Iranian leaders have portrayed the current cease-fire as a victory against an overwhelming U.S. and Israeli onslaught. But they now face a towering postwar reconstruction challenge that is putting pressure on them to negotiate for sanctions relief.
The U.S. and Israel hit at least 17,000 targets over five weeks of war, including factories; rail, road and port infrastructure; government buildings; and military facilities. Iranian state media put the cost to rebuild at $270 billion, though analysts said it was too early for an estimate as the impact of the damage filters through the economy.
Rebuilding will be complicated by the interlocking nature of the damage done by attacks aimed at dragging out the country’s road to recovery. The air campaign not only hit infrastructure but the facilities producing material such as steel that is needed to repair it and operations such as petrochemicals that bring in the foreign currency to pay for the work.
The physical damage adds to an economic crisis that was already so severe it sparked mass protests that shook the country around the new year. While Iran’s control of the Strait of Hormuz and ability to hit targets across the Gulf have given it leverage in talks with the U.S., the scale of the necessary rebuilding limits its room to maneuver.
“Iran insiders are rumbling about the looming economic catastrophe if Washington does not grant sanctions relief that would unlock prospects for economic recovery,” said Burcu Ozcelik, senior research fellow with the London-based Royal United Services Institute think tank. “Without the prospect of economic recovery, regime survival beyond the short term will face sustained structural and popular pressure.”
The first round of talks between the U.S. and Iran in Islamabad ended in a deadlock. But both sides have indicated they have some room for compromise, including around the core issue of uranium enrichment, and they are expected to meet for another round, people familiar with the talks said.
During the war, Iran fired thousands of missiles and drones at Gulf states and Israel, many of them aimed at economic assets such as energy facilities, airports and hotels. The strikes caused lasting damage to some facilities but nothing nearly as comprehensive as the wreckage in Iran.
“My sense is that the scale of the destruction now is much worse than the Iran-Iraq war,” said Kaveh Ehsani, associate professor of international studies at DePaul University in Chicago.
Up to a million Iranians and Iraqis died in that conflict, which ran from 1980 to 1988, and people lived under rationing for years. But that war was largely fought in trenches near the border. By contrast, the U.S. and Israel in recent weeks dropped more than 20,000 munitions on the country, many of them in Tehran and other urban areas.
Israeli aircraft struck eight petrochemical plants in southwestern Iran, including one of the country’s largest, the Bandar Imam Petrochemical Complex. Iran’s two main steel plants, the Mobarakeh Steel Company in Isfahan and Khuzestan Steel near Ahvaz, also were damaged. Petrochemicals constitute nearly half of Iran’s non-oil exports, bringing in $18 billion in 2023. Steel generates up to $7 billion annually.
“The attacks are not random,” said Kevan Harris, an authority on Iranian economic development and society at the University of California, Los Angeles. “They are targeting parts of the economy that are outward facing, that are bringing in foreign exchange which could be redistributed and directed at basic needs.”
Following the petrochemical strikes, Israeli Prime Minister Benjamin Netanyahu said, “We are systematically dismantling the IRGC’s money machine,” referring to the Islamic Revolutionary Guard Corps, the paramilitary group that defends the regime and is embedded in Iran’s economy and industries.
Iran’s judiciary on Wednesday announced a ban on all exports of petrochemical products, an action taken likely to secure domestic consumption and stockpiles.
The U.S. blockade of Iranian ports will further strain the country’s budget. According to one estimate, by Miad Maleki, an analyst with the Foundation for Defense of Democracies research group, the blockade will cost Iran approximately $435 million a day, including $276 million in lost exports, mostly of crude oil and petrochemicals.
Iranian oil that can’t be exported will fill the country’s storage tanks in two to three weeks, which would force the country to shut-in its oil production, data provider Vortexa said. Shut-ins in turn can damage fields and reduce their future output, analysts said.
The losses depend on several factors including how tight the U.S. blockade turns out to be, said Sara Vakhshouri, founder and president of consulting firm SVB Energy International.
Israel struck the Tofigh Daru Research & Engineering Co., one of Iran’s largest pharmaceutical companies which produces anesthetics and cancer drugs. Israel said the facility also produced fentanyl and other substances for possible use in weapons.
Weeks ago, Israel hit Iran’s main energy source—the Asaluyeh processing hub for gas coming off the giant South Pars gas field—causing plants in the complex to shut down.
The bombing of production facilities in the middle of a deep recession and fast-depreciating currency will exacerbate unemployment, particularly among the working class. Iranians reached by The Wall Street Journal said the economic damage is already evident in supply shortages and job losses.
When an airstrike hit a petrochemical refinery in the southern city of Shiraz earlier this month, it disrupted the supply of fertilizer produced by the facility and distributed across the country, said a 25-year-old student whose father is a farmer on the opposite side of the country, in the province of Mazandaran. His girlfriend’s sister lost her job at a factory because of extensive damage to the country’s steel industry and the broader supply chain.
As many as 12 million jobs, nearly half of Iran’s workforce, are at risk from furloughs or layoffs, according to Hadi Kahalzadeh, an economist and former official in Iran’s Social Security Organization. The disruption to the steel industry alone threatens more than 5.5 million jobs, along with another 1.2 million jobs at risk in petrochemical and pharmaceuticals, he assessed. Job losses on that scale will snowball into areas such as retail.
“The sectors hit hardest by U.S. and Israeli airstrikes represent the core pillars of employment and production,” Kahalzadeh wrote for the London-based Bourse & Bazaar Foundation think tank.
After the 12-day war with Israel last year, Iranian authorities bought time by building up stocks of rice, cooking oil and other food items. Videos shared with the Journal by Iranians in Tehran showed calm in supermarkets even at the height of the bombardments.
Partly to overcome sanctions, Iran in recent decades built a solid domestic industrial and manufacturing sector. It has a robust agricultural sector and the capacity to rebuild without relying on foreign labor. Crucially, Iran has ample supplies of oil and gas.
Complicating Iran’s recovery is a host of economic and social ills that predate the recent war, including a worsening banking crisis. Pressure from international sanctions and economic mismanagement pushed Iran last year into an economic unraveling and drove hundreds of thousands of protesters into the streets.
The government’s own internet blackout—now at six weeks and counting—is contributing to the economic damage. Businesses rely on it to communicate with overseas customers and to complete orders, and a tech sector employs tens of thousands of Iranians.
One of the greatest hurdles facing Iranian authorities as they begin to rebuild is widespread discontent among Iranians, many of whom have lost hope in the future and could choose to leave the country, said Djavad Salehi-Isfahani, an Iranian professor of economics at Virginia Tech.
“What matters now is the political situation,” he said. “People have been very incredulous of government promises.”
Write to Sune Engel Rasmussen at sune.rasmussen@wsj.com
