Iran economy faces deeper contraction as inflation hits 89.8%. job losses mount
Iran’s struggling economy could see as many as 1.4 million people leave the labor market by the end of the Iranian calendar year if the pattern of economic contraction continues, Seyed Malek Hosseini, deputy for entrepreneurship and employment in Iran’s Cooperatives, Labor and Social Welfare Ministry, warned in an interview with the Iranian Labor News Agency earlier this week.
According to official figures cited by Hosseini, around 700,000 jobs were lost during the war, although he acknowledged that unofficial reports suggest the actual figure could be closer to two million. The economy and employment sector had also been hit by an internet blackout lasting nearly three months starting during the January protests, which left many people unable to access the online platforms and services needed to run their businesses and carry out their work.
Hosseini said that even if all 700,000 people whose job losses the government acknowledged applied for monthly unemployment benefits, the 16 million to 17 million tomans they would receive would be insufficient to cover basic living costs amid soaring inflation.
The Statistical Center of Iran reported last month that year-on-year inflation reached 89.8% in September 2026, while the national consumer price index rose 4.2% from August to 729.8. The soaring cost of living has reportedly had fatal consequences. Jalal Hashemi, chairman of the Iran Air Retirees Association, told ILNA that two retired Iran Air employees had died after they could no longer afford treatment and medication.
Despite the regime’s failure to increase retirement and welfare benefits and amid weekly protests, Lebanon-based Hezbollah has reportedly received tens of millions of dollars from Iran to build up its military capabilities ahead of future wars with Israel, according to unnamed sources who spoke with Reuters earlier this week. This is in addition to $200 million reportedly provided last month to compensate the displaced.
Chronic structural issues in labor market
Hosseini said that 54% of Iran’s labor market was in the informal sector, a share that had grown further following the war. Many workers in this sector lack employment protections and insurance coverage, while others are unable to secure enough working hours or income to meet their basic needs.
“It shows that our labor market suffers from chronic structural problems,” Hosseini said. “Formal employment and extensive insurance coverage are products of a dynamic, capable economy that experiences high growth rates over long periods.”
Drawing on a 20-year assessment, Hosseini said Iran’s economy had recorded average annual growth of around 2.2% to 2.3% over the past two decades. Each percentage point of economic growth, he said, created approximately 170,000 jobs, while each percentage-point decline was associated with an average loss of around 170,000 jobs.
Before the wars with Israel began, Iran had a working-age population of 65 million and a labor force participation rate of 40%, Hosseini said. He added that more than one million jobs had already been lost, with the number of employed people falling from 24.7 million to approximately 23.5 million to 23.7 million by the end of March 2026.
“Official reports show that economic growth in the spring, compared with the same period in the previous year, was negative 10% excluding oil and negative 4.6% including oil. Given the increased sanctions and the serious economic blockade, we expect the summer to follow the same trajectory,” Hosseini said.
“Negative growth inevitably reduces employment. When consumers’ purchasing power and demand for furniture, electronics, food and other goods decline, businesses reduce production. Lower revenue then forces them to cut costs.
“Businesses’ resilience has been depleted. Since sanctions were reimposed in 2018 under US President Donald Trump’s first administration, Iran has faced sanctions, COVID-19, high inflation and three periods of conflict. Inflation, particularly in the cost of production inputs, has driven up expenses while reducing demand. Businesses have consequently had to scale down or leave the market entirely.”
Hosseini said that nearly 740,000 people had left Iran’s formal labor market following the 12-day war in June. That figure does not include workers in the informal sector, who are not covered by the relevant employment insurance.
Around 1.15 million people were removed from Iran’s compulsory social insurance rolls between March and August, although further analysis is needed to distinguish retirements, disabilities and new registrations, Hosseini said.
By the end of August, around 300,000 people had been added to the number of unemployment-benefit recipients and were receiving payments, Hosseini said. However, many people who had lost their jobs had not yet applied for benefits, either because they hoped to return to their previous employment or because they wanted to preserve their eligibility for a more serious emergency.
Further contractions expected in coming months
In an exclusive with Iran International on Tuesday, US Treasury Secretary Scott Bessent said he predicted the Iranian economy would retract an additional 25% by next March and recommended that Iranian civilians begin stocking up on gasoline.
According to the Financial Times, Iran’s first vice-president Mohammad Reza Aref earlier this week began urging citizens to limit their use of subsidized gas to prepare for greater domestic demand in the winter. Iranian Parliament Speaker Mohammad Bagher Ghalibaf has also previously called for citizens to cut the country’s natural gas consumption by 10%.
With Iran’s energy infrastructure significantly damaged by the war, caretaker Oil Minister Hamid Bovard discussed joint oil and gas projects with Russian President Vladimir Putin in Moscow on Monday, with Tasnim reporting that a gas trade deal was “almost finalized” and that Russia was developing four major Iranian oil fields under contracts agreed by both sides.
“My advice to the Iranian people would be: don’t pay your taxes because you’re not going to get anything back from the government,” Bessent said, though taxes are often automatically deducted from employee pay.
“We are seeing the regime go bankrupt,” Bessent said. “So many of the people who are holding money outside of Iran do not want to send it back in.”
Bessent added that unsanctioned Iranians could provide information to the US Treasury under its whistleblower program and be rewarded with up to 30% of recovered funds.
