Iran's currency crashes amid war threats and soaring military spending

Amid a budget bill emphasizing heavy military spending and the looming threat of an Israeli attack, Iran's currency, the rial, surpassed its previous all-time low against the US dollar on Wednesday.

The rial, which began its decline in September, plummeted to more than 680,000 against the dollar, while Iranian officials and state-controlled media remained silent on Wednesday. In mid-August, the currency was trading at 585,000 to the dollar, representing a drop of more than 15% in under two months.

The rial dropped to 737,000 against the euro and 885,000 against the British pound.

Iran is already grappling with soaring inflation exceeding 40%, and the rial's continued decline will drive prices even higher, further impoverishing a population that has seen its purchasing power erode significantly since 2018. That year, U.S. sanctions imposed by the Trump administration—following its withdrawal from the 2015 nuclear deal—targeted oil exports and banking, slashing Iran’s income and dealing a severe blow to its oil-dependent economy.

In August, Israel began its punishing attacks on Iran’s proxy, the Lebanese Hezbollah, and eventually killed its leader, Hassan Nasrallah. This led to an Iranian retaliation with ballistic missiles on October 1. Since then, Iran has been expecting a retaliatory strike by Israel, that could inflict damage on its infrastructure, including the oil sector.

On top of mounting military and economic pressures, President Masoud Pezeshkian unveiled next year’s budget on Tuesday, allocating nearly 20% of Iran’s oil export revenue—estimated to exceed $10 billion—primarily to the Revolutionary Guard. In the current budget, the military’s share of oil is around 200,000 barrels per day, while next year it would be an estimated 430,000 barrels.

The practice of handing oil to the military to export is to guarantee their share of the budget, instead of risking their allocation amid the government's constant financial challenges.

In addition to oil revenue, the military will also receive direct budget appropriations, although the exact figure was not disclosed in the published bill. This substantial military spending may have further driven the rial's decline when Tehran’s exchange markets opened on Wednesday.

Over the past five years, tens of millions of Iranians have seen their living standards erode as wages fail to keep pace with soaring inflation. Today, the average worker earns roughly $200 per month, while official estimates suggest that a minimum of $500 is needed for basic survival.