Iran’s Economy Has Shrunk by 10% Over the Past Year

As Iran enters the (2026–2027), signs of recession, declining foreign trade and growing difficulties in accessing foreign currency resources have heightened concerns among business leaders.

However, what has drawn the strongest criticism from the private sector is not merely the decline in economic activity, but also the unequal distribution of economic pressures between formal producers and certain non-productive and informal businesses. Private-sector representatives warn that continuing this trend could further weaken the country's productive capacity.

Davoud Rangi, Vice Chairman of the Import Management Commission of the Iran Chamber of Commerce and a member of the Tehran Chamber of Commerce's Board of Representatives, told Eghtesad Online that the economic outlook for the second half of 1405 was concerning.

He said: “The collection of economic statistics reviewed by the Tehran Chamber of Commerce does not offer encouraging news about the country's economic situation. Estimates indicate that Iran's economy has shrunk by approximately 10% over the past year.”

Exports and imports decline, raising alarm over Iran's foreign trade

Referring to the decline in the country's foreign trade in recent months, Rangi said Iran's foreign currency revenues had been considerably better over the past year than they had been during the last three to four months.

However, he noted that the country's exports were now facing a sharp decline, with figures indicating an approximately 25% drop in both exports and imports.

Explaining the difficulties surrounding access to the country's foreign currency resources, he added that a substantial portion of Iran's foreign currency assets had been blocked in foreign banks or held by overseas companies, making them inaccessible.

According to estimates cited by business representatives, approximately $90 billion to $100 billion in foreign currency earnings generated through the country's economic activities has not returned to Iran. Part of this amount is reportedly attributable to funds frozen in foreign banks.

The Vice Chairman of the Import Management Commission also pointed to restrictions on access to foreign currency resources, noting that approximately €6 billion to €7 billion of the country's foreign currency assets currently remain inaccessible.

Taken together, these factors have made it increasingly difficult to secure the resources needed to sustain economic activity and finance manufacturing businesses.

Assessing Iran's economic prospects, Rangi stressed that declining production, falling exports and imports, and restricted access to foreign currency resources meant that the country's economic outlook for the next six months was not encouraging.

Manufacturers under mounting tax and insurance burdens

The Tehran Chamber of Commerce board member distinguished between different segments of Iran's economy, explaining that the country's private sector could broadly be divided into two main groups.

The first consists of formally registered and established companies with clearly documented financial records and accounts, whose activities are subject to government oversight. These businesses are continuously exposed to pressure from taxes, insurance contributions and other government claims and operating costs.

He said conditions were different in sectors such as construction and retail, where some business operators benefit from rising asset prices and increased transaction activity. However, tax and insurance burdens are not imposed on all sectors of the economy to the same extent.

Criticizing the unequal application of tax obligations across different economic activities, Rangi pointed to the housing market as an example.

“A building that was priced at 500 million tomans per square meter last year may now be worth one billion tomans per square meter. But is the profit generated by this increase in value taxed to the same extent as the taxes paid by a manufacturer or factory owner to conduct business?” he asked.

The Vice Chairman of the Import Management Commission also questioned the level of tax oversight applied to different economic activities, including gold retailers and small-scale retailers, asking whether all operators in these sectors were subject to the same degree of scrutiny and tax pressure as formal manufacturers.

In his view, certain sectors of the economy are benefiting from substantial growth and profitability, while manufacturers are facing increasingly high costs simply to keep their businesses operating.

He further emphasized the consequences of mounting cost pressures on producers, saying that sectors such as industrial manufacturing, agriculture and the food industry, particularly labor-intensive factories, were being squeezed by rising exchange rates, taxes, insurance contributions, duties and other government-imposed costs.

The continuation of these pressures, he warned, would gradually erode businesses' productive capacity and make it increasingly difficult for many of them to remain operational.

Smuggling: A competitor operating beyond the reach of taxes and oversight

Referring to the role of smuggled goods in supplying the Iranian market, Rangi said smuggling accounted for a considerable share of the country's economy.

He estimated that perhaps 20% to 30% of imported goods, particularly household appliances, electronic products and clothing, were supplied through smuggling channels.

Criticizing the lack of effective oversight of informal economic activities compared with the treatment of legitimate manufacturers, he added that smuggling was profitable in many cases. Unlike formally registered manufacturing companies, operators in this sector were not subject to the same level of regulatory scrutiny and tax obligations.

Comparing the conditions faced by legitimate manufacturers with those of suppliers of smuggled goods, the Vice Chairman of the Import Management Commission noted that factories, food producers, agricultural businesses and companies employing large numbers of workers were closely monitored by government institutions and required to pay substantial taxes, insurance contributions and other statutory costs.

By contrast, he said, a considerable portion of smuggling-related economic activity takes place without bearing comparable financial and regulatory burdens.

Summing up his assessment of Iran's economic outlook for the second half of 1405, Rangi emphasized that the combination of declining production, falling foreign trade, restricted access to foreign currency resources and mounting cost pressures on formal businesses offered little reason for optimism about the country's economic prospects over the next six months.