Iran’s Economy Shrinks 10.1% in First Quarter as Oil and Gas Plunge 26.4%
Key Facts
Iran’s gross domestic product, including oil and gas, contracted 10.1% year on year in the first quarter of the Iranian year, which ran from March 21 to June 20, 2026, according to data cited by Reuters from the Statistical Center of Iran. The figure puts economic activity in a sharp contraction during a period that coincided with the early months of the conflict, which began with U.S. and Israeli strikes on Iran on February 28. The loss was not limited to the energy sector; output excluding oil and gas fell 4.6% year on year over the same period. The reading points to a broad contraction across major sectors, with clear differences in the depth of the declines. Agriculture was the only major sector to record growth, according to data reported by AJ English TV.
Oil and gas led the declines, with activity in crude oil and natural gas extraction falling 26.4% year on year during the quarter. The sector’s contraction came amid a decline in overall output, but it does not alone explain the economy’s downturn, as non-oil output also fell 4.6%. The contraction’s spread beyond energy indicates that weakness extended across broader economic activity, alongside the sharper blow to oil and gas production. The published figures did not provide a specific causal explanation for the overall contraction, so the two sectors’ readings remain separate from any direct attribution to a particular factor. The conflict began on February 28, before the measured quarter started on March 21, and overlapped with the period through June 20, according to the report.
Industry and mining contracted 14.7% year on year, the second-steepest decline among the sectors reported, after oil and gas. Manufacturing also contracted, by 2.5%, a narrower decline than that in industry and mining, while services activity fell 4.8% during the quarter. The results show that the contraction was not confined to resource extraction or industrial activity, but extended to services as well. By contrast, agriculture grew 2.3% year on year, making it the only major sector to expand. The quarter therefore combined deep losses in energy and industry with contractions in services and manufacturing, against limited growth in agriculture.
Against the backdrop of production pressures, Ali Akbar Alvandian, secretary of the Cement Industry Employers Association, told Mehr News Agency on September 26 that cement plants had faced gas restrictions since the start of the Iranian year and had used fuel oil “continuously,” including during the warm season. His account provides an example of fuel-supply challenges facing industrial facilities, but it concerns the cement sector and does not attribute the GDP figures or the first-quarter contraction in industry and mining to those challenges. Alvandian said the cost of transporting fuel oil adds to its price, leaving producers “effectively paying nearly double the cost.” That, in his assessment, adds further pressure to cement producers’ costs at a time when manufacturing recorded an annual contraction during the quarter. The statement did not quantify the effect of these restrictions or fuel costs on gross domestic product.
The International Monetary Fund’s October projections point to a deterioration in its 2026 estimates: it forecast Iran’s real GDP would contract 7.6%, compared with its July projection of a 5.4% contraction. These are annual forecasts, not an additional reading of the quarter from March to June, but they place the quarterly contraction data in the context of the institution’s outlook for the year. The fund also projected average consumer price inflation of 78.6% in 2026. In the same projections, the fund expects real GDP to return to growth in 2027, expanding 3.6%, after a projected contraction of 7.6% in 2026. These are forward-looking figures in the October projections, while the Statistical Center’s data measure first-quarter performance year on year.
On the currency front, traders in Tehran told the Associated Press on September 29 that the dollar had topped 2.5 million rials in the market, after a previous record of 2.2 million rials per dollar on September 2. These levels came after the quarter covered by the GDP data, making them a later development in the foreign exchange market rather than part of the figures for March 21 to June 20. The comparison between the two dates shows the rial falling further to a level below its previous record, according to prices cited by traders. The GDP data, the fund’s annual forecasts and subsequent exchange-rate levels place the Iranian economy in different time frames. The next date cited in the projections is 2027, when the fund expects the economy to grow 3.6%.