Iranian leaders have touted the current truce as a victory over a devastating air campaign by the United States and Israel. In reality, the regime in Tehran faces a huge challenge – post-war reconstruction – that is pressuring it to come to the negotiating table to get sanctions relief, the WSJ reports.
During the five weeks of war, the US and Israel struck at least 17,000 targets, ranging from factories and rail, road and port infrastructure to government buildings and military facilities. Iranian state media put the reconstruction bill at around $270 billion, but analysts cautioned that it was premature to give a precise cost estimate as the economic impact of the damage continued to spread.
Reconstruction will be difficult given the interdependence of the affected infrastructure. The US and Israeli bombings have not only targeted infrastructure, but also industries essential to reconstruction, such as steel production, but also sectors that generate currency to pay for labor, such as petrochemicals. Therefore, Iran's ability to finance its economic recovery is seriously affected.
These problems come amid a deep economic crisis, which has already sparked large-scale protests at the beginning of the year. Although control of the Strait of Hormuz and the ability to strike targets in the Gulf has given Tehran leverage in negotiations with Washington, the scale of the reconstruction limits its room for maneuver.
“Iranian insiders are talking of an imminent economic catastrophe if Washington does not grant sanctions relief that opens up prospects for economic recovery,” appreciates Burcu Ozcelik, senior researcher at the Royal United Services Institute (RUSI). “ITdespite the prospect of an economic recovery, long-term regime survival will face sustained structural and popular pressure.”
Economic problems amid complicated negotiations with the US
The first round of US-Iran talks in Islamabad ended inconclusively, but both sides signaled there was room for compromise, including on the sensitive issue of uranium enrichment, with delegations set to meet for the next round of talks.
Throughout the war, Iran launched thousands of missiles and drones at the Gulf states and Israel, targeting especially economic infrastructure: energy facilities, airports and hotels. Although some targets suffered damage, the scale of the destruction is incomparable to that in Iran. According to some experts, the damages would exceed those during the Iran-Iraq war (1980-1988), in which about a million Iranians and Iraqis died.
But that war was mostly fought in the trenches, near the border. In the current war, however, the United States and Israel have launched more than 20,000 munitions at the country, many of them at Tehran and other urban areas.
Major targets included several petrochemical facilities in southwestern Iran, including the Bandar Imam complex, as well as the country's major steel plants. The petrochemical industry accounts for nearly half of Iran's non-oil exports, and the steel sector generates billions of dollars annually.
Experts say the attacks were deliberate, targeting economic sectors that bring in foreign currency and support the economy.
“Attacks don't happen randomly,” observed Kevan Harris, a specialist in Iranian economic development and society at the University of California, Los Angeles. “They target outward-facing sectors of the economy that generate foreign exchange earnings that could be redistributed and directed towards meeting basic needs.”
After the Israeli military struck the factories, Israeli Prime Minister Benjamin Netanyahu said the operations were targeting “the systematic dismantling of the financial mechanism of the Guardians of the Revolution”, the paramilitary wing tasked with protecting the regime and who are involved in Iran's economic activities and industry.
If not ended soon, the war in Iran could lead to a four-day work week and recession
On Wednesday, Iran banned exports of petrochemicals, most likely to secure stocks for domestic consumption. The US blockade of Iranian ports further increases the pressure on the budget, generating losses estimated at hundreds of millions of dollars per day.
According to an estimate by Miad Maleki, an analyst at the Foundation for Defense of Democracies, the blockade will cost Iran about $435 million a day, of which $276 million is in lost exports, mainly of crude oil and petrochemicals.
Blocking oil exports risks depleting storage capacities – within two, three weeks – which could force production to shut down – with long-term negative consequences for the fields.
The attacks also targeted the pharmaceutical sector – for example, Israel hit Tofigh Daru Research & Engineering Co, one of the most important companies, which produces anesthetics and drugs for the treatment of cancer, but also, according to Jerusalem, also substances that can be used in the manufacture of weapons. At the same time, Israel struck critical energy infrastructure such as the gas processing hub at Asaluyeh, shutting down some plants in the South Pars complex.
Industry and jobs at risk
In a context of recession and accelerated depreciation of the national currency, the destruction of production capacities risks increasing the unemployment rate, especially among the working class. The first effects are already visible, reflected in supply shortages and job losses, according to the testimonies of Iranians interviewed by the WSJ.
After an airstrike hit a petrochemical refinery in the southern city of Shiraz earlier this month, it cut off the supply of fertilizer produced by the facility and distributed across the country, said a 25-year-old student whose father is a farmer on the opposite side of the country in Mazandaran province.
Economists estimate that up to 12 million jobs, nearly half of Iran's workforce, could be affected, which would have a knock-on effect on the entire economy. The affected sectors are the main pillars of production and employment.
Hadi Kahalzadeh, an economist and former official at Iran's Social Security Organization, estimated that disruptions in the steel industry alone put more than 5.5 million jobs at risk, with another 1.2 million jobs threatened in the petrochemical and pharmaceutical sectors.
The US and Israel are preparing strikes on the new major target in the war: Iran's economy
“The sectors hardest hit by US and Israeli airstrikes are the mainstays of employment and production,” Kahalzadeh wrote for the think tank Bourse & Bazaar Foundation (London).
Despite the difficult situation, Iran has a solid industrial and agricultural base, as well as significant energy resources, which can support its reconstruction efforts.
For example, after last year's 12-day war with Israel, Iranian authorities bought time by stockpiling rice, cooking oil and other foodstuffs.
Social dissatisfaction and lack of confidence
However, the recovery is complicated by older problems, such as a deepening banking crisis and deep social discontent. Sanctions and mismanagement of the economy have already led to massive protests over the past year.
In addition, the blocking of the Internet by the authorities severely affects the business environment and the technology sector, limiting communication with external partners.
One of the biggest challenges for the authorities, however, remains the feeling of dissatisfaction among the population. Many Iranians have lost hope and are considering emigration, while the government's promises are viewed with skepticism.
“What matters now is the political situation,” commented Djavad Salehi-Isfahani, professor of economics at Virginia Tech. “People were very skeptical of the government's promises.”
