Islamic Republic of Iran

Iran’s economy is characterized by its hydrocarbon, agricultural, and service sectors, as well as a noticeable state presence in the manufacturing and financial services. Iran ranks second in the world for natural gas reserves and fourth for proven crude oil reserves. While relatively diversified for an oil exporting country, economic activity and government revenues still rely on oil revenues and have, therefore, been volatile. With a population of over 80 million, Iran has a substantial domestic market and a well-educated workforce.

Following several years of growth, Iran’s economy is facing mounting pressures from structural challenges, the repercussions of the conflict in the Middle East, intensified sanctions and growing water and energy shortages that disrupt economic activity.

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Economic activity has been severely disrupted by conflict, economic sanctions, and social unrest. The rising cost of the conflict and potential disruption to oil exports could add severe fiscal pressures. Disruptions to imports of essential goods add inflationary pressures and raise food security risks.

Even prior to the latest conflict, economic activity was significantly disrupted in 2025, following the military escalation in June of that year, along with widespread protests and strikes, and a country-wide internet and telecommunications blackout. Overall, GDP is estimated to have contracted by 2.7 percent in 2025/26 (Iranian year ending March 20, 2026), also reflecting the additional impact of protests and intensified hostilities in the final quarter, as well as trade disruptions in March 2026 amid growing tensions in the Strait of Hormuz.

The ongoing conflict in the Middle East has placed the Iranian economy on a downward trajectory, with exceptionally high uncertainty surrounding the outlook. Growth prospects depend critically on the duration and intensity of the conflict, the extent of infrastructure damage, and disruptions to oil exports and trade routes. Oil sector performance is expected to be constrained by disruptions to shipping through the Strait of Hormuz, at least in the near term, while non-oil growth is projected to be limited by damaged infrastructure, persistent water and energy shortages, and weakened investment sentiment amid heightened uncertainty. High inflation and declining real incomes are projected to suppress domestic demand, while international trade is likely to remain constrained by financial sanctions and challenges in securing international transport and insurance services. Poverty is expected to increase, driven by high food inflation, import shortages and other conflict-related shocks.

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Until recently, the World Bank Group had no active lending program in Iran; the last IBRD project closed in 2012. However, the COVID-19 pandemic represented a major humanitarian crisis for the country—and with Iran the epicenter of infections in the region, contributing to the spread of the disease to neighboring countries and beyond—the World Bank approved a US$50 million Iran COVID-19 Emergency Response Project in May 2020, on an exceptional basis.

The project was part of the World Bank’s global approach to fighting the health crisis and promoting a public good. It supported the procurement of lifesaving, essential medical equipment for the country’s COVID-19 response. The World Health Organization (WHO) implemented the project. The World Bank made a direct payment of project funds to WHO, with no funding channeled to the Government of Iran. All the medical equipment financed by the project was procured, delivered, and installed in facilities serving civilians, and selected according to socio-economic criteria agreed upon by the World Bank and Iranian government. A Third-Party Monitoring Agency was contracted by WHO to independently verify delivery, installation, and the compliance of the health facilities involved with the World Bank Group’s social and environmental requirements. Based on the implementation of the project, in December 2021 the World Bank Board of Directors approved the Iran COVID-19 Emergency Response Project: Additional Financing of US$90 million to procure more medical equipment to meet Iran’s needs and bolster COVID-19 efforts. This financing followed the same path as the parent project, helping the country purchase lifesaving, essential medical equipment, and supporting its efforts to combat the spread of the disease.

The World Bank has been producing an economic report on Iran, the Iran Economic Monitor, since April 2016. The Monitor provides an update on key economic developments and policies.

All Iran Economic Monitors

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