MUSCAT, Oman—The threat of U.S. military intervention helped bring Iran back to the negotiating table. Its hobbled economy is likely to keep it there.
Iran’s currency is among the weakest in the world. Inflation remains well above 30%. Young people are struggling to find work, and a frustrated middle class can no longer afford to buy imported goods.
Those troubles look set to intensify under a second Trump administration, which resumed its campaign of “maximum pressure” to force Iran to rein in its nuclear program and prevent it from developing a bomb. Already severely strained by sanctions and endemic corruption, political observers and analysts say a further deterioration of Iran’s economy could push its people to the brink.
“This is a country that’s creaking under the pressure of economic sanctions, sustained mismanagement and corruption,” said Sanam Vakil, director of the Middle East and North Africa program at Chatham House, a think tank in London. “Ultimately, what they seek is durable sanctions relief, and they believe that Donald Trump could perhaps deliver that in a way that the Biden administration couldn’t.”
Officials from the U.S. and Iran convened in the Omani capital on Saturday for their highest-level talks in years, pledging to keep a conversation going. Washington wants a new deal to curb Tehran’s uranium enrichment in exchange for lifting sanctions, after abandoning an earlier one during President Trump’s first term.
Trump’s 2018 withdrawal from the Joint Comprehensive Plan of Action, agreed to by Iran and other nations during the Obama administration in 2015, was followed by a wave of crippling sanctions targeting crucial sectors such as oil and finance. Since returning to the White House, Trump has ratcheted up pressure with more sanctions against Chinese terminal and ship operators that do business with Tehran.
Distrust is high on both sides, but each has reasons to want talks to succeed.
For Trump, a deal with Iran would burnish his peacemaker credentials, as his administration has made little progress toward ending the wars in Ukraine and Gaza as he promised. For Tehran, an easing of sanctions could reverse a yearslong downturn in the economy that, if unaddressed, could threaten the authoritarian regime of Supreme Leader Ayatollah Ali Khamenei .
There are signs that Tehran is worried about unrest at a politically sensitive time. The regime is quietly bracing for an eventual leadership change—Khamenei is 85 years old and has a history of illness. The reach of its military power has diminished abroad. Israeli attacks have crippled Iran-backed militias in the Gaza Strip and Lebanon, while a revolution in Syria cost Tehran a close ally. The election last year of reformist President Masoud Pezeshkian signaled that Iran’s security establishment was open to some degree of change.
“This was the Pezeshkian bet, and that of the people who allowed him to run and to win, that if they don’t allow reform, the consequence will be revolution,” said Jon Alterman , director of the Middle East program at the Center for Strategic and International Studies, a think tank in Washington.
Alterman said Iran’s economic troubles could be nearing a tipping point. “There is a very visible class of Iranians who are tied to the power structure who drive expensive sports cars, and they’re billionaires,” he said. “Most of the rest of the country is growing gradually more impoverished, but they see that the children of senior government officials live unthinkably luxurious lives.”
Economists say data paints a worrying picture, particularly for the rural poor and a shrinking middle class. The cost of food, for example, increased 41% in March from the same month last year, according to the Central Bank of Iran. And while the economy is expanding overall, growth is slowing and is further threatened by power shortages.
Gregory Brew, a senior analyst for the Eurasia Group specializing in U.S.-Iran relations, said sanctions imposed since 2018 didn’t cause a sudden crash, but a slow strangling of economic activity. Iranian consumers accustomed to European goods like cosmetics, clothes and jewelry—things that symbolized their ascendance to the middle class—have had to adjust their tastes as trade reoriented toward China and Russia.
Meanwhile, many ordinary Iranians are finding it harder just to get by. Mostafa Pakzad, an Iranian financial adviser, said that even residents of Tehran, who tend to be more affluent than those who live outside the capital, are struggling to cope with rising prices. Some have resorted to selling free medicine they get from the government to earn money for essentials like rice and bread, he said.
A 41-year-old man named Abbas, who lives in the central Iranian city of Shiraz, told The Wall Street Journal that he lost most of his savings when the country’s stock exchange crashed in 2023. About a year later, he lost his job of 15 years as an accountant. What little he has left is rapidly losing value as the currency continues its free fall and consumer prices rise.
“Money is like ice, it melts very fast,” he said.
“Inflation is probably the No. 1 concern of the people right now,” said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech who specializes in Iran. “It’s very painful for people because there’s a psychological element of working hard, getting a wage, and then going to a store just to see it disappear,” he said.
Despite the pressure, he is doubtful Tehran will commit to major change. More likely, he said, the regime will give enough to keep talks going and extract small economic concessions from the U.S. while gradually chipping away at its demands.
“They have tolerated a lot of hardship, and they haven’t surrendered yet,” he said.
Write to Benoit Faucon at benoit.faucon@wsj.com and Feliz Solomon at feliz.solomon@wsj.com
