Iran's Collapsing Economy Caught in Trump's Crosshairs

Iran's economy is buckling under renewed strain, its fate increasingly tethered to news from Washington.

As nuclear talks continue under President Donald Trump, whose "maximum pressure" sanctions campaign continues to shape Iran's economic reality, volatility has surged across financial markets while the power grid stutters. Unresolved structural problems—and the looming threat of renewed conflict—compound the uncertainty.

Why It Matters

The Iranian rial, industrial output, and energy production are all under intense pressure, with fluctuations in foreign exchange rates now tightly linked to statements from Washington. Yet structural problems persist across sectors, from public utilities to banking, as hopes for a diplomatic breakthrough mask deeper dysfunction. The country's current economic strategy, focused on sanctions relief, faces criticism for failing to address internal problems.

What to Know

With each shift in U.S. policy or statement from the White House, Iran's rial swings sharply—revealing an economy increasingly tethered to external headlines.

Years of international sanctions, intensified by Trump's "maximum pressure" policy, have hollowed out key sectors and deepened Iran's dependence on diplomatic developments. At home, power outages, soaring prices, and unresolved corruption scandals have left essential services in disarray, eroding public confidence as hopes for recovery remain distant.

Currency Chaos

The rial fell to 1.05 million against the dollar in March after Trump raised the prospect of military action if Tehran refused to negotiate. The currency recovered slightly when talks began in Oman, only to fall again after negotiations stalled.

"The reality is that our economy reacts intensely to political developments," former central bank deputy Kamal Seyyed-Ali told reporters. "If the possibility of a full-scale war rises again, the dollar rate will once again break records."

Rolling Blackouts

Iran's aging energy infrastructure is buckling under peak demand, compounded by years of underinvestment and sweeping oil sanctions. In April, Energy Minister Abbas Aliabadi acknowledged that the country's power plants generate only 65,000 megawatts annually—far short of the 85,000 megawatts needed. The resulting shortfall has led to widespread rolling blackouts, disrupting not just electricity but critical services including water distribution, telecommunications, and internet access.

In major cities, outages have become routine. Callers to Persian-language satellite media, including Iran International, describe cascading failures, with power cuts severing phone connections and limiting access to clean water. A vicious cycle has taken hold: low water levels hinder electricity production, while blackouts cripple water delivery systems, worsening public frustration and daily hardship.

Growing Frustration

As Tehran doubles down on its tough negotiating line with Washington, frustration is growing over the absence of a broader domestic recovery strategy. The hardline daily Kayhan recently posed a pointed question: "What is the government doing besides negotiating with the United States?" In a rare public rebuke, the paper warned that diplomacy should serve as a means to economic improvement—not as a substitute for long-overdue internal reforms.

What People Are Saying

Afshin Molavi, Senior Fellow, Foreign Policy Institute, Johns Hopkins University School of Advanced International Studies told Newsweek: "Years of mismanagement, corruption and poor policy decisions have led to the massive underperformance of an economy that should be a major regional powerhouse. Instead, it is a regional laggard that continues to fall further behind. Yes, sanctions have also hit the economy hard, but they are not solely to blame for the economic woes."

Kamal Seyyed-Ali, former deputy governor of Iran's Central Bank, said: "The reality is that our economy reacts intensely to political developments."

What Happens Next

Iran's economy is increasingly exposed to external shock, with each fluctuation in nuclear talks triggering ripple effects across markets. As negotiations resume, the costs of economic stagnation are compounding—while the limits of blaming sanctions alone become harder to ignore. With no structural reforms in sight, the risk of renewed conflict adds another layer of volatility to an already fragile system.