Iran activates ‘resistance economy’ to blunt impact of US and Israeli strikes

Iran has activated its “resistance economy” model, a strategy forged through 40 years of sanctions experience, to withstand external pressures amid an ongoing state of war with the US and Israel, according to a report by the Financial Times.

The Tehran administration has reportedly bolstered the domestic production of goods that are difficult to import, including pharmaceuticals, automotive components, and household appliances. The report further notes that the government is utilizing a “barter” system, exchanging oil for essential food supplies and technical equipment.

Drawing on lessons learned from the Iran-Iraq War in the 1980s, Iran has decentralized its energy infrastructure across the country, a strategic move intended to make these facilities significantly harder to target.

Economy faces durability test under wartime conditions

This economic framework is being tested by the realities of a conflict that began Feb. 28, during which the US and Israel have launched thousands of strikes against Iranian military and critical infrastructure.

Despite these pressures, the economy has demonstrated resilience. Officials have reportedly decentralized administration, accelerated import processes, and streamlined bureaucratic hurdles. Ground-based trade continues, retail shelves remain stocked, and fuel rationing has been implemented to manage domestic supply.

However, the nation continues to grapple with inflation exceeding 40%, falling living standards, and economic grievances that were acute even before the outbreak of hostilities.

The Financial Times highlights that economic discontent has been a primary driver of recent anti-government protests. Analysts suggest that while the current model allows the system to survive, it does not resolve the underlying crisis.

Risk of military-focused structure displacing civilian economy

“There is no doubt that the Iranian economy will suffer a shock from this war,” said Esfandyar Batmanghelidj, executive director of the London-based Bourse & Bazaar Foundation. “But I do not believe the economic crisis will be the factor that collapses the Iranian state in this conflict.”

According to Batmanghelidj, there is a high probability that the civilian economy will be weakened in favor of constructing a “military economy.”

Javad Salehi-Isfahani, an economist at Virginia Tech, argued that Iranian industry possesses the flexibility to pivot from imported goods to domestic production.

Salehi-Isfahani noted that this characteristic distinguishes Iran from its neighbors in the Persian Gulf. “They have an industrial infrastructure that has existed since the era of the Shah. They can survive at a certain baseline level, but living conditions will be extremely harsh,” he said.

Logistical risks and controls over Strait of Hormuz persist

Experts warn that disruptions to maritime logistics through the Strait of Hormuz could complicate the importation of wheat, oilseeds, and rice. The report also emphasizes the country’s heavy reliance on imports of soybeans, corn, and other grains to sustain its livestock sector.

In a separate development, the US Treasury Department on March 20 granted a temporary waiver, valid until April 19, for the export and sale of Iranian crude oil and petroleum products already loaded onto vessels.

Barak Ravid, a correspondent for Axios, claimed that this easing of sanctions could provide the Tehran administration with approximately $14 billion in revenue.

Amid these developments, Iran has implemented a new oversight mechanism, beginning to collect $2 million in transit fees from certain vessels passing through the Strait of Hormuz.

While India, Pakistan, Iraq, Malaysia, and China have reportedly entered direct negotiations with Tehran regarding tanker passage, it remains unclear which financial mechanisms will be used for these payments under the current sanctions regime.