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Iran’s Supreme Leader said on Sunday that if the United States were to start a war, it would become a wider regional conflict, state media reported.
“America should know that if it starts a war, this time it will be a regional war,” Ali Khamenei said, dismissing recent US threats as nothing new.
Khamenei said US officials have repeatedly talked about war and touted aircraft carriers and planes in the past, often claiming “all options are on the table,” including military action.
He also took aim at President Donald Trump, saying Trump frequently says the United States has brought in ships, but that Iranians should not be intimidated by such moves.
Khamenei said the Iranian people are not swayed by these threats and will not be frightened by US military posturing.
Iran armed forces’ readiness is higher than during 12-day war, said the deputy commander of Iran’s Islamic Revolutionary Guard Corps on Sunday.
Ahmad Vahidi pointed to the US military movements in the region and said, “the enemies are trying to impose a war atmosphere, and this is part of their psychological operations."
He added that, “We must not fall into this trap, and the country’s activities must not be affected in any way by these operations.”
According to Vahidi, all enemy movements are completely under Iran’s control.
Iran will treat the armies of European Union countries as “terrorist groups” after the EU designated the Islamic Revolutionary Guard Corps as a terrorist organization, parliament speaker Mohammad Bagher Ghalibaf said on Sunday.
“By trying to hit the Revolutionary Guards ... the Europeans actually shot themselves in the foot and once again made a decision against the interests of their people by blindly obeying the Americans,” Ghalibaf told lawmakers, who were wearing Revolutionary Guard uniforms in a show of support for the force.
“According to Article 7 of the law on countermeasures against the designation of the Revolutionary Guards as a terrorist organisation, the armies of European countries are considered terrorist groups,” he added, saying parliament’s national security commission would consider expelling EU military attaches and pursue the matter with Iran’s foreign ministry.
Iran’s currency has lost half its value in just six months and is now at risk of losing its role as both a store of value and a functioning currency, as households and businesses increasingly shift prices, savings, and expectations toward the US dollar.
Just before the 12-day war with Israel in June 2025, one dollar traded for around 800,000 rials on Iran’s open market. It now trades at roughly 1,620,000.
The exchange rate has become a blunt signal of economic breakdown, turning the rial into a symbol of dysfunction and accelerating a broader retreat from it as a viable unit for planning daily life.
Policymakers routinely attribute currency surges in Iran to speculation and short-term panic. In reality, the collapse reflects deeper structural imbalances that have pushed the market into a state of chronic disequilibrium.
These pressures fall into two broad categories: chronic domestic problems—persistent budget deficits and a banking system plagued by structural imbalances and quasi-fiscal money creation that drive inflationary pressures—and external shocks, including tightened sanctions, recurring political crises, and the constant threat of war.
Together, these forces transform pessimistic expectations into self-fulfilling inflation.
A failing playbook
Faced with yet another currency crisis, the government has reverted to familiar, largely ineffective tools that may offer brief relief but ultimately deepen instability.
One tactic is “news therapy”—attempts to manage inflationary expectations through signaling and narrative control. Such signals only work when backed by consistent policy, institutional credibility, and public trust.
In Iran, years of broken promises and contradictory actions have eroded that trust, leaving each new round of reassurance less effective than the last.
Officials seek to suppress demand, urging people to “refrain from buying dollars” and insisting that “everything is under control.” But such messages often reinforce pessimism, as an already skeptical public reads them as a warning of further depreciation.
Currency injections—flooding the market to push prices down—have increasingly become a channel for rent distribution and corruption. At best, they buy time at enormous cost. Without addressing root causes, they intensify the recession-inflation cycle and pave the way for sharper future devaluations.
Millions left behind
These currency shocks have devastated daily life for ordinary Iranians, eroding purchasing power and making normal economic planning nearly impossible.
High inflation hits fixed-income households hardest—roughly half of Iran’s workforce—whose wages lag far behind rising prices. Each jump in the dollar translates into lower living standards, pushing millions deeper into economic precarity.
Business owners and large investors, by contrast, are often able to convert assets into more portable stores of value.
Official data point to massive capital flight—around $20 billion in 2024. In the few months prior to the June 2025 war, net outflows reached roughly $9 billion. Given the succession of shocks and Iran’s semi-shutdown state this year, a figure approaching $40 billion for the rest of 2025 appears plausible.
That exodus, in turn, feeds further instability and pushes the dollar higher. In this environment, those lacking the knowledge, access, or means to protect their assets face a growing risk of being left behind.
The specter of dollarization
The rial’s free fall is not merely a temporary crisis; it reflects deep structural failures in Iran’s economy.
Sustainable currency stability would require reforms spanning foreign policy, fiscal discipline, and the restoration of public trust. Instead, Iran’s central bank has shifted away from monetary discipline toward currency-market arbitrage and large-scale gold auctions.
These measures may buy time or temporarily suppress prices, but they contradict basic principles of monetary governance and expose the extent to which the central bank has been reduced to a tool for managing budgetary and political failures.
As trust in the rial as a store of value and unit of account erodes, economic actors will increasingly rely on foreign currencies, further hollowing out the national currency’s role. Without fundamental change, the trajectory points toward dollarization.
For now, the rial’s free fall continues—and Iranian society, especially those least able to adapt, is paying the price of today’s instability and tomorrow’s risk of collapse.
Two explosions in southern Iran killed at least seven people and injured more than a dozen on Saturday, with officials blaming gas leaks, residents questioning the claim, and Israel denying any involvement.
In the southern port city of Bandar Abbas, an explosion in a residential building killed at least two people and injured 14 others, a local crisis management official told state media.
The local fire department chief said the blast was caused by a gas leak, a preliminary assessment echoed by state news outlets. However, one resident said in a video obtained by Iran International that the building was not yet connected to the gas grid.
Videos and images from the site showed significant structural damage to the building, with two floors destroyed and debris scattered nearby.
The Islamic Revolutionary Guard Corps (IRGC) denied rumors that the Bandar Abbas blast targeted its Navy commander, calling the reports false, according to the IRGC-affiliated Tasnim News Agency.
A video released by a local newspaper showed a man in uniform had been injured in the blast. However, local officials later said he was a Law Enforcement agent who was injured while trying to help the victims.
Separately, in Ahvaz in southwestern Iran, another explosion attributed to gas leak killed five people and injured three others, according to state media.
Reuters quoted two Israeli officials as saying the Jewish State was not involved in the explosions.
Iranian authorities said they were investigating both incidents and did not immediately provide further details on the causes.
Following a 12-day war between Iran and Israel last June, mysterious explosions and fires were reported at residential, commercial and infrastructure locations in several cities of Iran, including Tehran, Karaj, Qom, Mashhad and Tabriz.
In many cases, Iranian officials and state media described them as accidents, frequently citing gas leaks or technical causes, and said investigations were ongoing.
