Historic Collapse of the Rial Signals Deepening Economic Crisis

Iran is entering one of its most volatile economic periods in years, as record-breaking prices for the dollar, gold, and coins collide with a sharp new surge in inflation.

Iran is entering one of its most volatile economic periods in years, as record-breaking prices for the dollar, gold, and coins collide with a sharp new surge in inflation, widening social inequality and exposing deep structural vulnerabilities in the country’s financial system. In early December 2025, the U.S. dollar crossed 120,600 tomans, establishing a historic all-time high, while the Emami gold coin reached 124–127 million tomans and 18-karat gold hit 12.2 million tomans per gram, the highest levels ever recorded in Iran’s modern financial history. These developments reflect not temporary market distortions but a rapidly deteriorating economic environment shaped by sanctions, geopolitical conflict, fiscal mismanagement, and accelerating inflation.

New findings from the Iran Statistics Center show that 12-month inflation rose to 40.3% in Aban 1404, the highest figure since Esfand 1402. More alarming is the speed of inflation: prices in Aban were 3.4% higher than in Mehr, marking the fastest monthly inflation rate for Aban in five years. Food prices are rising at a far more dramatic pace than overall inflation: the average cost of food has increased 66% over the past 12 months, with certain categories rising even faster. Fruits and nuts have more than doubled in price, while the cost of Iranian rice has more than tripled in just one year, provoking widespread public anger. These national averages mask even starker regional differences: annual food inflation ranges from 55.7% in Semnan to 79.4% in Alborz, demonstrating the uneven and deeply destabilizing nature of the crisis.

The burden of this inflation falls disproportionately on low-income households. According to the Statistics Center, 42% of total expenditures for the poorest decile go toward food, compared to 21% for the wealthiest decile. When food prices rise faster than other goods, as is happening now, the effective inflation rate for poor households becomes significantly higher than the national average. The combination of soaring food prices and collapsing purchasing power is generating what economists describe as a regressive shock, eroding living standards for millions of Iranians.

These domestic pressures are unfolding alongside severe currency instability. The dollar, which dipped briefly to 106,000 tomans after the Iran–Israel war, has begun a steep climb since late Aban, driven by renewed tension over Iran’s nuclear program and the activation of the UN snapback mechanism, which reinstated multilateral sanctions. Analysts widely agree that the snapback has had immediate and extensive negative effects on the rial. As sanctions tighten, public fear grows, prompting households to move savings into dollars, gold, silver, diamonds, and digital currencies — assets perceived as more reliable than the rapidly weakening rial.

Global gold dynamics have further amplified the crisis. International gold prices, which reached a historic $4,380 per ounce in mid-October, have resumed their upward trajectory after a brief dip, rising more than 3% last week and stabilizing above $4,200 per ounce. With gold acting as a global “safe-haven asset,” the combination of international demand and domestic panic buying has pushed Iran’s gold prices into unprecedented territory.

Iran’s structural economic weaknesses are also driving inflation. For nine consecutive months, official inflation has risen every single month, and projections indicate that inflation will likely reach 44–47% by the end of the year under all realistic scenarios. Several factors are pushing inflation higher. First, the full impact of the late-summer and early-fall currency shocks has not yet appeared in consumer prices, meaning imported goods and foreign-component products will continue to become more expensive. Second, the government’s plan to introduce a third gasoline tier at 5,000 tomans per liter is expected to slightly raise transportation costs and could trigger upward revisions in taxi and delivery fares, despite the government’s promises of compensation. Third — and most consequential — is Iran’s severe budget deficit, estimated between 400 and 1,800 trillion tomans, fueled by lower-than-expected oil revenue and economic stagnation. This week, the Treasury announced that the government had been forced to borrow directly from the Central Bank just to pay wheat farmers — the first such move in three years — a decision that directly increases the monetary base and therefore inflation.

Beyond these domestic factors, Iran is also experiencing growing pressure in the oil sector. Despite claims of record-high exports, maritime data show that 52 million barrels of Iranian crude are stuck in floating storage, the highest in two and a half years. Nearly half of these tankers are anchored near Malaysia, awaiting ship-to-ship transfers and documentation changes. The backlog is not due to production issues but to delivery bottlenecks linked to Chinese refinery quotas, tightened U.S. sanctions, and rising geopolitical competition in Asian markets.

Former Central Bank deputy Seyed Kamal Seyed-Ali warns that without addressing the massive budget deficit and rapid growth in liquidity, currency stabilization will remain impossible. He cautions that Central Bank intervention is severely limited under snapback conditions. Defending the rial risks draining foreign-exchange reserves, which are needed to finance essential imports. He also emphasizes that episodes of market panic cause ordinary citizens to rush into buying dollars, increasing demand and deepening the crisis.

Taken together, the record collapse of the rial, the historic rise in gold and coin prices, the sharp acceleration in food inflation, the expansion of floating oil inventories, and the deepening budget crisis signal a phase of economic instability without precedent in recent years. These pressures reinforce one another: a weaker currency fuels inflation; inflation drives households toward safe-haven assets; safe-haven demand worsens currency shocks; sanctions continue to restrict revenue; and fiscal gaps force the state to print money, accelerating the cycle.

For millions of Iranians, the consequences are immediate and profound: shrinking purchasing power, growing inequality, the erosion of savings, and a rising sense of uncertainty about the future. As the Gregorian calendar year draws to a close, Iran’s economy is showing clear signs of systemic stress, with market indicators reaching historic highs that reflect not prosperity but a deepening crisis across multiple fronts.