Iran's economic and military situation indicates that even if the war were to end now, the regime has been badly battered and is on the verge of collapse. At the same time, the continued fighting, and this may be the reason behind President Donald Trump's extension of the ultimatum, is pushing Iran toward the limits of its economic and military capacity, but will not necessarily bring down the regime. That is the assessment of a senior political-security official, who said the current pattern of sustained attrition, alongside the possibility of US action and limited Iranian fire, is expected to continue for at least another week.
According to the official, even if moderate elements in the Iranian government try to advance negotiations, the gaps between the sides remain. Only if the regime feels it is close to collapse, it might it agree to concessions.
A regional diplomatic source added that there is a significant gap between reports about the contacts and the reality on the ground, and that many of those reports exaggerate Iran's position, which is far removed from its actual condition. According to the source, Iran has conveyed partial and at times contradictory responses, apparently because of internal disputes between the political echelon, President Masoud Pezeshkian and Foreign Minister Abbas Araghchi, and senior Islamic Revolutionary Guard Corps officials, led by Ahmad Vahidi, who is currently seen as the strongest man in Iran. Parliament Speaker Mohammad Bagher Ghalibaf was also involved in the contacts, and the delay in an official response stems mainly from those disagreements.
Among the demands raised by Iran were the removal of some sanctions during the negotiations and a partial reopening of the Strait of Hormuz in exchange for a ceasefire. Those demands were rejected, but limited passage for oil tankers and cargo ships, mainly to India and China, was approved. Indian Prime Minister Narendra Modi also reached an arrangement to purchase oil from Iran with the Americans' knowledge and quiet consent. Even so, it remains unclear why Washington is also allowing oil shipments to China, despite a significant military presence in the region that would make it possible to stop them.
One possible explanation is a desire to influence global oil prices, alongside additional steps taken by the Trump administration to increase supply, including easing restrictions on exports from Russia.
At the same time, Iran's economy continues to weaken. Oil exports have fallen from more than 2 million barrels a day to about 1.2 million, and revenues have dropped accordingly, from about $3 billion in January to about $2 billion during the war. This is the country's main economic lifeline, and its economy was already in deep crisis.
According to reports, the regime is facing a severe cash shortage. Many public-sector employees have not been paid, banking services have been disrupted, and cash machines have run dry. Inflation has soared to about 120% a year, and the local currency has lost much of its value. Pezeshkian has even warned that the economy could collapse within weeks.
Another factor in the crisis is the freezing of Iranian assets abroad. A large share of the funds is held in China, but Iran is struggling to access it. Assets worth tens of billions of dollars are also being held in the United Arab Emirates and, according to reports, were effectively frozen after the Iranian strikes on civilian and oil facilities in the Emirates.
Anwar Gargash, diplomatic adviser to the UAE president, made clear that any future agreement must include compensation from Iran. "There is no escaping a political solution that includes guarantees to prevent attacks and compensation for damage to infrastructure and civilians," he said.
Gargash added that Iran misled its neighbors before the war and displayed aggression that had been planned in advance, despite efforts to avoid a confrontation.
