The centrality of Iran in West Asian affairs cannot be ignored. Iran’s strategic location, huge energy resources, and its assertive role, particularly in the region, have always attracted international attention. In the present-day context, when both regional and global order is being reshaped, Iran’s growing confrontation with the United States and Israel continues to shape the current regional security narrative.For over four decades, Iran has operated under one of the most complex and sustained sanctions regimes in the world. What began as targeted post-1979 restrictions evolved into a dense architecture of U.S., European Union (EU), and United Nations (UN) measures addressing Iran’s nuclear programme, ballistic missiles, regional activities, and financial networks. The present article is an attempt to examine Iran’s energy potential and how it manages to trade despite U.S. sanctions.What are the key challenges faced by Iran to realise the full potential of its huge oil and gas reserves? It is argued that despite America’s ‘Maximum Pressure’ policy, Iran has been able to survive without thriving under the sanctions regime. It has crafted various ways and means to circumvent the sanctions, thus mitigating the negative impact on its economy. The Iranian leadership has come up with its ‘Maximum Resistance’ strategy to counter the Maximum Pressure policy. This article also unpacks trade beyond hydrocarbons to explain the toolkit adopted by Iran to manage its overall economic challenges.This article is from The Hindu e-book. Iran: Revolution in retreatAmerica’s ‘Maximum Pressure’ policyFollowing the U.S. withdrawal from the Iran nuclear agreement, formally known as the Joint Comprehensive Plan of Action ( JCPOA), in 2018, President Donald Trump imposed comprehensive sanctions against Iran, targeting the country’s core banking system, oil imports, and conduits to the global financial system. The most arduous sanction of all is preventing Iranian banks from using the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, the largest electronic payment network in the world.The International Monetary Fund (IMF) reports suggest that Iran’s main source of revenue, its oil exports, dropped from 2.5 million barrels a day to almost zero between 2018 and 2020, and its currency hit record lows. More than 100 major foreign companies withdrew from the Iranian market or cancelled investments since 2018, leading to a loss of tens of billions of dollars in investment.The ‘Maximum Pressure’ policy has been a major plank of the Trump administration’s Iran Policy both during the first term, and now in the second term as well. In essence, the policy seeks to isolate Tehran economically and diplomatically. Simultaneously, the policy aims at establishing deterrence and ultimately forcing Tehran to come to the negotiating table. The assassination of General Qassem Soleimani, commander of Quds Force division of the Islamic Revolutionary Guard Corps (IRGC), was seen to be the most visible and direct manifestation of this policy.Since October 2024, the Biden administration imposed stringent sanctions on Iran’s oil sector. This resulted in significant disruptions to the regime’s crude oil exports. Notably, shipments to China, which purchases nearly 90% of Iran’s oil, have decreased by 25%, dropping to 1.3 million barrels per day. Simultaneously, the loading of Iranian oil tankers continues, leaving approximately 20 million barrels of crude oil stranded at sea, primarily near the coasts of Malaysia and Singapore, according to The Economist. In October 2024, the U.S. administration blacklisted 55 oil tankers linked to Iran. This constitutes about a third of the so-called “dark fleet”, which clandestinely transports Iranian crude. Data from Kpler suggests that this move marked a significant escalation in efforts to curb Iran’s oil exports. The International Energy Agency (IEA) predicts that the sanctions on the shadow fleets of Iran and Russia will significantly dent their oil revenues. The IEA also notes that about one-third of Iran’s 2024 oil exports, approximately 500,000 barrels per day, relied on tankers recently blacklisted by the U.S.A more serious form of ‘Maximum Pressure’ policy got reflected in June 2025. Post October 7, 2023, after the Hamas terrorist attack on Israel, followed by war in Gaza, the regional security paradigm changed substantially, bringing Iran-Israel and Iran-U.S. into direct military confrontation. On June 13, 2025, Israel launched military strikes across Iran, targeting its nuclear facilities and energy sector, and killing its top military leadership. This led to Tehran’s retaliation with missile strikes on Israel. The Trump administration fully supported the Israeli actions and on June 22, even carried out military strikes on the Iranian nuclear facilities of Fordow, Natanz, and Isfahan.IN TROUBLED WATERS: In this file photo taken on August 18, 2019 an Iranian flag flutters onboard the Adrian Darya oil tanker, formerly known as Grace 1, off the coast of Gibraltar. In October 2024, the U.S. administration blacklisted 55 oil tankers linked to Iran. | Photo Credit: AFPIn response to the U.S. military strike, Iran attacked U.S. bases in Qatar. The 12-day war between Iran and Israel ended with a ceasefire in June 2025 on the insistence of President Trump. The present U.S. policy reflects the Trump administration’s desire to push Iran to sign a new nuclear deal. However, despite tremendous stress on its economy, Iran remains defiant and undeterred. It has, in fact, managed to outmanoeuvre the United States for now.Washington’s recently released National Security Strategy (NSS) 2025 continues to view Iran as the main threat and destabilising force in the region. The document states, “Iran — the region’s chief destabilising force — has been greatly weakened by Israeli actions since October 7, 2023. And President Trump’s June 2025 Operation Midnight Hammer, which significantly degraded Iran’s nuclear program”. Explaining American core interest in securing Gulf energy supplies, the NSS reads out, “America will always have core interests in ensuring that Gulf energy supplies do not fall into the hands of an outright enemy and the Strait of Hormuz remain open”. This trend of extending and hardening the ‘Maximum Pressure’ policy of the Trump administration is likely to continue unless Iran and the U.S. agree to a new nuclear deal.Multiple forms of ‘Maximum Pressure’ policySanctions applied to Iran since the 2000s have taken multiple forms and have been aimed at several policy levers. These are mainly:Restrictions on crude and refined petroleum: Sanctions have mainly been aimed at reducing Tehran’s crude exports, restricting tankers and insurers, and denying reliable banking and payments channels for hydrocarbon receipts. These measures were central to the ‘Maximum Pressure’ strategies after 2018.Financial isolation: Designations, restrictions on correspondent banking, and pressure on SWIFT access limited Iran’s ability to transact in major currencies and increased transactional risk for counterparties (IMF, 2025). Trade controls on dual-use items and investment have constrained technology transfers to energy, petrochemical, and high- value manufacturing sectors (World Bank, 2025).Macro effects from sanctions have resulted in lower official oil-export receipts, reduced foreign direct investment, exchange-rate pressure, and rapid inflation in the economy. It is equally important to note that the gaps in high-tech imports slow capital-intensive modernisation and create a heightened role for quasi-state entities (IRGC) that can access opaque revenue streams. Sanctions, therefore, operate through direct revenue loss and by increasing risk premia for private actors, thereby compressing investment and employment.Maximum ResistanceAcross successive presidencies, from Rafsanjani’s reconstruction era and Mohammad Khatami’s cautious opening to Mahmoud Ahmadinejad’s defiant posture, Hassan Rouhani’s diplomacy, Ebrahim Raisi’s ideological consolidation, and now Masoud Pezeshkian’s attempted recalibration, the core economic challenge has remained the same: how to survive, and at times, circumvent debilitating sanctions while sustaining domestic political stability.Each leadership cohort adopted distinct strategies that shaped the economy’s adaptive responses; together they shaped a system that endures but is deeply strained, able to keep critical flows moving while failing to deliver sustained growth, stable prices, or robust investment.In response to Washington’s tough policy, Tehran came up with its ‘Maximum Resistance’ strategy. Broadly, the Iranian strategy is aimed at countering U.S. pressure by increasing Tehran’s military actions, building ties with countries that can help Iran in mitigating U.S. sanctions, enhancing its regional involvement and increasing the hold of the hardliners within the country. Some experts like journalist Atul Aneja argue that oil sanctions against Iran have not really worked. Primarily, it is because of the China factor. Disregarding Western sanctions, China has purchased large quantities of discounted oil. Iran has also built an ecosystem with Eurasian countries through the Shanghai Cooperation Organisation (SCO) and worked hard to build ties with Russia and BRICS, which can help in the long run to beat sanctions.Tehran has created a mechanism to mitigate the impact of sanctions on its economy and related sectors. Despite intense pressure, Iran developed a multi-layered adaptive toolkit that mitigated, though did not remove, sanctions’ bite. Over the years, Tehran has adopted several measures to dilute the negative impact of the sanctions and ensure that its economy stayed afloat.As per the World Bank reports, Iran’s economy remains sizeable. Its GDP was roughly US$ 436 billion in 2024 (current USD), comprising 0.4% of the world economy. The real GDP expanded by 3.8% in 2022/23, but subsequent gains have been fragile and contingent on external conditions. However, the IMF projects about 0.6% real GDP growth for 2025, and very high consumer inflation (42% projected). Iran’s toolkit can be grouped into four mutually reinforcing pillars.1. Sanction-resistant partnersRecent World Bank trade snapshots show the United Arab Emirates (UAE) and China dominate Iran’s trade ties (together accounting for roughly half of recorded export value in recent years), with Türkiye, India and Iraq also regularly among the top five partners, underlining the reorientation toward sanction-tolerant markets. Though India stopped importing oil from Iran, Türkiye and Iraq have continued to import energy from Iran. During the November 10, 2025, visit of Türkiye’s Foreign Minister to Tehran, both sides not only endorsed each other’s views on regional issues but also expressed their “readiness to extend the gas (export) contract and expand cooperation in the electricity sector”. Iran has been exporting nearly 10 billion cubic meters of gas per year to Türkiye under a 25-year agreement signed in 2001.SUPPORT SYSTEM: Brazil’s President Luiz Inacio Lula da Silva (C) speaks during a plenary session of the BRICS summit in Rio de Janeiro, Brazil, on July 7, 2025. BRICS leaders took aim at U.S. President Donald Trump’s “indiscriminate” import tariffs and recent Israeli-US strikes on Iran. | Photo Credit: AFPTehran prioritised partners willing to accept non-standard settlement methods and tolerate grey-area logistics. China emerged as a central buyer of crude and petrochemical products, and Russia deepened its energy and trade linkages after 2022. Its regional neighbours — Iraq, UAE, Türkiye, and Pakistan, have served as land and transshipment hubs for both official and informal trade. These partners frequently accept bilateral currency arrangements, commodity swaps, and barter mechanisms that substitute for full access to dollar finance. The CSIS (Center for Strategic and International Studies) and other policy trackers emphasise China’s outsized role in absorbing Iranian exports and supplying manufactured goods under flexible commercial terms.2. Shadow logistics and maritime work aroundsAnother tool adopted by the Iranian regime is shadow logistics. Despite sanctions, Tehran has continued its oil exports. The independent tanker- tracking groups and open-source analysts documented sustained physical oil flows even when headline official export numbers fell. Some of these techniques include ship-to-ship transfers (STS), re-flagging vessels, masking AIS transponders, and routing through intermediary ports — third-country bunkering and re-labelling the tankers and ships. Although these measures raise costs because of discounts demanded by buyers, higher insurance and shipping risk, they help maintain gross physical exports. UANI (United Against Nuclear Iran)’s tanker tracker shows that Iran continued sizable physical crude exports in recent years, indicating that sanctions reduced revenues more than physical flows.3. Financial bypasses: Swaps, barter, and informal networksThis has been the third important tool adopted by Iran. Without robust correspondent banking, Iran turned to commodity swaps (crude-for-goods deals), currency swaps with sympathetic partners (notably China), and informal payment systems (hawala-type networks and trade mis-invoicing). These channels are less efficient and create additional counterparty risk, but they allow the financing of imports critical to industry and consumer markets. Studies done by the Doha Institute in 2025 suggest that such mechanisms scale only to a point and increase transaction opacity, which invites enforcement and corruption risk. Nevertheless, countries under sanctions have always adopted such measures. Case in point are Russia and Iran in the present-day context.4. Domestic containmentThe state has relied on subsidies, exchange-rate controls (multiple official exchange windows), and directed credit to shield politically sensitive sectors and maintain employment. Concomitantly, an emphasis on import substitution led to incremental growth in refining, petrochemicals, and certain manufacturing niches. However, such internal measures have costs: distortionary allocation of capital, chronic inflationary pressure when governments monetise deficits, and limited success in high-technology areas where sanctions block critical inputs. IMF and World Bank analyses flag these structural, fiscal and monetary constraints as core limits to long- run recovery.Oil and gas sector: The gearbox of survivalHydrocarbons remain Iran’s principal external revenue source; hence, oil and gas dynamics are central to understanding Iran’s sanctions resilience. Even though Iran’s economy is relatively diversified as compared to many other West Asian countries, but petroleum and other liquids exports are a significant source of government revenue. In 2023, as per EIA, Iran’s oil companies earned about US$53 billion in net oil export revenues, up from around US$37 billion in 2021. Due to rising global oil prices and increasing total petroleum liquid exports from Iran, its total export revenues grew in 2022. In contrast, although Iran’s oil exports rose at a faster pace in 2023 than in 2022, international oil prices fell, which resulted in flat oil export revenues. The above revenue estimates do not account for varying discounts that Iran places on its official selling prices, which likely lowered overall oil revenues in 2023.While it is difficult to get real figures related to Iran’s energy trade due to various measures adopted by its government to evade the negative impact of sanctions, the significance and place of Iran as an energy giant continues to remain. As per EIA Iran country report 2024-25, Iran was the fourth-largest crude oil producer in OPEC (Organization of the Petroleum Exporting Countries) in 2023 and the third-largest dry natural gas producer in the world in 2022. It holds some of the world’s largest deposits of proved oil and natural gas reserves, ranking as the world’s third-largest oil and second-largest natural gas reserve holder in 2023. At the end of 2023, Iran accounted for 24% of oil reserves in the Middle East and 12% in the world.Despite its abundant reserves, Iran’s total liquids production is limited because its oil sector has been subject to underinvestment and international sanctions for several years. Iran’s currency crisis, which ensued after the re-imposition of sanctions in 2018, has put financial constraints on its energy companies and slowed the progress of and even led to the cancellation of certain projects over the past several years. The lack of foreign investment during the past few years due to sanctions prompted Iran to turn to local companies to develop its oil projects. However, local firms are limited in the capital and technology they need to maintain production at mature fields, and projects awarded contracts in 2019 and beyond have progressed very slowly.Physical exports versus ffiscal receiptsOpen-source trackers and industry analysts show that physical crude exports frequently exceeded official tallies during sanction periods, largely due to STS transfers and re-routing to buyers such as China via intermediary ports. Despite sanctions, Iran increased shipments of crude oil, mainly to China, in 2022 and 2023. Iran raised crude oil output by about 1 million barrels per day (b/d) from 2020 to 2023 as its exports to China grew by almost 870 million b/d during this time.As a countermeasure, the U.S. expanded sanctions in April 2024 to cover ports, vessels, and refineries involved in the purchase of Iran’s oil. These new sanctions allow for 180-day waivers if sanctions interfere with U.S. national security. It is important to note here that if all oil sanctions are removed, Iran’s crude oil production could return to its full capacity, which is assessed at 3.8 million b/d.UANI’s year-end reviews documented growing volumes of tracked physical exports in 2023-2024, with continued strong flows into East Asian markets. The IEA notes that while Iran’s production and net exports are below peak levels, they remain a material source of supply in regional markets.However, net fiscal receipts are materially lower than gross export volumes would imply. Discounts demanded by buyers, fees to intermediaries, opaque middleman margins and higher insurance/shipping costs reduce the government’s revenue per barrel, compared with pre-sanctions prices. Moreover, difficulty in converting oil proceeds into stable hard currency (USD/EUR) further constrains the capacity to fund imports that require convertible currencies.The World Bank and IMF emphasise that these monetisation constraints, more than simple volumes, drive fiscal stress. However, the IEA reported that Iran’s crude production in mid-2025 rose to about 3.2–3.3 million barrels per day (b/d). Physical output recovery shows that production capacity has rebounded even where monetisation remains constrained.Reffining, petrochemicals, and export diversifficationTo increase value capture and reduce vulnerability, Iran has invested in refining capacity and petrochemical exports. Refined products and petrochemicals are sometimes easier to market and can be sold through less-scrutinised commercial channels than crude. That strategic shift helped Iran maintain some export revenue even during periods of crude export suppression; nevertheless, equipment and technology embargoes limit the pace at which Iran can modernise and expand these higher-value sectors.STRATEGIC ASSET: In this September 4, 2018, file photo, released by an official website of the office of the Iranian Presidency shows a part of the Pardis petrochemical complex facilities in Assalouyeh on the northern coast of the Persian Gulf, Iran. | Photo Credit: APGas markets and pipeline diplomacyIran possesses one of the world’s largest gas reserves, but domestic consumption is high and export infrastructure limited. Pipeline projects (regional gas trade) have been hampered by geopolitics and financing constraints. Russia-Iran cooperation and regional trade with neighbours offer potential, but sanctions and infrastructural gaps mean gas is less of a near-term revenue salve than crude and petrochemicals. Although Iran possesses world-class gas reserves and produced roughly 245–266 bcm in 2023, domestic consumption (≈255 bcm) leaves only 10–16 bcm available for export.Trade dynamics beyond hydrocarbonsIran’s non-oil trade is critical for consumer goods, inputs, and machinery. Two patterns are important: trade concentration toward sanction-tolerant partners and the use of regional intermediaries.China and RussiaWith an aim to mitigate sanctions and manage its economic challenges, Iran has developed both strategic and economic partnerships with China and Russia. Tehran has signed a long-term partnership framework with Moscow, recently approved by the Russian Duma. Russia’s trade and strategic cooperation expanded especially after 2022, and mutual interest in sanction mitigation and defence cooperation reinforced bilateral economic ties.Similarly, Tehran signed a 25-year comprehensive strategic partnership agreement with China on March 27, 2021. As per the agreement, China is supposed to provide investments as well as economic and security services worth $400 billion over 25 years in return for a steady supply of oil from Iran. It is important to note that China’s engagement remains primarily economic: energy, trade, and stability to sustain commerce. China is Iran’s largest strategic economic partner in the sanctions era. Bilateral arrangements, ranging from oil-for-goods deals to investment pledges, sustain flows of manufactured goods into Iran, while providing reliable demand for oil and petrochemicals. Analysts note official customs numbers understate real trade because sanctioned oil often moves through intermediary channels.The Gulf and regional hubsIraq is one of Iran’s largest overland markets for consumer and construction goods. The UAE (Dubai) remains a central re-export and financial hub despite tightened enforcement. Türkiye serves as a conduit for both goods and services. These regional partners provide the logistical and commercial scaffolding for Iran’s trade flows. Post the 12-day Iran- Israel war and strike on Qatar by Israel, the region has started recalibrating and reimagining the regional and global realignments. In fact, there seems to be a greater focus on geo-economics in the region and to achieve this goal, they are pursuing a multi-alignment policy.Perception about Iran by the Gulf countries has changed. Iran is no longer viewed as a major threat. This is not to mean that Gulf countries have overcome all their differences and problems with Iran. These issues remain but there is a greater desire on the part of the Gulf countries to stay engaged with Iran. During the recently held Manama Dialogue, the Foreign Minister of Oman highlighted that Iran has not been a threat but a constructive partner and therefore, needs to be engaged with and not isolated. He noted that it is Israel, not Iran, that is the destabilising factor in the region. He spoke about the inclusive security framework in the region. Similarly, the Saudi leadership wanted to continue its engagement with Iran, while demanding that Iran should act on promises made during recent meetings between the two countries.It is believed that the need is for greater engagement and dialogue amongst the regional countries, including Iran. These regional developments are likely to help Iran manage its isolation by the U.S. and the West. Regional security and economic engagement framework is being reassessed. Experts like diplomat Randa Slim are of the opinion that today, West Asia is in a transition towards fragmented multipolarity, where regional powers play larger roles but still operate beneath a U.S. security umbrella.India: limited reopening and strategic nichesIndia historically was a major buyer of Iranian crude (pre-2012) and remains an important partner in non-oil trade and regional infrastructure. New Delhi has strategic interests: Chabahar port development (to access Afghanistan and Central Asia), energy security, and has intermittently resumed limited crude purchases and closer trade ties, depending on geopolitical constraints.Trade data and ministry reports show bilateral commerce remains significant in agriculture, pharmaceuticals, chemicals and select industrial items; however, India balances its engagement with U.S. diplomatic pressures and its own strategic relationship with Washington. India’s role in 2023-24 included negotiations on energy purchases and continued support for Chabahar, illustrating a careful approach that helps Iran sustain non-Western demand, while avoiding full exposure to sanctions penalties.BILATERAL INTEREST: Officials during the signing of a contract between India Ports Global Ltd. and Ports and Maritime organisation of Iran for the operation of the Shahid Beheshti Port in Chabahar, Iran. | Photo Credit: PTIMacroeconomic stateGrowth and output: Real GDP has been episodic. Modest recoveries occur when oil prices or export monetisation improve; contractions follow enforcement waves and domestic shocks. The World Bank recorded modest growth in recent years but cautioned that these gains are fragile and contingent on external conditions.Inflation and currency dynamics: Iran has experienced chronic high inflation. IMF data show inflation remaining in the multiple tens of percent range in recent years. Multiple exchange-rate regimes: official windows, subsidised rates for imports, and a parallel market, create distortions, increase import costs, and produce distributional effects that hit poorer households hardest. Currency redenomination or redenomination measures were periodically discussed and, in late 2025, legislation moved to remove zeros from the rial, a symptom rather than a cure for underlying price instability.Poverty, unemployment, and fiscal stress: High inflation erodes real wages and savings, and youth unemployment remains a political pressure point. The state’s reliance on subsidies and quasi-fiscal operations to maintain social peace increases vulnerability to commodity shocks. Analysts caution that unless fiscal consolidation and targeted social measures are pursued alongside reforms to improve revenue mobilisation (taxes, broadened non-oil revenue), socio-economic fragility will persist in Iran.Leadership strategies: a comparative lensThe role of leadership in shaping the strategic and economic scene of a country is equally important. How Iran’s leaders navigated the sanctions- shaped economy’s short- and medium-term outcomes merit some attention. Studies done by the U.S. think tank RAND Corporation and UANI provide a deep analysis of strategies adopted by various Iranian leadership.Rafsanjani and pragmatic reconstruction: Post-war reconstruction under Rafsanjani prioritised economic opening and pragmatic engagement with Western markets where feasible, but early sanctions and the geopolitical environment limited success. His approach set a template for engagement when political space allowed.Khatami and reformist openings: Mr. Khatami’s period attempted political and economic liberalisation and deeper global integration (including WTO aspirations). Geopolitical shocks and limited international trust constrained these ambitions.Ahmadinejad’s confrontation and fiscal expansion: Mr. Ahmadinejad’s confrontational posture coincided with severe sanctions pressure that hit oil receipts and contributed to inflation and exchange volatility, and populist spending increased vulnerability.Rouhani’s diplomacy and the JCPOA’s temporary relief: Mr. Rouhani’s tenure delivered the JCPOA (2015) that temporarily relieved sanctions, increased oil exports and foreign dollar inflows, but structural weaknesses and the 2018 U.S. withdrawal from the JCPOA undercut durable gains and highlighted how reversible relief can be without institutional insurance.Raisi and ideological consolidation: Raisi’s leadership emphasised strategic pivoting toward China and Russia and relied more heavily on domestic redistribution and securitised economic actors: the IRGC economic entities. This maintained essential functions but failed to stabilise inflation or attract large-scale private investment.Pezeshkian and recalibration under constrained options: The current leadership faces limited room for manoeuvre. Decades of structural fiscal issues, weakened institutional credibility, and sanctions-era capture of key sectors leave small windows for reform. Pragmatic recalibration — balancing geopolitical priorities with economic necessity — remains the central political challenge for him.Political economy and governanceThe very mechanisms that allowed Iran to circumvent sanctions as opaque intermediaries, quasi-state firms, and informal networks do create long-term governance problems.Corruption and rent capture: This is one such challenge. Sanctions create premium rents for intermediaries who can move goods and money, concentrating wealth in politically connected networks.Investment crowding out: Opaque state purchasing and directed credit undermine private sector confidence and crowd out productive entrepreneurship.Institutional erosion: Reliance on extra-legal workarounds reduces incentives to strengthen courts, regulatory institutions, and fiscal transparency that attract long-term legitimate capital. These dynamics imply that sanctions have long-run effects beyond temporary output loss. They alter institutions and incentive structures in ways that make post- sanctions recovery harder.Urban quality of lifeProlonged sanctions have not only strained Iran’s macroeconomic indicators but have also seeped deep into everyday life, most visibly through water scarcity and urban service degradation.Tehran and several provincial cities now grapple with chronic water shortages driven by a mix of underinvestment in infrastructure, climate stress, and sanctions-induced constraints on technology imports needed for desalination, pipeline repair, and wastewater recycling.In November 2025, Iran’s President publicly declared that ongoing water shortages, land subsidence, and chronic infrastructure stress have made Tehran effectively uninhabitable as a long-term capital, calling for a relocation of the national capital to Makran, on the southern coast.According to official statements, reservoirs supplying Tehran have dipped perilously low (some dams under 10% capacity), city water pressure has already been reduced, and parts of the metropolis are sinking as groundwater is over-exploited, prompting warnings that without rain, the capital may run dry before winter.Intermittent water cuts, falling groundwater tables, and deteriorating distribution networks have increasingly become part of urban life. While the Iranian state attributes much of this to external pressure, sanctions undeniably limit access to capital, spare parts, and advanced engineering solutions, compounding long-standing governance challenges. The cumulative effect is a populace experiencing many sanctions-induced stagnation of urban living standards, even as the IRGC’s economic networks appear comparatively insulated from such pressures.Policy options and implications for external actorsDespite many changes in the regional outlook towards Iran, it continues to confront many challenges, both internal and external. The World Bank and IMF suggest that to counter its economic challenges, the Iranian policymakers need to prioritise fiscal transparency and gradual subsidy reform tied to progressive social protections to reduce inflationary finance and create space for capital investment. It is equally essential that Tehran strengthen financial compliance to reduce counterparty risk and attract legitimate banking relationships; this lowers the cost of trade even within constrained geopolitical realities. Finally, a targeted industrial policy focused on sectors where import substitution is feasible (refining, petrochemicals, select engineering goods) should be adopted, while seeking partnerships for technology in neutral jurisdictions.India has followed a calibrated engagement. India’s measured approach, pursuing Chabahar port, selective non-oil trade, and cautious energy dealings, provides Tehran with useful economic space while avoiding escalatory exposure to sanctions. New Delhi’s posture demonstrates how middle powers can sustain pragmatic ties without full political entanglement. Continued trade in agriculture, pharmaceuticals and infrastructure cooperation can have stabilising economic effects.It is argued that conditional reintegration pathways can deliver better results and secure a regional environment. Western and regional actors could pair phased normalisation with verifiable reforms like financial transparency, non-proliferation steps to create incentives for Iranian structural fixes, a lesson from the reversible gains and losses around the JCPOA.ConclusionA critical analysis of Iran’s resistance strategy indicates that it will continue its resistance to U.S. pressure using every means at its disposal. In future, Iran will expand its ties with China and Russia to balance the U.S. pressure. On the regional front, Tehran will continue to increase its footprint, strengthening cooperation with Qatar, Oman, Türkiye, Iraq and Lebanon. Additionally, Tehran will work towards sustaining its engagement with Saudi Arabia and the UAE. Iran’s membership in the SCO and BRICS gives it the benefit to use its memberships in these multilateral forums to foster its economic, energy and connectivity ties, while overcoming its isolation imposed by the West, particularly the U.S administration. Besides, it will reach out to develop relations with countries in Europe, Africa, Asia and Latin America.Internally, hardliners have been empowered, and their power is likely to grow in the future. For now, despite serious economic problems, Tehran has been able to skillfully respond to U.S. pressure. However, in future, things could get difficult due to increased pressure from the Trump administration, the weakening of Hezbollah and Hamas, and the fall of the Assad regime in Syria. Former diplomat Seyed Hossein Mousavian has very rightly argued, “The ‘Maximum Pressure’ strategy employed by the U.S. has created a lose-lose outcome for both the U.S. and Iran, along with the entire Middle East region and the international community.” Engagement and dialogue between Iran and the U.S. are the only resort for managing various conflicts and chaotic situations in West Asia.Iran’s sanctions economy is a paradox of adaptation and fragility. The country has displayed an impressive operational toolkit: maritime workarounds, commodity swaps, regional re-orientation, and state containment, that keeps crude flowing, factories functioning, and shelves stocked. Yet, these adaptive strategies are costly and corrosive to long-term growth. They depress net fiscal receipts, entrench opaque intermediaries, and inhibit the institutional reforms necessary for sustainable development. Leadership choices have mattered: episodes of engagement delivered temporary relief, whereas confrontational policies amplified isolation.For India and other regional partners, pragmatic, calibrated economic ties offer meaningful support to Iran’s non-oil economy, while preserving their strategic margins. Ultimately, sanctions increase the costs of economic functioning but do not automatically convert into political or structural change; only a combination of credible incentives for reform and domestic governance shifts can enable Iran to move from survival toward durable recovery.Dr. Meena Singh Roy is a former Research Fellow and Head of the West Asia Centre at the Manohar Parrikar Institute for Defence Studies and Analyses (IDSA); Chairperson, Greater West Asia Forum, India; Distinguished Fellow, Middle East Institute, Delhi; Senior Fellow and Head, West Asia and Eurasia, Tillotoma Foundation.(The author would like to thank Dr. Divya Malhotra, Senior Visiting Fellow, Centre for National Security Studies, Bangalore, for helping her with the trade and economic data for the article.)