Iran’s economy is set to shrink this year and next as tighter sanctions, falling oil exports, and the aftermath of this year’s conflict weigh heavily on output, the World Bank said on Tuesday, even as it raised its overall growth forecast for the broader Middle East region.
The World Bank projected Iran’s gross domestic product to contract by 1.7% in 2025 and by 2.8% in 2026, reversing its earlier April forecast of modest growth.
The downturn, it said, reflects “a contraction in both oil exports and non-oil activity amid tighter sanctions, including the reimposition of UN measures, and disruption following the conflict in June.”
The report added that Iran’s oil sector has struggled to recover since renewed USand European pressure and United Nations sanctions took effect last month, targeting Tehran’s nuclear and military programs.
Those restrictions -- reinstated under the snapback mechanism -- have curtailed exports and complicated access to financial markets, deepening the strain on Iran’s heavily sanctioned economy.
The bank said the June conflict, which saw Israel and the United States strike Iranian nuclear sites, further disrupted trade and investment, slowing both industrial output and services.
Non-oil sectors, already weakened by inflation and currency depreciation, have seen a sharp drop in domestic consumption and private investment.
The report contrasts Iran’s outlook with that of its Persian Gulf neighbors, where higher non-oil growth and eased production curbs have lifted regional performance.
The World Bank now expects the MENAAP region -- covering the Middle East, North Africa, Afghanistan and Pakistan -- to grow 2.8% in 2025, up from 2.6% in its April forecast.
Still, it warned that developing oil exporters like Iran and Libya face the steepest challenges from conflict, energy disruptions, and global uncertainty.
Iran, home to the world’s second-largest gas reserves, has seen years of volatile growth amid sanctions and political isolation. The World Bank said the return of UN restrictions and regional instability risk prolonging the country’s economic stagnation, with output unlikely to recover until sanctions relief or new trade channels emerge.
