Donald Trump's Economic War Pushes Iran Toward a Dangerous Limit — Newsweek

RESOLVING THE LEDGER

Donald Trump's Economic War Pushes Iran Toward a Dangerous Limit — Newsweek | AIPROPX

Deputy Editor, National Security and Foreign Policy

0 Share Newsweek is a Trust Project member See more of our trusted coverage when you search. Prefer Newsweek on Google to see more of our trusted coverage when you search. 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.

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."

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 thro...