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Mumbai.Iran’s rial hits record low as $1 reaches 2.5 million, currency loses nearly half its value in 7 months

Iran’s rial fell to a record low on Tuesday, with the US dollar trading at around 2.5 million rials in the open market. Before the war began, on February 27, the dollar was trading at around 1.7 million rials. The exchange rate means the Iranian currency has lost nearly 50% of its value in just seven months.

The Central Bank of Iran’s official exchange rate remains around 1.65 million rials per dollar. However, ordinary consumers and businesses largely depend on the market rate when buying dollars. The sharp fall has come amid the war, US sanctions and restrictions on Iranian oil exports, which have affected Tehran’s foreign earnings and access to dollars.

US pressure targets Iran’s key sources of income

Iran earns a major share of its foreign currency through oil exports. The US has therefore continued to target companies, tankers and shipping networks involved in buying or transporting Iranian crude. China remains the main destination for Iranian oil. According to the US Treasury, Chinese buyers account for around 90% of Iran’s oil exports.

Washington has also taken action against Chinese refineries and businesses accused of purchasing Iranian oil.

The US pressure is focused on three major areas:

• Restricting Iranian oil sales and shipping networks.
• Making it harder for oil revenues to reach Iran.
• Targeting foreign banks and companies involved in Iranian transactions.

The third measure involves secondary sanctions, under which foreign entities can face US action for helping businesses covered by sanctions on Iran.

Iran struggles to bring oil money home

Blocking oil sales is only one part of the sanctions strategy. Ensuring that revenue from those sales reaches Iranian banks and businesses is another major challenge.

The US has targeted Iranian banks, currency exchanges and so-called shadow banking networks. These networks use companies, financial institutions and intermediaries in different countries to move Iranian funds through the international financial system.

In August, Washington acted against networks accused of moving hundreds of millions of dollars for Iran. The restrictions have reduced the channels through which Iran can access foreign currency, adding pressure on the rial.

Weak rial pushes food prices sharply higher

The currency crisis has directly affected household budgets. A weaker rial makes imported goods and products dependent on foreign currency more expensive. According to Reuters, Iran’s annual inflation rate stood at 66% in July, while food prices had risen 128% over the previous year.

The impact has been visible in basic household purchases. According to Al Jazeera, 2 million rials could earlier buy around four kg of tomatoes, half a kg of chicken and nearly one litre of cooking oil. By August, the same amount bought roughly half those quantities.

Tomato prices had risen 71%, chicken prices 74% and cooking oil prices 177%.

Medicine shortages add to economic pressure

The currency crisis has also affected access to medicines. Around 800 medicines are reportedly in short supply in Iran, including 90 essential and life-saving drugs. Insulin prices have increased nearly sixfold in a year. Paracetamol prices have risen 93%, while several other medicines have also become significantly more expensive. The higher cost of imported medicines and difficulties in accessing foreign currency have added pressure on patients and the healthcare system.

War hits jobs, industry and wider economy

The economic strain has also reached the labour market. According to Reuters, Iran’s unemployment rate stood at 9.1% in spring, while the number of people working fell by around 450,000 over the previous year. The war has disrupted construction, industrial activity and other businesses, adding another layer to the economic pressure created by sanctions and currency depreciation. Iran had already been under international sanctions for years, but the war has brought additional restrictions and further pressure on its oil exports.

Hormuz talks remain central to conflict

Iranian Foreign Minister Abbas Araghchi said late Monday that attention was now focused on the Strait of Hormuz, a crucial waterway at the centre of the conflict.

Iran has said discussions over Hormuz have become more serious. Mediators are working on a possible arrangement aimed at ending the fighting and reopening the waterway. The issue has wider economic significance because any disruption to the strait affects a major route for global oil shipments.

Trump rejects Iranian proposal to end fighting

US officials told the Associated Press that diplomatic efforts were continuing despite US President Donald Trump rejecting an Iranian proposal. Trump rejected the proposal on Saturday, saying Iran was under pressure and therefore wanted to reopen the Strait of Hormuz immediately. Iran had sent the proposal through Araghchi, with Qatar acting as an intermediary.

Iran offered seven-day roadmap for Hormuz reopening

Under the proposed seven-day roadmap, Iran offered to stop the fighting and reopen the Strait of Hormuz if specified conditions were met.

Tehran also sought relief from restrictions on Iranian oil sales. It asked the US to lift the naval blockade around Iranian ports and release around $12 billion in Iranian assets frozen overseas.

Iranian President Masoud Pezeshkian has said the next step depends on whether the US wants to end the conflict.

The current fighting began on February 28, when the US and Israel launched military action against Iran. Iran responded with attacks on Israel and Gulf countries hosting US military bases. Washington has said its objective is to weaken Iran’s nuclear capabilities. Iran maintains that its nuclear programme is peaceful and that it has the right to use nuclear technology for peaceful purposes.