Iranian Rial in Freefall: Loses Half Its Value Since Pezeshkian Took Office

The Iranian rial has been in a dramatic freefall since Masoud Pezeshkian took office as president in mid-2024. In less than a year, the rial has lost more than half its value against the U.S. dollar, a sharp decline that has sparked panic across the country. 

This steep depreciation is driven by a combination of renewed U.S. sanctions, domestic economic mismanagement, and a breakdown in public trust in the currency. The Iranian economy is facing one of its toughest crises in decades, with widespread hardship, inflation, and uncertainty affecting the daily lives of Iranians.

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What Policies Led to the Current Collapse

The rial’s collapse can be attributed to a series of policy missteps and external pressures that have combined to create a perfect storm of economic turmoil. At the heart of the crisis is the renewed U.S. sanctions under the Biden administration, which have targeted Iran’s primary source of income—its oil exports—as well as its access to international financial networks.

• Sanctions and the Squeeze on Oil Revenue: The U.S. has implemented several rounds of sanctions, starting in early 2024, aimed at cutting off Iran’s ability to access hard currency. These sanctions target Iran’s oil exports, which are essential to the country’s fiscal health, and severely limit its ability to engage in international financial transactions. The sanctions have left Iran with minimal access to foreign reserves and have crippled the country’s ability to earn revenue from its main export. As a result, the government has been forced to print more money to fund its expenditures, contributing directly to rising inflation and currency depreciation.
• Domestic Economic Mismanagement: In addition to the external pressures, Iran’s domestic economic policies have worsened the situation. The Iranian government has been running large budget deficits, which are being financed by expanding the money supply. This practice has led to spiraling inflation, with prices for everyday goods surging dramatically. At the same time, the government has failed to implement any meaningful fiscal discipline or structural reforms to stabilize the economy. Political resistance to engaging in direct negotiations with the U.S. has further prolonged economic isolation and blocked potential pathways to easing sanctions or achieving economic normalization.

The failure to address these critical issues has left Iran’s economy on the brink of collapse, with the rial’s value continuing to plummet.

Public Confidence and Currency Hoarding

As the rial continues its freefall, public confidence in the currency has eroded. In early 2025, the rial crossed the psychologically important threshold of 1,000,000 rials per dollar, pushing many Iranians to abandon the rial in favor of more stable assets such as U.S. dollars, gold, and even cryptocurrencies. This shift in public sentiment has exacerbated the crisis.

• The Rush to Convert Savings: In the face of currency instability, many Iranians have rushed to convert their savings into foreign currencies or assets like gold. This behavior has intensified demand for dollars and other hard currencies, further driving up the cost of the rial. As the currency loses its value, citizens have sought to preserve their wealth by turning to alternatives, creating a vicious cycle where the growing demand for foreign exchange accelerates the rial’s depreciation.
• The Rise of Informal Markets: Currency hoarding has also fueled the growth of informal street markets, where individuals engage in speculative trading of the rial and foreign currencies. Official exchange offices have largely closed down, and the government’s inability to stabilize the currency has left people with little choice but to participate in these unofficial markets. During the Persian New Year (Nowruz), the volume of trading surged, with Iranians scrambling to exchange rials for more reliable forms of currency. This informal market activity only deepens the currency crisis, as it reduces liquidity in the official markets and drives up prices for everyday goods.

Government Response to Economic Panic

The Iranian government’s response to the economic crisis has been a mix of rhetoric, market interventions, and crackdowns. However, these measures have largely failed to restore confidence in the rial or halt its decline.

• Government Rhetoric and Public Reassurance: Iranian officials have attempted to reassure the public by downplaying the risks of further depreciation and signaling a willingness to engage in talks with the U.S. However, the government has remained firm in its stance of negotiating from a position of strength, refusing to engage in direct talks with the U.S. unless certain conditions are met. This rhetoric has not been enough to calm the public, and many Iranians remain skeptical of the government’s ability to resolve the crisis.
• Monetary Interventions and Limited Foreign Reserves: The Central Bank of Iran has intermittently intervened in currency markets, attempting to stabilize the rial by selling foreign currency reserves. However, the country’s foreign reserves are limited, and Iran’s access to global financial systems is restricted by sanctions. As a result, these interventions have had little effect in the long term. The government’s ability to stabilize the currency is further hampered by the lack of trust in the central bank’s ability to manage the economy.
• Repression of Currency Traders: To curb speculation, the government has cracked down on currency traders accused of hoarding or manipulating the rial. These measures have included arrests and raids on exchange offices, but they have not been successful in halting the rial’s slide. Such crackdowns may have made the public even more distrustful of the government’s handling of the situation.

Price Shock Across Daily Essentials

The collapse of the rial has had a direct and severe impact on the prices of essential goods. Inflation, which has already soared above 40%, has caused prices for staples like food and tobacco to skyrocket by over 70%. This surge in prices has further eroded the purchasing power of ordinary Iranians, pushing many into poverty.

• The Rising Cost of Living: As the rial continues to lose value, the cost of living in Iran has become increasingly unaffordable for the average citizen. With one-third of the population now living below the poverty line, the economic crisis is having a profound social impact. Iranians are struggling to afford necessities, and the financial strain is leading to growing discontent and unrest.
• Supply Chain Disruptions and Factory Shutdowns: The depreciation of the rial has also disrupted supply chains and increased production costs for Iranian businesses. Many factories have been forced to scale back production or shut down altogether due to the rising cost of imported raw materials and machinery. Unemployment has risen as a result, further exacerbating the economic hardship faced by the population.
• Stock Market Decline and Capital Flight: The Iranian stock market has also suffered a significant decline, as investors flee the rial and seek safer investments abroad. Capital flight has drained liquidity from productive sectors of the economy, leaving little room for growth or investment. This decline in the stock market is yet another indicator of the lack of investor confidence in the country’s economic future.

Is Stabilization Still Possible?

While the situation in Iran is dire, stabilization of the rial is not entirely out of reach. However, achieving stability would require a combination of domestic reforms and external factors that are currently lacking.

• Sanctions Relief and Diplomatic Engagement: The first step toward stabilization would be securing sanctions relief. However, this would require a significant diplomatic breakthrough, including Iran’s willingness to engage in meaningful negotiations with the U.S. and other global powers. Only through such negotiations could Iran hope to regain access to foreign reserves and reenter the international financial system.
• Fiscal and Monetary Reforms: Fiscal discipline is essential to restoring confidence in the rial. The government must reduce budget deficits and limit the central bank’s ability to print money to finance public spending. Inflation must be brought under control, and fiscal policies must be restructured to create a more stable economic environment. Greater central bank independence and transparency would also be necessary to regain public trust in the rial.
• Diversification of the Economy: Iran’s economy has long been dependent on oil exports, and this dependence has made it vulnerable to external shocks. To achieve long-term stabilization, Iran must diversify its economy and reduce its reliance on oil. This would involve developing other sectors such as technology, manufacturing, and agriculture. Structural reforms are needed to improve governance, reduce corruption, and restore investor confidence in the country’s economic future.

Final Word:

The collapse of the rial under Masoud Pezeshkian’s leadership is a powerful indicator of the economic and political challenges facing Iran. How the government responds to the crisis will determine whether Iran’s economy can be stabilized or if the country will continue its downward spiral. With external pressures mounting and internal dysfunction deepening, the next few months will be critical for Iran’s future. 

The leadership’s ability to address these challenges will ultimately decide whether the rial can recover or if Iran will face an even more uncertain future.