4 Charts Show How War Is Throttling Iran's Economy

• Iran's pain from the war is increasing as the US blockade continues.
• The nation's oil exports—the backbone to Iran's economy—have been hit hard.
• Inflation has also soared amid supply shortages and a sharp drop in its currency.

The war in the Middle East is entering its third month, and Tehran is struggling.

Iran's economy is flashing signs of serious economic stress, which is increasing the longer the conflict drags on. The nation, one of the world's largest oil producers, is also feeling the pain of the closure of the Strait of Hormuz, which has clobbered a key source of income for.

The economic damage to Iran has accelerated since the US imposed its naval blockade, which have hindered oil sales and cut Iran off from its imports, according to Jason Tuvey, the deputy chief emerging markets economist at Capital Economics.

"The US blockade has cut Iran's financial lifeline and strains are growing in its balance of payments," Tuvey said, noting that Iran was estimated to have only enough reserves to cover around 3 months of what it imported before the war.

"So unless the regime seeks concessions from the US to lift the blockade, the economy will have to remain extremely depressed," he added.

Here are the signs of economic pain brought on by the war.

Oil exports have plunged below pre-war levels

Iran's oil exports have plummeted below pre-war levels in the last month. The nation exported an average 1.1 million barrels of crude a day in March, a 45% reduction from February's exports, according to tracking data from the American Coalition Against Nuclear Iran.

Oil is Iran's largest export and is largely considered to be the backbone of its economy. That business has been hit hard by the blockade and the destruction of key energy facilities in the Middle East.

"The blockade is strangling Iran's oil exports," Tuvey said. "Iran will struggle to boost non-oil exports to offset the hit to oil revenues, especially as factories are likely to have been damaged and transit routes may be inaccessible."

"As Iran's oil exports collapse, there'll be no cash for imports, so activity implodes, the currency goes into a devaluation spiral and hyperinflation ensues," Robin Brooks, the former chief economist of the Institute of International Finance, wrote in a Substack note shortly after the US began its naval blockade.

Iran has become increasingly reliant on China for cash

The lack of oil flowing out from the Middle East has made Tehran increasingly reliant on Beijing for support. China now accounts for 99% of all of Iran's tracked oil sales, according to data from the American Coalition Against Nuclear Iran, up from an 87% share at the end of last year.

Iran's currency has collapsed

Iran's rial has plummeted to a record low against the greenback. The US dollar was worth around 1.8 million rials as of Wednesday, its lowest ever value.

The sharp drop in the rial could be a sign of capital flight as Iranians transfer their money into other currencies and stores of wealth, Brooks wrote in a note this month.

"Best place to see this capital flight is in the parallel exchange rate, which has seen the Rial weaken sharply against the Dollar in recent years as the chart above shows. That will now accelerate as more and more households head for the exit," he added.

Inflation is soaring

Inflation in Iran has accelerated since the start of the war. Iran's average annual inflation rate topped 53% in March, according to the latest data from Iran's state statistics center.

Inflation has accelerated partly due to the blockade, which has cut Iran off from imports and led to a shortage of goods, Capital Economics' Tuvey said.

"Iran needs foreign exchange if imports are to recover — otherwise domestic demand will have to remain at extremely depressed level and goods shortages will fuel even higher inflation," he added.

In its latest forecast, the International Monetary Fund projected that Iran's average annual inflation will near 69% by the end of the year, citing the impact of the war and the prolonged closure of the Strait of Hormuz.