US pressure on Iran starting to tell, as sanctions and blockade bite

A US campaign to throttle Iran's economy by blockading its oil exports and stopping sanctions evasion is growing increasingly difficult to withstand, three senior Iranian sources said.

Washington has in recent weeks sought to ratchet up the economic pressure on Tehran, in an effort to extract concessions in any future negotiation that six months of conflict have so far failed to secure.

Although Iran's clerical rulers managed to bypass sanctions for decades, the latest US moves have left them in a far more sensitive position, with few remaining channels to secure foreign currency or buy goods, the sources said.

In particular, the effort to stop Iran accessing international financing networks in other countries it has long used to keep its economy functioning poses a real and urgent threat, the sources said.

Any sign the economic campaign may break a months-long deadlock in the conflict will likely cheer US planners, though Iran has also warned it could respond to the pressure with military escalation, raising the stakes at a key moment.

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The war has erupted back into open fighting this week, with US attacks along Iran's Gulf coast prompting retaliatory Iranian strikes at US bases in Arab states.

Neither side has signalled yet it is ready to make the concessions demanded by the other, leaving the war in a costly stalemate – though one that may be shifting.

While more energy is flowing to international markets through the Strait of Hormuz despite Iranian efforts to continue disrupting the seaway, the US blockade of Iranian oil exports has entirely cut off Tehran's main source of revenue.

Adding to Iran's problems, the economy was already deep in crisis before the conflict, with a cratering currency and spiralling inflation, while months of bombing have run up a massive bill to rebuild damaged industry and infrastructure.

Meanwhile, the country's financial squeeze is itself biting into Tehran's efforts to get around the sanctions regime, leaving less cash to pay the high premiums required to skirt sanctions illicitly, the sources said.

The rial has fallen to record lows over recent days and one senior source said Iran only has another two months' supply of gasoline, which has to be imported despite domestic oil production because of limited refining capacity.

Iran's rulers are keenly aware of the potential risks of an economic meltdown and the possibility of it reigniting the nationwide mass protests it put down in January by killing thousands of demonstrators.

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"They are under very, very severe economic pressure. They're losing control of the Straits. It's really a question of if they choose to negotiate and I think they'll have to," said Ali Ansari, modern history professor at St Andrews University in Scotland.

The war is also entering a new phase, with each side trying to influence each other's politics.

Iran hopes the threat of inflation will deter the US administration before midterm elections in November, while Washington aims to push Iranians to revolt, a senior Iranian official said.

Blockade and secondary sanctions squeezing Tehran

The latest US measures expanded secondary sanctions that target countries doing business with Iran in a bid to stop it clearing dollar transactions needed for both oil sales and to finance crucial imports of goods and raw materials.

That effort is making Iran's existing sanctions evasion networks – front companies, unregistered tankers and smuggling – too expensive to use, the three senior sources said.

Iranian crude loadings have fallen this month to about 260,000 barrels a day, from about 1.7 million a year earlier, according to data from commodity analytics firm Kpler, with only a trickle still moving off terminals for distribution by truck, train or smaller boats over the Caspian Sea.

Tehran says it still has tens of millions of barrels stored in tankers outside the blockade zone that it can sell, but the new sanctions mean intermediaries are stepping back or demanding more money, one of the officials said.

Total trade has fallen between 25% and 35%, with imports hit harder than exports, President Masoud Pezeshkian has said, one of several top officials warning in recent weeks about Iran's rapidly deteriorating situation.

US pressure and Iran's own attacks have meanwhile disrupted one of the main conduits for Iranian trade – the United Arab Emirates, which said on 19 August that all commercial exchange and financial dealings with Tehran were halted until further notice.

“If those channels stay closed, a supplier wants cash, a deal is routed through another country and a shipment arrives later and dearer,” said an Iranian trader in Tehran who deals in imported goods.

The currency has collapsed in value from around 1 million rials to the dollar a year ago to over 2.2 million rials now.

The internal impact is very painful. Official figures put 12-month average inflation at 69.9% with food, beverages and tobacco prices rising at nearly twice that rate.

Official unemployment rose to 9.1% in the spring, while the number of those in work fell by about 450,000 from a year earlier amid a wider fall in labour force participation.

Even for those still in work, the average monthly salary of around $125 a month comes nowhere near meeting basic household spending requirements that come to around $450 a month according to official data.

"We are getting poorer every day," said Mahnaz, a 34-year-old private-sector employee in Tehran who asked that her family name not be used.