Iran vows devastating response as US threatens unprecedented sanctions amid deepening economic crisis

TEHRAN, Iran —Iran has warned of a “devastating” response to any new U.S. measures aimed at cutting off its remaining economic lifelines, as Washington prepares what it describes as the toughest financial sanctions in its history and Iranian households face rapidly worsening economic hardship.

Iran’s Armed Forces Chief of Staff, Major General Ali Abdollahi, said Friday that Iran was prepared to respond across land, sea, air, air defense and cyberspace to what Tehran considers escalating U.S. threats. Iranian President Masoud Pezeshkian and Parliament Speaker Mohammad Baqer Qalibaf have also called for resistance against what they describe as American and Israeli economic warfare. Reuters reported that U.S. Treasury Secretary Scott Bessent is expected to announce additional punitive measures on Monday.

The confrontation is unfolding as Iran’s economy comes under mounting pressure from sanctions, disruptions to oil exports and restrictions on shipping through the strategically vital Strait of Hormuz. The United States has also warned countries and companies that provide Iran with financial or commercial support that they could face severe economic consequences.

For ordinary Iranians, the economic pressure is already translating into sharp increases in the cost of living. The Associated Press reported that grocery stores in Tehran remain stocked, but many families can no longer afford basic food and household necessities. Rice is about 60% more expensive than before the war, while beef prices have risen by roughly 150%, according to AP reporting. A 52-year-old taxi driver interviewed by AP said he has been working as much as 15 hours a day while cutting fruit, protein and leisure spending from his family’s budget.

The International Monetary Fund projects that Iran’s consumer prices will rise by 68.9% in 2026, while real gross domestic product is projected to contract by 5.4%. Those figures underscore the scale of the economic shock facing the country.

The World Bank has likewise reported severe economic deterioration. Its assessment found that Iran’s economy contracted by an estimated 2.7% in the Iranian year ending March 2026, while inflation reached 62.2% year-on-year in February and food-price inflation climbed to a historic 99%. The bank said the rial had depreciated by 44% year-on-year in early March, contributing to a further erosion of household purchasing power.

Unemployment is adding to the pressure. Although official figures put unemployment at 9.1%, AP reported that an Iranian Labor Ministry official said more than 1 million jobs had been lost by late May, only about three months into the war.

Iran’s dependence on oil revenue makes the restrictions particularly damaging. The United States has been targeting Iranian oil exports, shipping networks and financial channels in an effort to restrict Tehran’s ability to generate and move foreign currency. The U.S. Treasury said in August that it had taken repeated actions against Iranian shadow-banking networks and other mechanisms used to move hundreds of millions of dollars through the international financial system.

Washington’s campaign has also expanded beyond Iran itself. U.S. authorities have targeted foreign companies, financial intermediaries, shipping operators and procurement networks accused of helping Tehran evade sanctions. Treasury said in June that its broader “Economic Fury” campaign had disrupted tens of billions of dollars in revenue that might otherwise have remained accessible to the Iranian government and its affiliated groups.

The latest escalation is part of a sanctions regime that has existed for decades. The United States first imposed major sanctions on Iran following the 1979 hostage crisis. Nuclear-related international sanctions were subsequently imposed as concerns over Iran’s nuclear program intensified. Under the 2015 Joint Comprehensive Plan of Action, or JCPOA, Iran accepted restrictions on its nuclear activities in exchange for sanctions relief. President Donald Trump withdrew the United States from the agreement in 2018 and restored sweeping sanctions under a “maximum pressure” campaign.

Iran has survived years of sanctions partly by developing alternative trade and financial channels. According to AP, the country has expanded domestic production, relied on informal cross-border trade, acquired restricted goods through third countries and used a shadow fleet to transport oil. These mechanisms have allowed Tehran to continue generating some revenue despite restrictions on its access to conventional international banking and shipping networks.

The Strait of Hormuz has become a central point of the confrontation. The waterway connects the Persian Gulf with the Gulf of Oman and is one of the world’s most important routes for energy shipments. Reduced shipping traffic through the strait has already affected oil markets and raised concerns among Gulf states whose economies depend heavily on energy exports and maritime trade. Reuters reported that only seven commodity ships passed through the strait on August 21, about half the previous day’s traffic.

Iran has repeatedly used the possibility of restricting the strait as leverage during periods of confrontation with Washington. The current crisis is particularly consequential because any prolonged disruption could affect global oil supplies, shipping costs and energy prices far beyond the Middle East.

The economic pressure is also creating a difficult political calculation for Iran’s leadership. AP reported that President Pezeshkian’s administration favors a negotiated end to the conflict, while hard-line elements within the Revolutionary Guard are pressing for tougher positions, including greater Iranian control over the Strait of Hormuz and financial compensation for wartime losses.

At the same time, the Iranian government faces the risk that worsening economic conditions could fuel public discontent. The AP reported that authorities have maintained gasoline subsidies even as fuel supplies become tighter, but an Iranian presidential aide recently acknowledged that the country is consuming more gasoline than it produces and could eventually be forced to raise prices. Previous increases in fuel prices have triggered widespread protests in Iran.

For now, however, the economic pain has not translated into a broad new protest movement. AP reported that fear of a harsh government response, combined with the pressures of wartime conditions, has largely suppressed public demonstrations.

The latest exchange of threats therefore carries consequences beyond the financial system. Washington is seeking to make the economic cost of Iran’s policies increasingly unbearable, while Tehran is signaling that attempts to sever its remaining sources of revenue could provoke retaliation across multiple military domains.

With negotiations stalled and pressure mounting on both sides, the dispute risks becoming a cycle in which tighter sanctions produce stronger Iranian countermeasures, further disrupting trade and energy markets while ordinary Iranians absorb an increasing share of the economic cost.