تدريب Shadowing: Iran's crumbling economy - تعلم التحدث بالإنجليزية مع YouTube

Iran almost fired 35 missiles and 110 drones every day at its Gulf neighbors before the cease fire.

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Iran almost fired 35 missiles and 110 drones every day at its Gulf neighbors before the cease fire.

That's about $45 million per day, or $1.3 billion per month for a country with only an estimated $11 billion in foreign exchange reserves.

That is a lot of money to burn through every month.

But given that oil prices went up initially, Iran could easily afford it with the increased oil revenue alone.

However, after the US then counter blockaded Iran, completely shutting down its oil exports, and after they launched the so-called Operation Economic Fury targeting Iran's money directly, the Iranian riyal went into freefall compared to the dollar, which got worth a lot more.

And since then, Iranians have reported increased shortages and inflation rising ever higher and higher and higher, perhaps even soon, towards hyper inflation.

So that raises the question how long can Iran actually afford to keep fighting before its war economy collapses?

Now, to answer that question properly, we need to do a quick recap of War Economics 101 in a nutshell.

Whereas civilian economies are all about generating wealth and spreading it widely.

War economies are purely about mobilizing as many resources as possible for war.

Now, if we look at the history of war economies, there are three crucial lessons that can help us answer if Iran can afford to keep fighting much longer.

Lesson number one comes from Russia, and it is if you have enough resources, your limit is inflation.

Here we of course refers to resources for war, like fuel and food and manpower.

Whether or not they can be found inside the country or whether or not they need to be imported.

That is what really matters.

If, like with Russia today, most crucial resources are in fact inside the country itself, then, as we've seen with sanctions and other type of economic measures, they are unlikely to stop a country's war economy.

You see, while sanctions initially crashed the Russian ruble, it was fairly easily stabilized when the Russians closed their economy to the outside world and focused on essentially printing new money to activate Russia's unused resources.

And like we saw in a case like Russia work and then actually lead to an economic boost at first, but then when unemployment drops and more and more resources are activated, more money printing then starts to lead to inflation, which is what really limits the war economy.

War economy.

Lesson number two comes from Germany, and it is.

If you depend on crucial resources from abroad, then your war economy can be hurt or even destroyed by economic warfare in two ways.

The first is through limiting access to foreign currency.

So, for example, during the First World War, Britain severely limited Germany's ability to import crucial war supplies from neutral countries through what was essentially a financial blockade around Germany, punishing anyone who gave Germany access to pound sterling.

Second, more famously, actually, Britain did a massive naval blockade of Germany, which arguably led to the unexpected collapse of the German government because it blocked vital food imports into Germany, causing a famine, causing the people to rise up and overthrow the German Kaiser.

And finally, the third lesson comes again from Germany, but now in the Second World War.

And it is that if you can get air supremacy, you can really crush a big part of the war economy directly, simply by destroying factories.

So, for example, after Britain and the US bombed the German factories in the Ruhr could beat.

This was essentially the end of the German air force, the Luftwaffe, meaning that countries like Britain and the Soviet Union were much safer after that.

So how do these three lessons help us answer our main question?

Whether or not Iran's war economy can afford to keep fighting?

While it means that we essentially need to determine whether or not Iran is more like Russia today or like Germany in the two world wars.

But first, it means that we need to assess the physical damage that Iran physically keep fighting after the bombardments.

Sure. The answer is yes.

The most credible reports that I found estimate that the US and Israel have taken out about 60% of Iran's drone and missile production and launching facilities.

The remaining missile launch facilities are underground and therefore very difficult to hit.

And drone production will be even harder to destroy.

Given that these are so simple to make that they can be made decentralized in workshops, all over the country, which will be impossible to take out completely from the air.

On top of that, there are actually major drone factories just north of Iran in Russia, which already produce Iranian designed drones and could and might already easily find their way to Iran via the Caspian Sea, which is of course, not impacted by the US blockade.

So with that out of the way, Israel and more like Russia today or Germany in the world wars.

Well, given that Iran does not face a land invasion, the resources that it needs to fight this war are pretty simple.

It just needs to produce enough drones and missiles to threaten its neighbors, and, crucially, to threaten the merchant ships that want to go through the Strait of Hormuz.

And for that, it needs three main things fuel, metals and workers.

And essentially all of these are available inside Iran.

In fact, unemployment is quite high and rising.

So in theory, like Russia, Iran's economy could even get a major boost if it switches to full war economy mode.

However, there are two problems with that narrative.

The first is that while in theory a major oil and gas producer like Iran should of course have enough fuel, but in reality there are many reports from Iran that this is in fact not the case because refineries have been damaged and or mismanaged.

Similarly, while Iran has a lot of idle resources in general, unemployment is very high.

So that should not be too much inflation.

Reports from the country are that inflation is actually very high.

So that's very strange right?

On paper Iran is a lot like Russia.

It has so much unused potential.

But a war economics one on one and only works if you have competent people running the economy.

In Russia. That appears to be the case.

But in Iran, not so much.

But that's not all.

There is a second problem, and that is that while Iran should be pretty self-sufficient, again, in theory it actually relies almost completely on imports of microchips needed to steer drones and missiles towards their targets.

And it almost completely relies on soybean and corn imports to feed its livestock.

And therefore the US blockade is now causing a potential so-called protein famine, not a complete famine, because, unlike Germany, Iran can produce enough wheat to feed its population.

But still, to be healthy, people need to eat more than bread.

And so, because Iran also relies on rice and cooking oil imports, the US blockade has still caused massive food and fuel price inflation in Iran.

So, in short, Iran's war economy is a lot like Russia on paper.

But because it is poorly managed, it actually still has a lot of common with the German economy during both world wars.

Meaning that a US blockade and operation economic theory can and actually are doing a lot of damage by crashing the Iranian currency, making it much harder to import crucial stuff needed for the war and to keep the population happy.

But is it enough?

Is the blockade stopping Iran's war economy from functioning?

This question can be answered in two ways.

First, will Iran have enough foreign currency reserves to keep importing the microchips that it needs to power drones and missiles?

I think there the answer is yes.

You see, while the collapsing Iranian currency clearly shows us that the central bank has a real foreign currency problem, we have seen historically, for example, in Germany, that central bankers have many, many ways to make foreign currency available for war by limiting civilian imports.

So even though the US blockade is absolutely contributing to the collapse of the Iranian currency by blockading oil exports from Iran that are difficult to export overland.

The fact that blocking the Strait of Hormuz and threatening neighbors with drones is so cheap probably means that the blockade will not be enough to open the Strait of Hormuz, but limiting civilian imports?

Well, that will be terrible for Iranian people.

And given that the US is also blocking fairly crucial imports like soybeans and corn.

Could the Iranian people rise up and overthrow the government, just like what happened in Germany in 1918?

At first, this actually seems like an extremely plausible scenario.

After all, in January of this year, there were already massive uprisings as Iranians were unhappy with 40% inflation, which now already much higher.

And with the shortages then, which are now already much more severe.

However, the 2026 uprisings were brutally repressed by Iran's Revolutionary Guard and their militias.

You see, most dictatorial regimes today do not fail simply because they can no longer afford to feed the public, like Germany in 1918.

No. Now, if they fail, they do so because they can no longer afford to feed or pay the men willing to shoot the civilian protesters.

You see, while there are now many reports that the civilian economy in Iran is really starting to hurt, inflation is going to pass.

Hyperinflation.

Yes, that's terrible, but it won't necessarily cause the regime to collapse.

Syria's regime lasted for more than ten years after first facing hyperinflation in 2013.

Venezuela faced hyperinflation also for years and years.

And technically, that regime is also still in place.

So, in conclusion, the American blockade and operation economic theory putting a lot of pressure on the Iranian regime.

Yes, absolutely.

Is that hurting its firepower?

Yes, absolutely.

But because drones are so cheap and because threatening the Strait of Hormuz is so cheap, Iran's collapsing economy is probably not going to stop the war directly, at least indirectly, though, the blockade is really hurting the Iranian economy, causing shortages and plausibly even causing hyperinflation soon.

But perhaps unlike in 1980s Germany, dictatorships today do not collapse.

When the people are hungry, they collapse when the guards are hungry.

And from the evidence that I've seen coming out of Iran, things are pretty bad there.

But its economy is still pretty far from that scenario.

So how long can Iran afford to keep fighting for?

Years. Probably at least in the current phase of the war, where Israel and the US are just threatening it from the air, not with a full scale invasion.

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But yeah, these are my takes. What are yours?

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تدريب Shadowing: Iran's crumbling economy - تعلم التحدث بالإنجليزية مع YouTube

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