Iran had a developing mixed economy that was centrally planned through its large public sector."A survey of Iran: Stunted and distorted". The Economist (2003)Jordan, Robert W. (July 16, 2015). "Iran Could Become an Economic Superpower" . Time. Retrieved July 31, 2015. With a population of over 90 million, the Iranian economy was supported by an industrial manufacturing base, a subsidized oil and gas sector, and abundant natural resources. Its energy sector was home to 10% of the world's proven oil reserves and 15% of the world's gas reserves, often projecting Iran as an "energy superpower".Ramin Mostaghim, Alexandra Sandels and Patrick J. McDonnell: Iran businesses await a post-sanctions bonanza. Los Angeles Times, March 15, 2014. Retrieved March 28, 2014.
Since the 1979 Islamic revolution, the Iranian economy had experienced slower economic growth, high inflation, and recurring crises. A variety of armed conflicts in the region have exacerbated economic pressures from the 1980s to the 2020s. The nation had experienced varied levels of "brain drain" due to Iranians seeking overseas employment or immigration. Inflation in Iran has been persistent and caused mass protests.
The nation's nuclear program and foreign policy have placed Iran under sustained international sanctions, deterring foreign and domestic investment with adverse humanitarian impact. The periodic lifting of these sanctions have supported an emerging tourism industry. Its official currency, the Iranian rial, has fallen significantly since the 2010s, leading to mass protests over its purchasing power. Iran maintains low international rankings on economic freedom and "ease of doing business".
History until 1979
In 546 BC, Croesus of Lydia was defeated and captured by the Persians, who then adopted gold as the main metal for their coins. There are accounts in the biblical Book of Esther of dispatches being sent from Susa to provinces as far out as India and the Kingdom of Kush during the reign of Xerxes the Great (485–465 BC). By the time of Herodotus (c. 475 BC), the Royal Road of the Persian Empire ran some 2,857 km from the city of Susa on the Karun (250 km east of the Tigris) to the port of Smyrna (modern İzmir in Turkey) on the Aegean Sea.
Modern agriculture in Iran dates back to the 1850s when Amir Kabir undertook a number of changes to the traditional agricultural system. Such changes included importing modified seeds and signing collaboration contracts with other countries. Polyakov's Bank Esteqrazi was bought in 1898 by the Tsarist government of Russia, and later passed into the hands of the Iranian government by a contract in 1920. The bank continued its activities under the name of Bank Iran until 1933 when incorporating the newly founded Keshavarzi Bank.
The Imperial Bank of Persia was established in 1885, with offices in all major cities of Persia. Reza Shah Pahlavi (r. 1925–41) improved the country's overall infrastructure, implemented educational reform, campaigned against foreign influence, reformed the legal system, and introduced modern industries. During this time, Iran experienced a period of social change, economic development, and relative political stability.
Reza Shah Pahlavi, who abdicated in 1941, was succeeded by his son, Mohammad Reza Shah Pahlavi (r. 1941–79). No fundamental change occurred in the economy of Iran during World War II and the years immediately following. Between 1954 and 1960 a rapid increase in oil revenues and sustained foreign aid led to greater investment and fast-paced economic growth, primarily in the government sector. Subsequently, inflation increased, the value of the national currency, the rial, depreciated, and a foreign-trade deficit developed. Economic policies implemented to combat these problems led to declines in the rates of nominal economic growth and per capita income by 1961.
History since the 1979 Islamic revolution
Prior to 1979, Iran developed rapidly, as surging global oil revenues in the 1970s flooded the country with capital, with rapid GDP and per-capita income expansion. Traditionally agricultural, by the 1970s, the country had undergone significant industrialization and modernization. The pace slowed by 1978 as capital flight reached $30 to $40 billion 1980-US dollars just before the revolution.Shirin Hakimzadeh. Iran: A Vast Diaspora Abroad and Millions of Refugees at Home. Migration information source (2006). Retrieved July 18, 2009. Furthermore, economic prosperity heavily favored urban elites, leaving many rural and traditional communities marginalized. The Shah's earlier land reforms upended traditional rural economies and forced massive, unplanned migration to the cities, forcing migrants into settlements without water or electricity. These deeply religious rural migrants faced extreme poverty while living right next to the wealthy, Westernized elite. Known as the Mostazafin (the oppressed), the marginalized population became the muscle of the street protests against the monarchy, mobilized by the Islamic clergy's promises of social justice.
Following the revolution, subsequent nationalizations of industries in 1979 and the outbreak of the Iran–Iraq War, over 80% of the economy came under government control. The eight-year war with Iraq claimed at least 300,000 Iranian lives and injured more than 500,000. The cost of the war to Iran's economy was some $500 billion.
After hostilities ceased in 1988, the government tried to develop the country's communications, transportation, manufacturing, health care, education and energy sectors, including its prospective nuclear power facilities, and began integrating its communication and transportation systems with those of neighboring states.
The government's long-term objectives since the revolution were stated as economic independence, full employment, and a comfortable standard of living but Iran's population had more than doubled between 1980 and 2000 and its median age declined. Although many Iranians are farmers, agricultural production has consistently fallen since the 1960s. By the late 1990s, Iran imported much of its food. At that time, economic hardship in the countryside resulted in many people moving to cities.
Following the war, the reformist Akbar Hashemi Rafsanjani's administration advocated a fundamental reorientation and liberalization of Iran's economy, along with efforts to reverse Iran's international isolation. Rafsanjani's agenda included infrastructure development, the privatization of state enterprises, foreign exchange liberalization, the establishment of free-trade zones and the elimination of subsidies and price controls. However, this upward trajectory was derailed by domestic political friction and economic policy errors. Uncontrolled government spending and heightened consumer demand triggered severe inflation, sparking riots across multiple Iranian cities in 1992 and 1994. Fearing instability, domestic private entities resisted investing, while international partners were driven away by political volatility and tightened U.S. sanctions implemented after 1995. Simultaneously, weak global oil prices in the early 1990s sparked a major currency and debt crisis. In response, Rafsanjani froze infrastructure projects, reinstated foreign exchange controls, rescheduled foreign debts and abandoned plans to reform state subsidies. Politically, Rafsanjani faced heavy domestic resistance as Islamic leftists committed to state-controlled economics initially blocked his free-market initiatives while traditional conservatives sabotaged his second term by fighting his attempts to loosen Islamic social and cultural laws.
The 1997 election of Mohammad Khatami sparked a reform movement by Islamic leftists that ultimately failed to restructure the nation's power dynamics. From its inception, the movement prioritized social, cultural, and political changes with their approach heavily shaped by their deep-seated distrust of the free market and frustration with the corruption and repression of the Rafsanjani administration. Furthermore, fears arose among leftists on the chaotic nature of economic deregulation that could erode the public support for reforms.
During his presidency, Khatami achieved a solid ground in implementing serious economic restructuring. Among his accomplishments was unifying the official exchange rate with the parallel exchange rate, establishing an Oil Stabilization Fund as a cushion against market volatility, authorizing the first post-revolutionary private banks, pushing through some improvements to foreign investment frameworks, stewarding the economy through a tumultuous period of unprecedented low oil revenues and luring new interest and investment from the Western world.
However, more ambitious plans, including efforts to reduce the costly energy subsidies was met by opposition from conservative parliamentarians as they adopted obstructionist approach to Khatami's economic agenda, as means of subverting his political and cultural reforms. Khatami also found himself confronted with the onset of a global recession in the early 2000s, a deep slump in oil prices, persistent inflation, unemployment and economic mismanagement while his response was a typically cautious array of small-scale economic initiatives that bore little results.
The election of Mahmoud Ahmadinejad brought about economic promises with populist appeal, having pledged to the re-distribution of oil revenues during the 2000s commodities boom, which sustained illusory growth rates and brought an epic influx of revenues and foreign exchange. The rise of Asia as a commercial counterweight to Iran's historic trade partners in Europe, enabled Tehran to blunt the impact of sanctions. After the United Arab Emirates, China became the largest source of Iran's imports, and Asian states purchased more Iranian oil than any other region. Ahmadinejad took an assertive and problematic role on policy by expanding credit and spending in a freewheeling fashion, feuding openly with Central Bank chiefs, dismantling the bureaucracy, disempowering government technocrats and reveling in the reverberations of the global economic meltdown in 2008. His provocative rhetoric on Israel and Iran's continuing defiance of U.N. Security Council resolutions on its nuclear program heightened the sense of political risk and persuaded foreign investors to leave voluntarily.
Ahmadinejad also move boldly against the longstanding distortions plaguing Iran's economy, such as subsidies and state dominance, but in a counterproductive way. Privatization benefited mainly state-affiliated companies, particularly those associated with the Islamic Revolutionary Guards, whose retirement funds took a majority stake in the state telecommunications firm in 2009. Ahmadinejad's assiduous use of economic issues made him especially vulnerable, especially after mood inside Iran soured as the global economic slowdown in 2009 began to impact Iran and the price of oil crashed to less than one-third of its 2008 high. Senior political figures and renowned economists were also sharply critical of Ahmadinejad's spending and interventionist approach, while strikes by bazaaris in 2008 and 2010 forced the government to delay or abandon planned tax hikes.