The International Monetary Fund forecast Tuesday that Iran’s economy would shrink 7.6% in 2026, a worse outlook than for its main Middle Eastern rivals amid the war, with Saudi Arabia and the UAE facing smaller contractions and Israel and Turkey expected to grow.
The IMF's latest World Economic Outlook revised Iran's forecast downward from a 5.4% contraction projected in July. The economy is now expected to shrink for a second consecutive year, following an estimated 0.9% decline in 2025.
The IMF expects the economies of the Middle East and Central Asia to contract by 0.3% this year, a sharp reversal from the 1.9% growth it forecast in April.
Several countries in the region face deeper contractions than Iran, with the IMF forecasting declines of 16.7% in Kuwait, 16% in Iraq, 15.6% in Qatar and 11.3% in Bahrain.
Saudi Arabia and the United Arab Emirates are expected to see smaller contractions of 3.3% and 3.9%, respectively. Others are projected to grow, including Egypt by 5.1%, Israel by 4.5%, Oman by 4.1%, and Jordan and Turkey by 2.7% each.
The deterioration in most regional countries reflects renewed military exchanges and prolonged disruption to shipping through the Strait of Hormuz, while Iran faces the additional pressure of the US naval blockade.
Iran's projected contraction nevertheless stands out, reflecting restrictions on its oil exports and an economy already weakened by years of sanctions and structural problems.
‘Deep recession’
Iranian government data presents a similarly bleak picture.
The Statistical Center of Iran reported last month that GDP contracted 10% in spring 2026 compared with the same period a year earlier, the sharpest quarterly decline in 15 years.
Even excluding oil, the economy shrank 4.6%, showing that the downturn extended well beyond the energy sector.
Oil and gas production fell 26.4% from a year earlier, while industry and mining contracted 14.7% and services 4.8%. Agriculture was the only major sector to expand, growing 2.3%.
Exports of goods and services fell nearly 36% and imports declined almost 15%. Household consumption dropped 4%, indicating a further weakening of domestic demand and purchasing power.
The figures contrast sharply with the global outlook, with the IMF expecting growth of just over 3% worldwide in 2026.
Officials offer rosier picture
Senior Iranian officials have continued to offer far more optimistic assessments.
Central Bank Governor Abdolnaser Hemmati told state television last week that inflationary pressures had eased during the summer and that the government had prevented the economic collapse predicted by Washington.
Former Labor Minister Hojjat Abdolmaleki went further in recent remarks that drew mockery on Iranian social media, saying inflation was effectively Iran's only economic problem.
“If you put high prices aside, you have no other economic problems,” he said.
Pressure on oil exports
Iran loaded no crude oil or condensate onto tankers throughout September, according to data from commodities intelligence firm Kpler, the first full month without loadings since the 1979 Islamic Revolution.
Washington has described its economic campaign as an effort to deprive Tehran of its remaining sources of revenue.
On October 8, the US Treasury imposed sanctions on 17 vessels and associated companies it identified as part of Iran's remaining shadow fleet.
Treasury Secretary Scott Bessent said the administration would continue targeting those facilitating Iranian oil sales.
The combination of the IMF forecast and Iran's own economic data points to a recession extending well beyond the country's energy sector.
How much deeper it becomes will depend in large part on the duration of the war, the blockade and Tehran's ability to restore oil exports.
The deadly attacks on Riyadh’s main airport mirror Iranian warnings to disrupt regional air travel in response to US sanctions, analysts say, while serving the Houthis’ own goal of pressuring Saudi Arabia over its support for rival forces in Yemen.
A Houthi missile strike on Riyadh’s King Khalid International Airport on Saturday killed 13 people and injured more than 300, according to Saudi authorities. A follow-up attack on Sunday killed one and wounded 11 others, prompting officials to extend flight suspensions on Monday.
Among the dead were an Indian national traveling with his family for Umrah, an Egyptian flight attendant and a Saudi pilot. Footage released by Saudi authorities shows passengers waiting inside a terminal before an explosion sends them fleeing through smoke and debris.
The attacks came weeks after Tehran warned it would disrupt regional aviation if US sanctions isolated Iranian airlines. No public evidence has established that Iran ordered the strikes, but analysts said they were consistent with its threats.
Yemeni-American analyst Fatima Abo Alasrar described the escalation as part of a familiar pattern in which Tehran seeks to export its economic hardship to its neighbors.
"Just as the United States said that it's going to conduct Operation Economic Outcast and impose sanctions on Tehran, Tehran is also doing economic outcast for Saudi Arabia through this pressure," said Abo Alasrar, a scholar at Ideology Machine.
Tehran's aviation threats
Senior Iranian officials issued the warnings as Washington intensified its economic campaign against Tehran.
US Treasury Secretary Scott Bessent recently announced measures aimed at shutting Iranian airlines out of global airspace, warning foreign airports, ground crews and fuel suppliers that aiding Iranian carriers would trigger exclusion from the dollar-based financial system.
"If they land, you cannot provide them with fuel, you cannot provide them with landing services, you cannot sell them tickets, or you will be knocked out of the dollar system," Bessent said.
Tehran responded with direct threats.
"If Iran cannot fly and receive airport services, no country in the region will have that possibility either," Mohammad Mokhber, an adviser to Iran’s supreme leader, wrote on social media.
Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, similarly warned that neighboring airports would be forced to shut down if they complied with US restrictions.
Behnam Ben Taleblu, Iran Program director at the Foundation for Defense of Democracies, placed the subsequent airport attacks within Tehran’s broader efforts to recover regional influence.
"This is a game of cross-domain escalation," he told Iran International.
"We can't forget that the strategic backdrop is Iran losing leverage in the Persian Gulf and Strait of Hormuz and trying to gain it back via proxy."
Iran has played a major role in developing the Houthis’ military capabilities since the group seized Yemen’s capital, Sanaa, in 2014.
A 2024 United Nations report found that the Houthis’ transformation into a powerful military organization was made possible by weapons transfers, training and technical assistance from the Islamic Revolutionary Guard Corps’ Quds Force, Lebanon’s Hezbollah and Iraqi specialists.
In July, Reuters reported that Iran had flown IRGC commanders, military advisers and missile- and drone-related equipment into Yemen during the current war, according to sources familiar with the transfers.
Tehran has repeatedly denied supplying the Houthis with weapons, while the group maintains that it makes its own military decisions."
The battle for Bab al-Mandab
The airport attacks coincide with military setbacks for the Houthis along Yemen’s Red Sea coast, where Saudi-backed government forces have recaptured territory near the strategic Bab al-Mandab Strait.
Abo Alasrar said the Houthis have an immediate objective of their own: forcing Riyadh to reconsider its support for Yemen’s internationally recognized government.
"The Houthis have both Tehran's intentions and their own aims on the ground," she said.
In her assessment, a sustained government advance toward Hodeidah, a major port on Yemen’s western coast, could threaten Houthi access to the sea and restrict routes used to move weapons and military components into their territory.
Losing their remaining coastal access could leave the Houthis effectively landlocked, a development Abo Alasrar described as a worst-case scenario for both the group and Tehran.
While Riyadh has strong incentives to de-escalate, she warned that concessions intended to secure a short-term settlement could allow the Houthis to rebuild their military capabilities.
Restoring access to airports or coastal territory, she argued, could reopen routes for smuggling missile components and other military supplies, setting the stage for another round of escalation.
A battle for public opinion
The killing and endangering of civilians in Saudi Arabia also risk undermining the Houthis’ efforts to portray themselves as defenders of Muslims, Abo Alasrar said.
"It exposed the hypocrisy of the Houthis, who have continuously been saying death to America, death to Israel, but then they're lobbing the missiles towards Muslim population," she said.
Images of passengers fleeing explosions have also become part of an information war unfolding alongside the military confrontation.
"The Saudi news channel Al Arabiya has adopted an unusually graphic approach, broadcasting harrowing footage of explosions and destruction reportedly inside Riyadh airport," Middle East political analyst and journalist Mohamed Fahmy told Iran International.
Fahmy said footage of the attacks, along with social media clips of Crown Prince Mohammed bin Salman offering condolences to a slain pilot’s father, appeared intended to prepare Saudis for further confrontation and reinforce confidence in the kingdom’s leadership.
Increased firepower alone was unlikely to end the confrontation, he said. A durable outcome would require deterrence, intelligence cooperation, political engagement and a military strategy for ending Yemen’s civil war.
Diplomacy amid escalation
Even as the Houthis continue their attacks, Tehran has sought to present itself as a potential diplomatic intermediary.
Iranian Foreign Minister Abbas Araghchi spoke with his Saudi counterpart, Prince Faisal bin Farhan, on Sunday about the conflict.
A senior Houthi official subsequently claimed that Saudi Arabia had considered proposals for a temporary ceasefire, although the group rejected them.
Fahmy said Tehran’s diplomatic outreach allows it to project an image of regional engagement while distancing itself from the actions of its armed partners.
The Revolutionary Guards said on Tuesday that five members of an alleged kidnapping cell and one of its personnel were killed near Zahedan, while separate reports said more than 20 members of an Iran-backed militia were killed or wounded in the area.
The IRGC Ground Force’s Quds regional headquarters said its forces located the group in the Kurin area after an engineer working on construction projects west of Zahedan was abducted a day earlier.
It said five members of the group were killed, the hostage was freed and one member of its forces was killed during the operation.
According to the statement, the kidnappers had links to armed groups and intended to take the engineer across Iran’s border into a neighboring country.
The statement supersedes an earlier report by the IRGC-affiliated Tasnim news agency, which had put the number of people killed in the operation at three.
More than 20 Fatemiyoun fighters reported killed or wounded in Taftan
Haalvsh, which covers developments in Sistan-Baluchestan, said more than 20 Fatemiyoun members were killed or wounded in fighting that continued for more than seven hours on Tuesday in the mountainous Chah Ahmad and Arzan Tak areas of Taftan County.
Citing local sources and eyewitnesses, Haalvsh said the first group sent into the area at around 6 a.m. included Fatemiyoun fighters traveling on about 18 motorcycles from a nearby base.
The outlet said armed men who had taken positions in the mountains opened heavy fire on the group. It said the dead and wounded were later removed in military vehicles.
Fatemiyoun is an Iran-backed Shiite militia made up largely of Afghan fighters and organized with support from the Revolutionary Guards. Its members have fought alongside Iranian forces in regional conflicts.
Haalvsh said reinforcements arrived in more than 40 vehicles, accompanied by reconnaissance and combat drones.
The outlet reported continued mortar and heavy-weapons fire toward the surrounding heights after some of the armed men withdrew from the main area of fighting. It also said residents could hear drones overhead.
The identities and affiliation of the armed men involved in the Taftan clashes remained unclear.
Attacks on police and military personnel
Sistan-Baluchestan, which borders Pakistan and Afghanistan, has seen a series of armed attacks and security operations in recent weeks.
On October 9, Iranian state media reported that Nosrat Eftekhari, a senior police official responsible for cultural and social affairs in the province, was killed in a roadside bombing on the Cheshmeh Ziarat road near Zahedan.
A day earlier, a member of a police commando unit was killed in an armed attack near Nosratabad. A separate attack on a vehicle carrying Iranian Army personnel near Nikshahr killed another serviceman.
On September 23, an armed confrontation in Saravan killed Hossein Zarifi, a commander with the IRGC’s Sajjad base, according to the Guards’ Quds regional headquarters. Haalvsh separately reported that another intelligence official was killed and at least 13 other personnel were wounded.
At least five members of the Fatemiyoun, an Iran-backed Shiite militia made up largely of Afghan fighters and organized with support from the Revolutionary Guards, were also reported killed in an armed attack near Zahedan on October 2.
More than 90 killed since March - HRANA
The US-based Human Rights Activists News Agency said Monday that at least 94 people had been killed and 33 wounded in 63 armed incidents across southeastern Iran between March 31 and October 10.
HRANA said attacks on patrol vehicles and military convoys were the most common incidents it recorded, followed by targeted shootings. It also reported increased use of mines, rocket-propelled grenades and heavier weapons by armed groups, while government forces used drones, artillery and armored vehicles in some operations.
The group said the People’s Fighters Front, an alliance formed in December 2025 that includes Jaish al-Adl and several smaller Baluch armed groups, had taken responsibility for six incidents documented in its report. Most attacks remained unattributed or could not be reliably linked to a particular group, HRANA said.
Sistan-Baluchestan, one of Iran’s poorest provinces and home to much of the country’s Sunni Baluch minority, has long seen armed confrontations between government forces and Baluch groups. Recent incidents have increasingly involved attacks on police posts, military vehicles and senior security personnel.
The Islamic Republic’s threats to target undersea internet cables in the Persian Gulf drew mockery and criticism from readers who told Iran International that such attacks could deepen Iran’s isolation and damage its own connectivity.
The responses followed a warning by Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, that communications cables, data centers and artificial intelligence facilities in the region could become targets if war resumes.
Hossein Shariatmadari, editor of the hardline Kayhan newspaper and the supreme leader’s representative at the publication, backed the warning and advocated cutting international fiber-optic cables to confront the United States and its allies.
“The threat to cut internet cables will end up like the Strait of Hormuz story: the whole region will have internet except Iran. Perhaps that is their aim,” one reader wrote.
Others mocked the proposal as an incentive to turn to satellite internet, with one calling it “the best advertisement for Starlink.”
‘Give him the wire cutters’
Much of the criticism focused on Shariatmadari, who wrote on Monday that nearly seven major international internet cable systems pass through the Persian Gulf and the Strait of Hormuz. He claimed even minor damage could disable more than 80 percent of commercial, banking, military and AI-related communications and disrupt the global internet.
Some readers questioned his technical understanding of the infrastructure he was proposing to attack.
“Give him the wire cutters. The strongman wants to cut the wires,” one wrote.
“Do you even know what fiber optics are?” another asked.
Other responses suggested the threats would encourage greater interest in Starlink, which provides internet access through low-Earth-orbit satellites and a dedicated terminal, without relying on local fixed or mobile networks.
“Starlink will surely support this too,” one reader quipped.
A reader from Firuzkuh wrote: “By the time you pick up the pliers to cut off the internet, Elon Musk will have activated Starlink. This remark alone gives him a good incentive to bring high-speed internet into Iran.”
‘Do you know anything about building?’
Other readers contrasted Shariatmadari’s proposal with what they described as his lack of interest in developing the country.
“Have you ever, even once in your life, thought about building and developing the country, now that you are threatening fiber-optic cables on the seabed?” one asked.
Another put it more briefly: “Do you know anything about building and development?”
One reader questioned the influence wielded by the newspaper editor: “The country has become so lawless that when Kayhan’s editor gives his opinion, you would think he was the supreme leader.”
Several messages drew comparisons with Shariatmadari’s earlier support for closing the Strait of Hormuz, warning that another attempt to disrupt regional infrastructure could backfire on Iran.
Shariatmadari has repeatedly advocated using communications infrastructure against Washington. On September 3, he urged Iran’s army and Revolutionary Guards to turn fiber-optic cables in the Persian Gulf into a means of confronting the United States.
Other hardline outlets have also promoted pressure on technology companies. In May, Tasnim News Agency called for charging foreign companies fees for cables passing through the Strait of Hormuz and requiring technology giants, including Meta, Amazon and Microsoft, to operate under Iranian laws.
Twelve attacks on commercial vessels were reported in and around the Strait of Hormuz and Persian Gulf between October 5 and 11, according to UK Maritime Trade Operations (UKMTO) warnings.
The attacks culminated on October 11, when six commercial vessels — five tankers and a container ship — were reported struck in the Strait of Hormuz and near Oman’s Sohar anchorage.
Several incidents were reported only after they occurred, meaning initial assessments did not capture the full number of attacks. The Joint Maritime Information Center (JMIC) listed three confirmed attacks in the Strait of Hormuz during the preceding 72 hours and another in the Persian Gulf in its October 11 advisory.
A crude oil tanker was struck by an unidentified projectile while transiting the Strait of Hormuz on October 6. The incident was reported to UKMTO two days later. No casualties were reported.
A tanker was struck by multiple projectiles about 51 nautical miles north of Madinat ash Shamal, Qatar, on October 7. UKMTO reported casualties.
A tanker at anchor off the UAE coast was attacked on October 9, while an outbound tanker was struck in the Strait of Hormuz on October 10, causing a fire. The crew of the October 10 vessel was reported safe.
Another outbound tanker was hit in the strait on October 11, damaging its steering gear room and a water tank. Five additional attacks from that day were subsequently disclosed in UKMTO warnings, bringing the October 11 total to six.
Hormuz threat remains severe
JMIC maintained the threat level for the Strait of Hormuz at SEVERE, its second-highest classification, saying deliberate hostile action was highly likely.
It cited recent Iran attacks and continuing navigation interference, as well as Revolutionary Guards attacks, hailing and routing pressure.
JMIC also said attacks were spreading beyond the Hormuz transit lanes to vessels at anchor in the Persian Gulf. It warned that further projectile or drone attacks could affect tankers at UAE anchorages and outbound vessels in the southern Omani corridor.
Hormuz traffic remains far below normal
Commercial traffic through the Strait of Hormuz remains below historical levels.
US Naval Cooperation and Guidance for Shipping data showed about 29 US-facilitated vessel transits per day over the preceding 72 hours, compared with a historical average of roughly 138 daily transits, according to JMIC. Independent tracking indicated substantially fewer vessels passing through the strait.
JMIC maintained the Strait of Hormuz security threat at SEVERE, its second-highest classification.
Washington could support the Saudi campaign against the Houthis at little direct cost by lifting political objections to its operations, but deeper military involvement risks appearing to widen the Iran war, senior Middle East analyst Ryan Bohl told Iran International.
Recent Houthi attacks on Saudi Arabia, including Riyadh’s international airport, have sharpened questions about how far Washington and other governments are prepared to go in supporting the kingdom.
Bohl, a senior analyst at the risk intelligence firm RANE, said the least costly US option would be to drop objections similar to those Washington raised over Saudi-led military operations before the 2022 truce. Those concerns included civilian casualties from airstrikes and the humanitarian consequences of an offensive on the Red Sea port city of Hudaydah.
Washington helped push for a halt to the offensive on Hudaydah in 2018. The UN-brokered Stockholm Agreement established a ceasefire there later that year.
“That will cost the United States virtually nothing,” Bohl said of lifting political objections, referring to munitions, troops and additional spending.
Greater intelligence support, assistance in targeting Houthi forces or direct American airstrikes would carry military, economic and especially political costs, he said.
“It will look like President Trump is now expanding the war that he seems to be trapped in with the Iranians.”
Air power has limits
Air power alone is unlikely to defeat the Houthis, Bohl said, but could help capable ground forces advance and hold territory.
He pointed to Yemeni units backed by the Saudi-led coalition, including the Giants Brigades, whose ability to capture and retain territory could depend heavily on tactical air support.
The question is whether those forces have recovered sufficiently from recent Houthi advances to mount a sustained counteroffensive.
Bohl said forces aligned with Yemen’s internationally recognized government had appeared disorganized after a Houthi advance toward the southern end of the Red Sea coast. Some units were now regrouping and resuming offensive operations, he said, but their ability to coordinate remained uncertain.
“The big question is, will they gain enough coherence in order to push back the Houthi advances around Taiz, and more importantly, push up the Red Sea coast towards Hudaydah.”
More support for defense than offense
Foreign governments are more willing to help defend Saudi Arabia than to support a campaign to recapture Houthi-held territory, Bohl said.
He cited Pakistani military support and Turkish preparations to provide defensive assistance as examples of efforts to protect the kingdom. Such support, he said, was primarily aimed at defending Saudi airspace and preventing further attacks.
An offensive inside Yemen would be a harder commitment to secure.
Israeli Prime Minister Benjamin Netanyahu is seeking Saudi consent through US mediation for Israel to join the campaign against the Houthis, Haaretz reported on Monday.
Saudi Crown Prince Mohammed bin Salman opposes Israeli participation over concerns about a public backlash, the newspaper said. Netanyahu reportedly hopes cooperation would strengthen ties with Riyadh and help advance normalization.
Many governments see the country as “a geopolitical black hole that their forces will disappear into and that they’ll never achieve victory,” Bohl said.
They also look to Washington to provide military capabilities they cannot deploy at comparable scale. Turkey could influence events in its neighborhood, he said, but would face greater constraints in sustaining an extensive campaign as far away as Yemen.
Whether an effective offensive coalition emerges will depend heavily on Washington’s objectives, Bohl said. Those could range from reversing recent Houthi gains to supporting a broader effort to recapture territory, potentially including Sanaa.
The United States’ 2025 air campaign ended with an Oman-brokered ceasefire with the Houthis in May that year. A campaign supporting territorial advances would raise a different question: how far Washington was prepared to help allied ground forces go.
“America’s role in it will be instrumental in us understanding whether or not a coherent offensive coalition can actually be put together and have an impact on conditions on the ground.”
