Iran’s economy contracted sharply during the first quarter of the Persian calendar as the conflict involving the United States, Israel and Iran disrupted oil production, industry and wider economic activity, according to official figures released by the Statistical Center of Iran.
Gross domestic product declined 10.1% year-on-year in the quarter running from March 21 to June 20, the data showed. The period covered much of the conflict that began with US and Israeli strikes on Iran on February 28.
GDP Falls 10.1% in First Quarter
Iran’s GDP contracted 10.1% when oil activity was included, according to the official statistics.
The decline was less severe when the oil sector was excluded. The country’s non-oil economy contracted 4.6% compared with the same period a year earlier.
The figures provide an indication of the scale of the economic disruption during the opening months of the conflict, although the Statistical Center of Iran did not explicitly attribute the contraction to the war.
Oil and Gas Sector Hit Hardest
The largest contraction was recorded in oil and natural gas extraction, which fell 26.4% year-on-year during the quarter.
Oil is particularly important to Iran’s economy because energy exports provide a major source of foreign currency.
The sharp decline in energy-sector activity therefore had a substantial impact on overall GDP and widened the difference between the headline contraction and the decline in the non-oil economy.
Industry and Mining Contract
Iran’s industries and mining sector contracted 14.7% during the quarter.
Industrial activity was affected by the wider disruption to production, transportation and trade during the conflict.
The contraction in manufacturing and mining added to the pressure created by the decline in oil and gas production.
Services Economy Falls
The services sector also recorded a significant decline.
Official data showed that services contracted 4.8% year-on-year during the quarter. The sector includes a wide range of activities that depend on domestic demand, transportation, commerce and other economic services.
The decline indicates that the economic impact extended beyond energy and industrial production.
Agriculture Records Growth
Agriculture was the main exception among Iran’s major economic sectors.
The sector recorded 2.3% year-on-year growth during the quarter, according to the Statistical Center of Iran.
The increase provided some support to the wider economy but was not large enough to offset contractions in oil, industry, mining and services.
Hormuz Disruption Adds Pressure
The economic shock occurred alongside disruption to one of the world’s most important energy routes, the Strait of Hormuz.
Iran moved to restrict shipping through the waterway following the strikes, affecting energy shipments and commercial traffic.
The disruption contributed to pressure on global oil markets and reduced shipping activity through the strategic passage, which connects the Persian Gulf with the Gulf of Oman.
Oil Exports Come Under Pressure
Iran’s crude exports also faced increasing pressure during the conflict.
Reuters reported that Iranian crude loadings declined from roughly 2 million barrels per day in March to approximately 220,000-255,000 barrels per day in August, following disruptions to shipments through the Strait of Hormuz.
The decline in exports has particular significance for Iran because oil revenues are a major source of foreign-exchange earnings.
Economy Faces Existing Pressures
The latest contraction came on top of economic difficulties that Iran was already facing.
US sanctions have restricted Iran’s access to international financial markets and trade, while currency weakness and high inflation have placed additional pressure on households and businesses.
The combination of reduced energy production, weaker exports, disrupted trade and existing financial constraints has increased pressure on the Iranian economy.
Full-Year Impact Yet to Be Seen
The latest figures cover only the first quarter of the Persian calendar, meaning they do not capture the full economic impact of the conflict.
The performance of oil production, exports, domestic consumption, industrial activity and trade in subsequent quarters will determine the extent of the annual economic slowdown.
For now, the official data show a sharp contraction during a period that coincided with major military and energy disruptions, with the oil sector recording the steepest decline.
