Expert Analyzes Iran's Economic Challenges Following Potential Conflict with US and Israel

Tehran has maintained control over the Strait of Hormuz and its population during the current conflict. President Donald Trump has stated intentions to target Iran's economy if the strait is not reopened within days. The Islamic Republic has continued actions against Persian Gulf neighbors, with both sides targeting civilian and energy infrastructure, which increases postwar rebuilding costs.

Iran's economy was already weakened before the conflict, contributing to domestic unrest and a government crackdown. Burcu Ozcelik, a senior research fellow for Middle East security at the Royal United Services Institute, wrote in an analysis published on Thursday that the regime's ability to resist threats and control the strait does not guarantee long-term survival.

Ozcelik noted that post-conflict reconstruction could pressure the patronage system supporting the regime. She explained that Tehran would need to rehabilitate relations with neighbors to restore commercial and financial channels, which previously helped Iran skirt Western sanctions and generate oil revenue. Gulf states served as conduits for these activities.

After the conflict, Gulf states are unlikely to return to previous arrangements without security guarantees from Iran, according to Ozcelik. The United Arab Emirates has revoked visas for Iranians and may freeze Iranian assets. UAE and Saudi Arabia have indicated support for continued US actions until Iran's control over the Strait of Hormuz ends, and they have considered joining the conflict.

Prolonged disruption to oil trade could increase market volatility, affect Iran's export position, and impact relations with its main oil buyer, China. Ozcelik stated that Iran cannot rely on collecting payments from ships passing through the strait as a primary economic strategy.

Recovery may depend on negotiated sanctions relief, but formalizing parts of Iran's economy could alter structures empowering groups like the Islamic Revolutionary Guard Corps. Ozcelik cautioned that while the war may strengthen the IRGC short-term, reconstruction demands on damaged energy and industrial infrastructure will strain the patronage system.

Over time, conditional re-entry into regulated economic channels could create new incentives for elites and opportunities for domestic opposition, Ozcelik wrote. The analysis raises questions about US patience in ongoing efforts.