foresees the establishment of an internationally-supervised Palestinian committee to run Gaza with an international force supporting vetted Palestinian police.

Vance is one of several senior US officials to visit Israel since Trump addressed the Israeli parliament last week and declared the Gaza war over.  In another high-profile visit, US Secretary of State Marco Rubio will arrive on Thursday and meet Netanyahu on Friday, the Israeli government spokesperson said.

A senior US official said the visits by Vance and Rubio, as well as special envoy Steve Witkoff and Trump’s son-in-law Jared Kushner this week, were aimed at maintaining momentum in the ceasefire.

NETANYAHU HAS ‘STRONG OPINIONS’ ON TURKISH ROLE IN GAZA

Responding to a question about the idea of Turkish security forces in Gaza, Netanyahu said: “I have very strong opinions about that. Want to guess what they are?”

Turkey’s Foreign Ministry did not immediately respond to a request for comment, while the Defense Ministry declined to comment on the issue.

Vance said on Tuesday there would be a “constructive role” for Turkey to play but that Washington wouldn’t force anything on Israel when it came to foreign troops “on their soil.”

Once warm relations between NATO member Turkey and Israel hit new lows during the Gaza war, with Turkish President Tayyip Erdogan sharply criticizing Israel’s attacks on the enclave and elsewhere in the region, and Syria – which borders both states -emerging as an arena of intensifying rivalry.

Turkey, which helped persuade Hamas to accept Trump’s plan, has said it would take part in the international task force to monitor the ceasefire implementation, and that its armed forces could serve in a military or civilian capacity as needed.

Hamas has resisted pressure to disarm, saying that it is ready to hand its weapons to a future Palestinian state.

Vance said: “We have a very, very tough task ahead of us, which is to disarm Hamas, but rebuild Gaza to make life better for the people of Gaza, but also to ensure that Hamas is no longer a threat to our friends in Israel.”

BODIES BURIED IN GAZA

The ceasefire was followed by the release of remaining living hostages seized in Hamas’s Oct. 7, 2023, attacks on Israel, and the freeing of some 2,000 Palestinian prisoners by Israel.

But it remains fragile, with flashes of violence and recriminations over the pace of returning hostage bodies, bringing in aid, and opening borders.

Hamas has reasserted control in Gaza since the ceasefire by deploying armed men on the streets and cracking down on groups that have challenged its grip.

Hamas has released the bodies of 15 out of 28 deceased hostages seized in 2023. Vance on Tuesday said some of the remaining bodies were buried deep under rubble, saying it would take “a little bit of time” to recover them and urged patience.

Hamas’s attack on Israel that triggered the war killed around 1,200 people, with 251 dragged into Gaza as hostages.

Most Americans – including 80 percent of Democrats and 41 percent of Republicans – think the US should recognize Palestinian statehood, despite US President Donald Trump’s opposition to the idea, a Reuters/Ipsos poll found.

The six-day poll, which closed on Monday, found 59 percent of respondents backed US recognition of a Palestinian state, while 33 percent were opposed and the rest were unsure or did not answer the question.

About half of Trump’s Republicans – 53 percent – opposed doing so, while 41 percent of Republicans said they would support the US recognizing a Palestinian state.

A growing number of countries – including US allies Britain, Canada, France, and Australia – have formally recognized Palestinian statehood in recent weeks, drawing condemnation from Israel, which has described the move as, in effect, a reward for Hamas’s terrorism following the Palestinian Islamist group’s Oct. 7, 2023, invasion of and massacre across southern Israeli communities.

Some 60 percent of poll respondents said Israel’s response in Gaza to the Oct. 7 attack was excessive, compared to 32 percent who disagreed.

Trump, who returned to the White House in January, has largely backed Israel in the war and this month brokered a ceasefire.

The Reuters/Ipsos poll gave signs the US public was ready to give Trump credit should his plan work. Some 51 percent of poll respondents agreed with a statement that Trump “deserves significant credit” if peace efforts are successful, compared with 42 percent who disagreed.

While only one in 20 Democrats approve of Trump’s overall performance as president, one in four said he should get significant credit if the peace holds.

Success on that front appears far from certain. An explosion of violence over the weekend threatened to derail the week-old truce and US diplomats stepped up pressure on Israel and Hamas to get Trump’s plan back on track.

Key questions of Hamas disarming, further Israeli troop pullbacks, and future governance of the Palestinian enclave remain unresolved.

Trump’s approval rating on foreign policy appeared to be on a modest upswing, rising to 38 percent in the latest Reuters/Ipsos poll, compared to 33 percent in a poll conducted earlier this month just ahead of the ceasefire deal. The latest rating was Trump’s highest since July.

The Reuters/Ipsos poll was conducted online and gathered responses from 4,385 people nationwide. It had a margin of error of 2 percentage points.