Economic forecasts made before the unrest of Dey 1404 (January 2026) and the subsequent nationwide internet shutdown had already pointed to negative growth prospects for Iran in the Iranian year 1404 (March 2025–March 2026). Developments since then suggest that the outlook has weakened further.
As the year draws to a close, three interrelated factors have emerged as major constraints on economic growth: prolonged internet disruptions, heightened political and external uncertainty, and weakening domestic demand driven by psychological and economic stress.
The most immediate shock stemmed from the 20-day internet shutdown during the Dey unrest, which dealt a heavy blow to Iran’s digital economy.
Over recent years, online platforms have become central to employment creation, service delivery and market access, not only for technology firms but also for small retailers, transport services, education providers and freelancers. The sudden loss of connectivity cut thousands of businesses off from customers and revenue streams.
Given the thin margins of many small and medium-sized enterprises, even short disruptions can destabilize cash flows; weeks of shutdown translated into sharp sales declines, delayed wage payments and, in some cases, permanent closures.
Official estimates put the damage at around 1,000 trillion rials (about $625 million), though private-sector assessments often suggest higher losses.
International research underscores the scale of such shocks. A recent study on India using a “free discontinuity regression” approach estimates that internet shutdowns can reduce economic activity by 25–35% in the short term, with even larger contractions in some regions.
Unlike earlier studies that focused narrowly on fully digital sectors, this research highlights how deeply internet access is now embedded in supply chains, payments and everyday commerce. The implication for Iran is clear: disruptions to digital infrastructure carry economy-wide costs far beyond the tech sector.
Higher Risk Premium
Beyond the direct losses, internet shutdowns have amplified perceptions of policy and operational risk.
When access to a critical business infrastructure can be suspended for extended periods, investors—both domestic and foreign—factor in a higher risk premium.
This is particularly damaging for startups and innovative firms whose business models depend entirely on stable connectivity, making fundraising and expansion more difficult.
The second barrier is rising political and external uncertainty. Domestic tensions following the protests, combined with ambiguity over foreign policy and trade relations, have reduced predictability for businesses.
Firms facing uncertainty over exchange-rate policy, trade restrictions or geopolitical developments tend to postpone investment, hiring and market expansion.
Even speculative scenarios circulating in international media about potential regional escalation affect expectations, raising transaction costs for importers and exporters alike. As a result, capital increasingly shifts toward liquid or low-risk assets such as foreign currency and gold rather than productive investment.
The third, less visible but equally powerful constraint is the psychological impact on households and firms.
Chronic inflation, repeated shocks and persistent uncertainty have weakened consumer confidence.
Households have become more cautious, postponing non-essential purchases and increasing precautionary savings.
This contraction in effective demand has reduced sales even in sectors unaffected by direct restrictions.
These pressures coincide with a fragile labor market. According to the economy minister, unemployment rose by 650,000 people during the summer of 1404 (June–September 2025), highlighting the limited capacity of the economy to absorb shocks.
The combination of disrupted infrastructure, policy uncertainty and subdued demand has shifted business priorities from growth to survival.
Together, these three barriers—internet disruptions, political and external uncertainty, and depressed demand—have clouded Iran’s growth and employment outlook for 2025-26.
While potential easing of external tensions and greater exchange-rate stability could improve expectations, a durable recovery will depend on restoring confidence: ensuring reliable digital infrastructure, reducing policy uncertainty and rebuilding economic trust among households and investors.
