War weighs on Iran’s economy as US intensifies sanctions

DUBAI/CAIRO: Iranian leaders are acknowledging the economic toll of war with the US, with the supreme leader urging the government to address the hardship and the president saying foreign trade has shrunk by a third due to the American sanctions and blockade.

Yet Tehran signalled no retreat on Saturday, vowing to withstand US pressure, pursue diplomacy and maintain what it said was control over the Strait of Hormuz, the strategic waterway giving Iran leverage through its ability to disrupt global energy markets.

The government said in a statement on state media that addressing economic pressures caused by sanctions and war was a central focus, including curbing inflation, managing markets, creating jobs, directing investment towards domestic production and gradually reducing dependence on the dollar.

Six months after the US and Israel launched the war, negotiations are at an impasse and President Donald Trump’s administration has stepped up efforts to punish Iran financially with what it has billed as an “economic D-Day”. Washington has warned countries to cut business ties with Iran or face secondary sanctions, though the Treasury Department stopped short of imposing penalties against major Iranian trade partners such as China and India, which could have repercussions for the US and global economies.

The Treasury imposed sanctions on Egypt’s Banque Misr for doing business with Tehran, proposing a rule that would cut off the bank’s branches in the United Arab Emirates from dollar transactions. Egypt’s central bank said it and the foreign ministry were in contact with US officials concerning the matter, adding the measure was limited to Banque Misr UAE’s US dollar transactions with correspondent banks only.

Banque Misr said on Saturday it was reviewing the US Treasury notice, adding that its branch in the UAE continued to provide banking services to its customers.

The US has also issued sanctions targeting an entity based in Hong Kong and a person linked to Iran’s Bank Melli, according to a notice on the Treasury website.

The sanctions drive compounds the toll of the war on Iran’s economy, where annual inflation hit 66 percent last month. Supreme Leader Ayatollah Mojtaba Khamenei — who has not been seen publicly since he was injured in the initial February 28 attack that killed his father and former Supreme Leader, Ayatollah Ali Khamenei — called on the government to tackle the economic hardship.

“There is the need to seriously address the chain of economic and livelihood challenges, such as inflation, unemployment, management of prices and the market for goods and services,” he said, according to a written statement attributed to Khamenei. President Masoud Pezeshkian told state media that Iranian exports and imports had slumped nearly 35 percent because of US sanctions and a naval blockade of Iranian ports. But he said Iran was able to sell about 90 million barrels of oil during the short-lived memorandum of understanding that the US and Iran signed in June, when Washington permitted Iranian oil sales.

Later on Saturday, Pezeshkian called on state TV for a revival of the interim deal, which was signed on June 17 but quickly unravelled amid disagreements over what had been agreed, especially on the status of the Strait of Hormuz.

“We can solve our problems and gain our privileges with the memorandum of understanding,” he said of a document that had offered Iran, among other things, immediate relief from US sanctions and the release of its frozen assets.

With the US focused on its economic pressure campaign, others have sought to revive diplomatic efforts to end the war. Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani met with Iranian leaders in Tehran on Thursday. He said he had stressed during the meeting the importance of returning to the pre-war status of open shipping through the Strait of Hormuz.

Iranian Foreign Minister Abbas Araqchi on Friday described the talks with Al Thani as “creative”.

In Saturday’s statement, Iran said diplomacy and defence were “two complementary, coordinated and inseparable wings” for protecting the country’s national interests, security and territorial integrity. It said it would pursue both tracks in a balanced manner.

Qatar, a US ally and Gulf neighbour to Iran, and Pakistan helped broker the June memorandum of understanding.

Before the war, the Strait of Hormuz carried 20 percent of the world’s oil and LNG. US military commanders say American forces have cleared sea mines from the strait that had been laid months ago by Iran’s Islamic Revolutionary Guard Corps. Trump has repeatedly said the strait is open, but the Revolutionary Guards’ navy said in a statement that such claims “are an obvious lie”, reiterating that the waterway remained closed to ships without Iranian permission.