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Iran is sliding into stagflation that could spark unrest, economists warn, as official data reveal the first economic contraction in four years on the eve of the UN sanctions returning.
Several Iranian economists say the downturn is already entrenched and that officials are underestimating the severity of the crisis.
Tehran University professor Albert Boghozian argued last week that Iran now shows the classic symptoms of stagflation—negative growth, high inflation, and rising unemployment.
“Officials must not ignore the danger of deepening stagflation, which is likely to intensify if the snapback proposed by the UK, France, and Germany is implemented,” he cautioned.
The Statistical Center of Iran reported that GDP shrank by 0.1% in the spring.
Excluding the petroleum sector, the contraction deepened to -0.4%. Agriculture was the hardest hit, with output falling 2.7%. This downturn marks the first time since 2021 that Iran’s economy has posted negative quarterly growth.
'Worse to come’
The reversal is striking given the 3.0% expansion recorded in the last full calendar year ending March 2025. That period, supported by high oil revenues and relative stability, allowed for modest but steady growth.
Ali Ghanbari, a macroeconomist and former deputy agriculture minister, predicted conditions will deteriorate further in the coming months.
“Iran is heading toward a more difficult economic period in the second half of the Iranian year (September 2025 to March 2026),” he told reporters in Tehran.
He forecast a contraction of 1–2% by March 2026 and inflation climbing above 54%.
“The downturn had been anticipated due to sanctions and political tensions,” he added, “but the scale of inflation will place even greater strain on household budgets.”
Such levels of inflation would erode real incomes and fuel social discontent — a sensitive issue for the government as it braces for renewed sanctions.
‘Sanctions hinder development’
The Majles Research Center has argued that renewed UN sanctions would be less damaging than existing US restrictions, which already limit Iran’s access to global markets and financial channels.
But economists such as Boghozian believe Tehran has few tools left to cushion the blow.
“The Iranian government cannot do much about the UN sanctions,”he warned. “Continued stubbornness will only deepen the suffering.”
Sweeping UN sanctions are set to be reimposed on September 27 following the end of the 30-day snapback period.
Boghozian warned that their return could have consequences far beyond economic hardship, setting the scene for more confrontation with Iran’s foes.
“With the threat of war, Iran cannot realistically pursue development,” he said. “War and sanctions will rob the country of opportunities. If we fail to take initiative, the other side will dictate the terms.”
Iranian foreign minister Abbas Araghchi told Iran International that the 2015 nuclear agreement, once hailed as a diplomatic achievement, collapsed after the United States reimposed sanctions.
He said the 2025 negotiations followed a similar pattern, beginning with Washington’s acceptance of talks but breaking down when the US joined Israeli military strikes. Araghchi endorsed Ali Khamenei’s recent remarks, describing negotiations with the United States as an impasse.
The Islamic Republic recalled its ambassadors from Germany, France and the United Kingdom for consultations, Iranian state media reported Saturday.
The move followed the decision by the three European governments to invoke the Joint Comprehensive Plan of Action snapback mechanism in order to reinstate previously lifted UN Security Council resolutions.
US President Donald Trump used his UN General Assembly address to take a “victory lap” on Iran, but an analyst warns Tehran’s nuclear and ballistic ambitions remain unresolved.
Behnam Ben Taleblu, the Iran Program Director at the Foundation for Defense of Democracies, told Eye for Iran podcast that Trump’s remarks may reflect premature confidence.
“On Iran, Trump was short and sweet, with a casualness in referencing Israel’s targeting of Iran’s senior military leadership months ago,” Taleblu said.
“My fear is the Islamic Republic might encourage this sense of victory, while rebuilding its missile program, terrorism threats, and oppression at home,” he added.
The US president has repeatedly asserted that Iran’s nuclear weapons capability was “obliterated” in June strikes.
Iran remains defiant, however, rejecting US demands to curb its missile program and uranium enrichment.
Ali Larijani, Iran’s top security official, said Thursday that a likely return of UN sanctions on September 27 will not hurt Iran more than existing US measures.
Taleblu said Washington may drift toward containment rather than sustained pressure after snapback, but dismissed claims that China—the biggest buyer of Iranian oil in recent years—would benefit from international sanctions on Tehran.
Despite backing from Beijing and Moscow, he argued, the theocracy faces multiple dangers: looming UN sanctions, leadership missteps, Israel’s potential strikes and growing unrest amid economic decline.
'Remind Iranians who the oppressor is'
Asked about the UNGA debates on Iran, Taleblu singled out what he called the silence on the Islamic Republic’s human rights abuses, citing over 1,000 executions this year and intensified crackdowns since the 12-Day war.
“There hasn’t even been much on the UN fact-finding mission, which was established after the Woman, Life, Freedom protests to shed light on abuses,” he said.
Taleblu urged Western leaders to highlight Iran’s repression, noting that Supreme Leader Ali Khamenei himself has admitted Israel targets the Islamic Republic, not ordinary Iranians.
“My advice to them is: never miss an opportunity to remind the Iranian people who their real oppressor is,” he said. “Never miss an opportunity to show them their government is the one painting them into a corner—not the West.”
Three Iranian men accused of working with Tehran’s intelligence services to target UK-based journalists pleaded not guilty during a preparatory hearing at the Central Criminal Court in London on Friday.
Mostafa Sepahvand, 39, Farhad Javadi Manesh, 44, and Shapoor Qalehali Khani Noori, 55, appeared via video link from a high-security prison in south London.
The three Iranian nationals have been charged with engaging in conduct likely to assist a foreign intelligence service between 14 August 2024 and 16 February 2025.
Sepahvand has also been charged with engaging in conduct, namely surveillance, reconnaissance and open-source research, between 14 August 2024 and 16 February 2025, intending to commit acts, namely serious violence against a person in the United Kingdom.
Manesh and Noori have also been charged with engaging in conduct, namely surveillance and reconnaissance, with the intention that acts, namely serious violence against a person in the United Kingdom, would be committed by others.
The charges include collecting information and planning to commit acts of violence on British soil.
Their targets are allegedly staff members of Iran International.
At today’s hearing, Farhad Manesh’s application for bail was refused by the Judge, the Honourable Mrs Cheema-Grubb.
All three accused will be held in remand until the trial itself begins on October 5, 2026, at London’s Woolwich Crown Court.
The three are the first Iranian nationals to be prosecuted under the UK’s 2023 National Security Act, a law designed to counter threats from hostile states.
Iran International, founded in 2017, has reported escalating threats, particularly after the 2022 “Woman, Life, Freedom” protests. Its staff have reported death threats, harassment of relatives abroad, and attacks
Rights groups and the broadcaster accuse Iranian authorities of waging a sustained campaign against Iran International since its launch, including hacking attempts attributed to actors linked to the Islamic Revolutionary Guard Corps.
