Since late December 2025, Iran has experienced its most serious unrest in decades. The country is facing multiple pressures including widespread protests driven by rising living costs, a near-total internet blackout that has lasted for more than a week, and a harsh security response that, according to reports, has resulted in thousands of deaths. These domestic tensions are unfolding alongside tighter Western sanctions linked to the handling of the protests and the still unresolved nuclear issue. From an economic perspective, the situation has deteriorated sharply. The rial has fallen to record lows, the prices of essential goods have surged, and sanctions have further eroded purchasing power; conditions that have pushed many Iranians onto the streets.
What could this mean for Iran’s economy going forward?
Looking ahead, Iran’s economic outlook is likely to remain highly constrained, even if the current unrest subsides. In the near term, persistent protests, internet disruptions, and tighter enforcement of sanctions will continue to weigh on already fragile economic activity. Business operations, retail trade, logistics, and services have been disrupted, while capital flight pressures have intensified as confidence in the currency and banking system weakens further.
Inflation is likely to remain elevated. The sharp depreciation of the rial raises import costs across food, fuel, and medicine, while sanctions limit the authorities’ ability to stabilize prices through trade or financial channels. At the same time, fiscal space is narrowing. Government revenues remain heavily dependent on oil exports, yet sanctions, storage bottlenecks, and payment frictions restrict Iran’s ability to fully monetize production. This raises the risk that deficits could be increasingly financed through money creation, which yet again creates potential inflationary pressures.
Over the medium term, the combination of sanctions, policy uncertainty, and political risk is likely to suppress investment and productivity growth. Even sectors that have adapted to sanctions such as energy, petrochemicals, and basic manufacturing face rising costs, limited access to technology, and restricted export markets.
What could this mean for the global economy?
For the global economy, Iran’s turmoil points mostly to higher costs and added volatility in commodity prices including oil prices, not an immediate supply shortfall. Iran-related tensions also push up war-risk insurance and freight through the Strait of Hormuz, making delivered fuel more expensive and adding a mild inflation push, even as overall supply largely remains in the market.
The standout development from this situation in Iran is how quickly Iranian oil has piled up at sea: equivalent to roughly 50 days of production (around 166 million barrels in the week ended 11th January 2026). This could be most likely due to slower Chinese buying under sanction pressure, quota limits and high inventories. In 2025 itself, China has bought around 80% of Iran’s shipped crude via independent refiners. Chinese purchases have slowed down due to sanctions. Fresh US sanctions in January have added more friction for buyers, making it slower to move these barrels.
What does this mean for South Asia?
For South Asia, Iran’s crisis mainly shows up as more expensive and less predictable energy supply – rather than outright shortages, much like the global picture. After China, many countries in the South Asian region import a large share of their oil and gas from the Gulf and almost moves all of that through the Strait of Hormuz. When Iran-related tensions push up insurance and freight costs, South Asian refiners and power utilities end up paying more for each barrel, which can add pressure on inflation, budgets and currency stability. This could be adversely affected further, in a scenario where the Iranian oil supply remains in storage and Chinese demand stays uneven. Higher shipping and insurance bills also raise transport and trade costs more broadly, acting as a small drag on growth for energy-importing economies such as India, Pakistan, Bangladesh and Sri Lanka.