For months the Iran war has been measured in missiles, tankers and oil prices. Now Iran’s own president has supplied another measure: foreign trade has fallen by almost 35 per cent. With inflation at 66 per cent and oil exports severely constrained, Washington’s economic campaign is beginning to produce visible results. But economic pressure creates another question for the world: what does Iran do with its remaining leverage over the Strait of Hormuz?

Six months of war have inflicted obvious military damage on Iran.

The economic damage has been harder to measure.

Now Iran itself is providing some of the numbers.

Iranian President Masoud Pezeshkian says the country's imports and exports have fallen by nearly 35 per cent as a result of American sanctions and the naval blockade of Iranian ports.

Annual inflation reached 66 per cent last month.

And Iran's leadership is openly acknowledging that ordinary people are experiencing increasingly serious economic hardship.

These figures matter because they provide something more useful than another announcement of sanctions.

They provide evidence of the consequences.

America's attempt to isolate Iran economically appears to be biting.

And that may change the dynamics of the conflict.

Iran's trade machine is shrinking

Iran is not a small economy that can simply disconnect itself from international commerce.

It has more than 90 million people.

It needs imports.

Its businesses need equipment, technology, components and raw materials.

Its government needs foreign currency.

And, critically, Iran traditionally earns a substantial portion of that foreign currency by selling energy.

The war and blockade have attacked that system from several directions.

Iranian ports have been constrained.

Oil exports have been severely disrupted.

International businesses face sanctions risks.

Banks are becoming increasingly reluctant to process Iranian-related transactions.

And Washington is now threatening third-country businesses with consequences if they continue providing Tehran with economic lifelines.

The result is increasingly visible in Iran's trade statistics.

A fall approaching 35 per cent is not a marginal adjustment.

It represents a significant contraction in the country's connection with the global economy.

Oil remains the critical weakness

Iran possesses enormous oil and gas resources.

But resources underground do not finance a government.

They have to be produced.

Then transported.

Then sold.

And the seller must ultimately receive and use the money.

The United States has progressively attacked each stage of that process.

The naval blockade restricts exports.

Sanctions make tankers and buyers more difficult to find.

Financial restrictions complicate payment.

Secondary sanctions threaten companies in other countries that help Iran circumvent those restrictions.

This is why the banking story we examined earlier matters.

The battlefield has expanded from Iran itself to the foreign institutions through which Iranian trade can continue.

There was one revealing exception

Pezeshkian says Iran managed to sell approximately 90 million barrels of oil during the short-lived June memorandum of understanding with the United States, when Washington temporarily permitted Iranian oil sales.

That figure tells us something important.

Iran can still sell substantial quantities of oil when the restrictions are removed.

The problem is not necessarily finding oil.

Nor is it necessarily finding customers.

The problem is getting the oil out — and getting paid.

That makes control over trade routes, shipping and financial networks central to the confrontation.

Inflation at 66 per cent

The other number demanding attention is inflation.

Iran's annual inflation rate reached 66 per cent last month.

For Australians accustomed to debating whether inflation is three or four per cent, 66 per cent is difficult to comprehend.

At that rate, money rapidly loses purchasing power.

Wages struggle to keep pace.

Savings are eroded.

Businesses have difficulty setting prices.

Imported products become increasingly expensive.

Investment decisions become harder.

And households devote increasing amounts of income simply to maintaining their standard of living.

Food inflation has been even more extreme, reaching 128 per cent year-on-year in July, according to Iranian official data cited by Reuters.

Economic statistics eventually become kitchen-table realities.

Iran is even short of petrol

There is an extraordinary irony in Iran's predicament.

It is one of the world's major petroleum-producing countries.

Yet Iranian motorists have recently been queuing for petrol.

Iran's domestic petrol demand has been running about 15 million litres a day above available supply, according to reporting on the country's worsening fuel shortage.

The reasons illustrate perfectly why possessing crude oil is not the same thing as possessing usable fuel.

Iran has lost refining capacity.

Imports have been disrupted.

The blockade has complicated fuel supplies.

And the country already had structural problems matching domestic petrol production with consumption.

It is another demonstration of a principle that matters to Australia as well:

Energy security is about supply chains, not simply resources.

The pressure is reaching Iran's leadership

Perhaps the most interesting development is not economic.

It is political.

Iran's Supreme Leader Mojtaba Khamenei has called upon the government to address inflation, unemployment, prices and the availability of goods and services.

President Pezeshkian has previously suggested that it might be preferable to end the war while Iran could still negotiate from what he described as a position of strength and dignity.

Parliament Speaker Mohammad Bagher Ghalibaf has been even more explicit about the importance of the economy, warning that military strength alone cannot sustain a country if its people are hungry and economic activity collapses.

These are significant statements.

They do not prove that Iran is about to capitulate.

Far from it.

But they demonstrate that economic conditions have become sufficiently serious to enter Iran's highest-level political discussion.

That is precisely what Washington wants

The American strategy is straightforward in principle.

If military force cannot compel Iran to accept American conditions at an acceptable cost, economic pressure might.

Washington has therefore shifted much of its emphasis from military attacks to what it describes as an economic campaign against Tehran.

The objective is not merely to sanction more Iranian organisations.

It is to make it increasingly difficult for Iran to interact with the outside world.

That means targeting oil.

Shipping.

Banks.

Technology.

Gold.

Digital assets.

Foreign intermediaries.

And potentially businesses in countries that continue dealing with Tehran.

The theory is simple.

Eventually the economic cost becomes greater than the political cost of compromise.

History suggests the reality is rarely so straightforward.

Sanctions can hurt without changing policy

There is an important distinction.

Economic pressure can succeed in damaging an economy without succeeding in changing a government's behaviour.

Iran has decades of experience living under sanctions.

It has developed alternative trading networks.

It uses intermediaries.

China remains enormously important as a trading partner and oil buyer.

Neighbouring countries provide potential commercial routes.

Iran can trade in currencies other than the US dollar.

And governments facing external pressure sometimes respond by becoming more resistant rather than more accommodating.

Reuters' assessment of the conflict after six months describes Iran as economically besieged but still politically intact, with its leadership apparently believing it can withstand further pressure.

That is why the next stage could become dangerous.

Iran still possesses one enormous economic weapon

It is only 34 kilometres wide at its narrowest point.

The Strait of Hormuz.

Before the war, roughly one-fifth of the world's energy supplies moved through this narrow waterway.

Iran cannot match the United States economically.

It cannot match the United States financially.

It cannot control the dollar.

But geography has given Tehran something Washington does not possess.

A position alongside one of the most important energy chokepoints on Earth.

Iran's Revolutionary Guards said again on August 28 that they retain control of the Strait and that restrictions will continue until American military actions against Iran end and other commitments are implemented.

That statement matters more when considered alongside Iran's deteriorating economic position.

The harder America squeezes, the more valuable Hormuz becomes

This creates the central paradox.

Washington wants economic pressure to make Iran more willing to negotiate.

But increasing economic pressure can also increase Iran's incentive to use the remaining leverage it possesses.

Hormuz allows Tehran to impose costs on countries that have nothing to do with the dispute.

Saudi Arabia.

The United Arab Emirates.

Kuwait.

Iraq.

Qatar.

China.

India.

Japan.

South Korea.

Europe.

Australia.

Iran's ability to interfere with shipping effectively internationalises the economic cost of America's pressure campaign.

The question therefore becomes whether Iran ultimately uses Hormuz as a bargaining chip to obtain a settlement — or continues using it as a weapon.

The ships still aren't back

This is where rhetoric meets reality.

There has been encouraging diplomatic activity.

Qatar has been attempting to revive negotiations.

Oman and Iran have been discussing arrangements for the Strait.

Iran has agreed to formulate conditions under which more normal navigation might resume.

The United States says mines have been cleared from the principal shipping lanes.

But the commercial evidence remains stark.

Only seven tracked commodity vessels passed through Hormuz on Thursday, down from 17 the previous day and below the recent 10-day average of 15.

Some ships operate without transmitting normal tracking signals, so these figures cannot capture every movement.

Nevertheless, there is still no convincing evidence of sustained normalisation.

Iran says it controls the Strait

There is also a fundamental disagreement about what "open" means.

US President Donald Trump has repeatedly said Hormuz is open.

Iran's Revolutionary Guards reject that description.

Their position is essentially that ships cannot simply return to the pre-war system of unrestricted commercial passage.

Iran wants a role in determining the conditions under which vessels move.

That dispute goes to the heart of the conflict.

This is no longer simply a question of removing mines.

It is a question of who controls the rules governing one of the world's most important waterways.

Qatar and Oman are trying to find the middle ground

Qatar's Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani travelled to Tehran this week and urged a return to the pre-war system of open navigation.

Iranian Foreign Minister Abbas Araqchi subsequently described those discussions as "creative."

Oman is separately involved in negotiations concerning future navigation arrangements.

These diplomatic efforts are important.

But we should maintain the distinction that has served our coverage well throughout this crisis:

An agreement being discussed is not an agreement operating.

The ships will ultimately tell us when conditions have materially changed.

The world has adapted remarkably well

There is another important part of this story.

The global economy has not collapsed.

That was a genuine fear when Hormuz was first disrupted.

Instead, businesses and governments adapted.

Strategic petroleum reserves were released.

Alternative shipping routes expanded.

Saudi Arabia and the UAE increased use of export infrastructure that bypasses Hormuz.

Inventories were consumed.

China reduced crude purchases.

Tankers adopted different operating practices.

And energy markets learned to function with considerably less Gulf supply.

Brent crude has consequently fallen back below US$90 a barrel despite the continuing disruption.

That resilience is impressive.

It should not be mistaken for normality.

Diesel tells a different story

Crude oil receives most of the headlines.

Refined fuel is increasingly where the economic pressure is visible.

European diesel refining margins remain near record levels, while futures markets continue to indicate tight refined-product conditions extending well beyond the immediate crisis.

This matters particularly to Australia.

We do not simply consume crude oil.

We consume petrol.

Diesel.

Jet fuel.

Lubricants.

Petrochemicals.

And countless products transported by vehicles powered by petroleum.

Australia is deeply exposed to international refined-fuel markets.

Australia's interest is becoming clearer

The consequences of Hormuz have already travelled far beyond the Gulf.

Higher fuel costs feed freight.

Freight feeds supermarket prices.

Diesel affects agriculture.

Mining uses enormous quantities of fuel.

Airlines consume jet fuel.

Construction machinery requires diesel.

Businesses pay delivery charges.

Households pay at the bowser.

And energy costs eventually find their way into inflation.

Australia therefore has a direct economic interest in the outcome of a confrontation occurring thousands of kilometres away.

Not because Australia is a participant in the dispute.

Because Australia participates in the same global energy system.

There are now two competing strategies

After six months, the conflict can increasingly be understood as a contest between two forms of economic leverage.

America is attempting to make Iran's economy progressively smaller and more isolated.

Iran is attempting to demonstrate that economic pain cannot be imposed upon it without imposing costs upon the rest of the world.

Washington has sanctions, the dollar and enormous financial power.

Tehran has geography.

Neither side has yet demonstrated that its strategy can force the other to surrender.

That is why Reuters has characterised the conflict as an increasingly costly stalemate.

What happens next matters enormously

There are several indicators worth watching now.

Does Iran's foreign trade continue falling?

Can it restore meaningful oil exports?

Do secondary sanctions begin deterring Chinese and Indian businesses?

Does inflation continue accelerating?

Do domestic shortages worsen?

Do Iran's leaders become more willing to compromise?

And, crucially:

Does increasing economic pressure produce concessions over Hormuz — or greater disruption?

Those questions are now more important than another sanctions announcement.

Because we are beginning to see whether the sanctions actually work.

The Times View

A 35 per cent fall in foreign trade and inflation of 66 per cent tell us something missiles cannot.

Iran is hurting.

That does not mean Iran is defeated.

It certainly does not mean Tehran is about to accept Washington's terms.

Economic history contains plenty of examples of sanctions impoverishing populations without producing the political outcome their architects intended.

But Iran's own numbers show that this conflict has entered another phase.

The United States is attempting to transform financial and commercial isolation into political leverage.

Iran is trying to transform control over Hormuz into counter-leverage.

And between them sits the global economy.

There is a dangerous contradiction here.

The more successful America's economic pressure becomes, the more valuable Iran's ability to disrupt Hormuz may become to Tehran.

That is why falling Iranian trade should not automatically be interpreted as evidence that the crisis is nearing its end.

It could produce compromise.

It could produce greater economic isolation.

Or it could encourage Iran to extract a higher price for restoring normal passage through the Strait.

For Australia, the lesson remains the same.

Hormuz may be thousands of kilometres away, but the economic consequences do not respect geography.

Iran's trade has fallen 35 per cent.

America's economic siege is beginning to show.

Now we have to watch what Iran does in response.