In recent years, Iran’s economy has faced profound challenges that can be summed up in one word: “imbalance.” These imbalances—described by some as a form of “bankruptcy”—have manifested in various sectors, from natural resources like water to energy infrastructure and financial markets.
Water Bankruptcy: A Sign of Resource Imbalance
One of the clearest signs of imbalance in Iran is the dire state of its water resources. Kaveh Madani, head of the United Nations University Institute for Water, Environment and Health, calls the situation not a crisis, but “water bankruptcy.” He argues that a crisis implies a solvable condition, whereas Iran has moved beyond that point and reached an irreversible state. Water rationing in some regions and the severe depletion of water sources are visible signs of this bankruptcy. It is the result of years of mismanagement of water resources, overexploitation of underground reserves, and neglect of environmental sustainability.
Iran’s Economy in Crisis: Investment Collapse and Soaring Inflation
Roots of Economic Imbalance: Delusion and Miscalculation
Vahid Shaqaqi-Shahri, a state-affiliated economist, believes that Iran’s macroeconomic imbalances stem from abandoning rationality and wisdom in governance. He argues that populist policymaking, unrealistic delusions, and detachment from economic realities—combined with decades of sanctions—have brought Iran’s economy to its current state. These imbalances have resulted from flawed policies such as price controls, preferential currency handouts, and extensive government interference in the economy. Such approaches, reminiscent of failed experiences in countries like Cuba and Venezuela, have led to a sharp decline in investment, decaying infrastructure, and depletion of resources.
The 2010s were a decade of stagflation for Iran’s economy, with an average inflation rate of 27% and economic growth below 1%.
Energy Imbalance and Its Impact on the Private Sector
One of the primary victims of Iran’s macroeconomic imbalances is the private sector, especially critical industries like steel and cement. Unprecedented power outages—which began even before the summer—have severely disrupted production in these sectors. Electricity supply to some industrial units has dropped by 80% to 90%, resulting in halted production lines and reduced work shifts. These restrictions have not only diminished productivity but have also caused serious damage to machinery and the financial structures of these units.
The energy imbalance, which in 2024 extended even into the spring, deprived industries of the opportunity to compensate for lost production during non-peak seasons. This situation, coupled with the lack of coordination between the Ministry of Industry and Mining and the Ministry of Energy, has placed the private sector under even greater pressure. For example, signed agreements intended to manage electricity restrictions have been violated, and promises of improved conditions have remained merely words.
Financial Markets and Investment Imbalance
Mehran Fathi, a capital market expert, highlights the imbalances in Iran’s financial markets. Chronic inflation—with an official rate of over 32%—and a 60% increase in the free-market exchange rate have severely reduced investors’ purchasing power. A negative real interest rate (around -10%) has rendered bank deposits unprofitable, pushing investors toward alternative markets such as gold, foreign currency, and real estate. The stock market has also underperformed, with the main index growing by only 19% to 23%, and the equal-weight index by just 7% to 9%, reflecting the gap between large export-driven corporations and smaller firms.
Gold and coins have delivered the highest returns—over 100%—but this success stems from inflationary concerns and a deep lack of trust in the national currency. The fixed-income market, too, has suffered from negative real returns and has failed to keep up with inflation.
Imbalance in the Rationality of Delusional Rulers
Iran’s macroeconomic imbalances—from water bankruptcy to energy crisis and financial market instability—are the product of years of mismanagement, destructive economic policies, and the economic irrationality of the Iranian regime’s officials. These imbalances have not only worn-down economic infrastructure but also eroded trust in policymaking and the business environment. A lack of institutional coordination, short-term decision-making, and disregard for structural reforms have brought Iran’s economy to the brink of one of its most difficult decades. These conditions—marked by chronic inflation, stagflation, and declining investment—reflect the depth of a crisis that has surfaced from the underlying layers of the economy and can no longer be concealed.
