Historical Collapse in Iran's Economy: Middle Class Falls Below the Poverty Line

While Iran's economy is experiencing a historical collapse as a result of U.S. sanctions, the termination of the nuclear deal, and deepening crises, per capita income has fallen, inflation has broken records, and the urban middle class has slipped below the poverty line.

Economic Contraction and Annual Overview

Iranians have been struggling with a severe series of crises for years. Data points to a sharp decline in gross domestic product and the resulting soaring general budget deficit. This situation leads to a further erosion of the incomes of Iranian families, a large segment of whom have fallen into the grip of poverty and hunger.

In 2006, GDP per capita in Iran was around 5,975 dollars, and annual inflation was around 5.6 percent. By 2017, per capita income dropped to 5,500 dollars, while annual inflation rose to 6.9 percent.

Sanctions and Changes Over the Years

The year 2018 marked the first major rupture with the US withdrawal from the nuclear deal; per capita income fell to 4,783 dollars, while inflation made its first sharp jump, soaring to 20.6 percent. The decline continued in 2019; per capita income dropped to 3,300 dollars, while inflation broke the record of the period, reaching the 50 percent level.

In 2020, the pandemic year, the average annual income of an Iranian citizen hit rock bottom at 2,493 dollars, while inflation eased relatively to 36.4 percent. With the end of the COVID-19 crisis and oil prices starting to rise again, per capita income climbed to 4,605 dollars in 2021, but inflation spiked again, reaching 43 percent.

Economic Performance and Contraction Rates

On the economic performance front, Iran's economy shrank by 4 to 5 percent in 2018 under the direct impact of Washington's withdrawal from the nuclear deal and the reimposition of heavy sanctions on Tehran. This situation caused a crash in oil exports, paralysis in markets, and a collapse in the national currency.

According to International Monetary Fund data, Iran's economy shrank by 9.5 percent in 2019, exhibiting its worst performance since 1984. As the dosage of the sanctions policy increased, the pressure on the oil and gas sector and state revenues became even heavier.

Historical Depreciation of the Rial

The Iranian Rial has been experiencing a historic and free fall against the US Dollar since 2016. The dollar exchange rate, which was around 30 thousand rials at the beginning of 2016 in the free market, exceeded the 1.5 million rial threshold by 2026 with an unprecedented collapse.

In 2016, the dollar started the year at 30,000 rials; with political uncertainties and Donald Trump being elected US president, it rose to 41,500 rials by the end of the year. In 2018, with the US officially withdrawing from the agreement and putting sanctions into effect, the dollar spiked to the 90,000 rial threshold.

Budget Deficit and Energy Crises

Iran has been in a chronic crisis cycle that has deepened since 2016 with international sanctions, regional and global military tensions, the erosion of the local currency, and the destruction of purchasing power.

As the budget deficit deepened, power outages peaked in major cities and provinces during the summer months. Because the fuel sector could not meet domestic demand, the administration had to reduce gasoline quotas. Energy scarcity and rising operating costs placed unprecedented pressure on industrial and agricultural infrastructure.

Erosion of the Middle Class and Poverty

Current data shows that the poverty rate in Iranian cities has risen from 20 percent in 2016 to 36 percent today. This situation has led millions of new Iranians to fall below the extreme poverty line and the urban middle class to be virtually erased from the map.

According to parliamentary reports, more than 26 million Iranian citizens have fallen below the absolute poverty line. Salaries have lagged behind out-of-control price hikes on food, meat, and dairy products.