Iran's economy contracts sharply as US sanctions and war take toll

STRAIT OF HORMUZ, 30 AUGUST 2026 —

The Iranian government said foreign trade has fallen by a third since the start of the war with the United States, as annual inflation reached 66% last month and Washington ratcheted up financial penalties.

US Treasury imposes fresh sanctions on Iran-linked entities Washington has warned trading partners to cut business ties with Iran or face secondary penalties, though it stopped short of targeting major buyers such as China and India. On Friday the Treasury announced sanctions on Egypt’s Banque Misr for dealing with Tehran, along with a proposed rule that would freeze the bank’s UAE branches out of dollar transactions.

Egypt’s central bank said it was in contact with US officials over the move, which it described as limited to Banque Misr UAE’s US-dollar dealings with correspondent banks.

The Treasury also blacklisted a Hong Kong-based entity and a person linked to Iran’s Bank Melli, the notice on its website said. The penalties come six months after the US and Israel launched the war, and Washington has branded the latest measures “economic D-Day.”

Iran vows to keep Strait of Hormuz closed to shipping Despite the economic squeeze, Tehran signalled no retreat on Saturday, vowing to maintain control over the Strait of Hormuz, the chokepoint that carries one-fifth of the world’s oil and liquefied natural gas. Iranian forces say they laid mines in the waterway months ago; US military commanders say American teams have since cleared those hazards.

Iran’s Revolutionary Guards navy said Washington’s claim that the strait remains open “is an obvious lie,” and shipping data showed only seven commodity vessels passed through on Thursday, down from seventeen the day before and well below the ten-day average of fifteen.

Diplomatic efforts stall as war grinds on Six months of direct talks have failed to end the conflict. Qatar, a US ally and neighbour to Iran, tried to broker a revival last month: Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani met Iranian leaders in Tehran on Thursday to press for the pre-war status of free passage.

Iran’s foreign minister, Abbas Araqchi, called the discussions “creative,” but Tehran reiterated on Saturday that it would pursue diplomacy and defence as “two complementary wings” for protecting national interests.

Before the June memorandum of understanding that briefly paused fighting, Iran sold about ninety million barrels of oil under a US licence, Pezeshkian said. The accord collapsed after disagreements over access through Hormuz.

Iran’s economic plan: curb inflation, cut dollar reliance The government said in a statement on state media that tackling sanctions-related pressures is a central goal. Measures include curbing inflation, managing markets, creating jobs, directing investment toward domestic production, and gradually reducing reliance on the US dollar.

The White House has framed its campaign as financial pressure to force policy change, but the penalties risk collateral damage to global trade. Washington exempted China and India from immediate penalties, yet the proposed curbs on Banque Misr UAE underscore the extraterritorial reach of US sanctions and their potential to disrupt regional banking links.

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