Re-analysis of yesterday's post without any changes to the text.

By Parisa Hafezi

DUBAI, Oct 21 (Reuters) - Iran's economy faces the risk of both hyperinflation and a deep recession as the country's clerical rulers seek to maintain stability amid limited options after the reimposition of U.N. sanctions, officials and analysts say.

This comes after the collapse of talks aimed at curbing Iran's controversial nuclear activities and ballistic missile program. Both Iran and the United States say a diplomatic solution to the crisis remains possible, although Iranian Supreme Leader Ayatollah Ali Khamenei rejected US President Donald Trump's offer of a new agreement.

Three senior Iranian officials, speaking on condition of anonymity, said Tehran believes the United States, its Western allies, and Israel are tightening sanctions to fuel unrest in Iran and endanger the Islamic Republic's existence.

Officials told Reuters that since the reimposition of UN sanctions on September 28, several high-level meetings have been held in Tehran on how to avert economic collapse, circumvent the sanctions, and address mounting public anger.

Widening economic disparities between ordinary Iranians and the religious and security elite, coupled with economic mismanagement, accelerating inflation, and corruption, even reported by state media, have fueled discontent.

"The ruling establishment knows that protests are inevitable, it's just a matter of time," one of the three officials said. "The problem is getting worse, while our options are shrinking."

The Iranian leadership relies heavily on a "resistance economy," a strategy for self-sufficiency and increased trade with China, Russia, and some neighboring countries. Moscow and Beijing support Iran's right to peaceful nuclear energy, and both countries condemned the US and Israeli strikes on three Iranian nuclear sites in June.

But analysts warn that such solutions may not be enough to protect the sprawling country of 92 million people from a renewed economic blow.

"The impact of UN sanctions will be severe and multifaceted, exacerbating the country's long-standing structural and financial vulnerabilities," said Omod Shukri, an energy analyst and senior visiting fellow at George Mason University near Washington.

"The government is facing significant challenges in maintaining economic stability, as sanctions disrupt banking networks, restrict trade, and limit oil exports—the country's main source of income—leading to mounting social and economic pressures," he added.

* Oil lifeline under threat as sanctions return

Iran has avoided a complete economic collapse since 2018, when Trump, during his first term, announced the US withdrawal from the 2015 nuclear agreement Tehran signed with six world powers and the reimposition of US sanctions.

But one of the three Iranian officials said the reimposition of broader UN sanctions has caused shocks that will hamper economic growth, accelerate inflation, and lead to the collapse of the Iranian rial, pushing the economy toward a recession.

Iran's economy contracted sharply after 2018 due to the reimposition of US sanctions. It rebounded in 2020, recording modest growth at times, largely due to oil trade with China.

However, the World Bank this month projected that Iran's economy would shrink by 1.7 percent in 2025 and 2.8 percent in 2026, a sharp decline from the bank's April forecast of 0.7 percent growth next year.

While Tehran remains heavily dependent on oil exports to China, its largest customer and one of the few countries still trading with it despite Trump's "maximum pressure" policy, doubts surround the sustainability of this trade.

Although crude oil is sold at a discounted price, it remains a vital source of income for Tehran, with oil and petrochemicals accounting for about a quarter of GDP in 2024.

Despite public assurances that oil sales to China will continue, an Iranian official said that reimposed global sanctions could hinder this flow.

Analyst Shukri said that if China seeks to ease tensions with the Trump administration, it may harden its stance on Iranian oil—by demanding deeper cuts or cutting off imports altogether.

He noted that for Tehran, the costs could be devastating. He said that every dollar cut from the price of oil translates into an estimated half a billion dollars in lost annual revenue.

The Iranian rial has fallen to 1,115,000 to the dollar, from 920,000 in August, driving inflation to at least 40 percent and eroding purchasing power. The depreciation of the currency and ongoing trade sanctions are driving up prices and undermining investor confidence.

* The scope of difficulties is expanding and popular anger is intensifying.

Many Iranians are unable to overcome the difficulties, as a sense of despair pervades society and affects urban professionals, bazaar merchants, and rural farmers alike.

"How much more pressure are we supposed to endure? For how long? I am a government employee, and I only receive 34 million tomans (about $300) a month," Alireza, 43, said by phone from the capital, Tehran. Like others, he requested anonymity for fear of retaliation from the authorities.

"My wife is unemployed. The import-export company she worked for closed last month. With just my salary and my two children's, we're struggling even to pay rent and school fees. What can we do?" he added.

Iran's official inflation rate is around 40 percent, although some estimates put it at over 50 percent. Official data in September showed that the prices of 10 basic commodities—including meat, rice, and chicken—had risen by 51 percent in one year.

Housing and utility costs have also risen. A kilogram of beef now costs $12, too high for many families.

The second Iranian official said the religious elite is increasingly concerned that the growing popular poverty could rekindle the mass protests that have repeatedly erupted since 2017 among low- and middle-income Iranians.

Many Iranians are worried that the expanded sanctions will push them beyond the breaking point, including Sima, 32, who works in a factory in the central city of Shiraz and has been exhausted by years of economic pressure.

"They're saying we're facing new sanctions again, but we're already struggling to support our three children. Prices are rising every day, and we can't even buy them meat once a month," Sima said.

Many business owners fear deepening international isolation and further Israeli airstrikes if diplomatic efforts fail to resolve the nuclear crisis.

"With the constant fear of a possible attack and not knowing if I will even be able to export this month or next, how can I keep my business going?" said Mahdi, who ships fruit to neighboring countries.

(Prepared by Amira Zahran for the Arabic edition - Edited by Hassan Ammar)