CAIRO (AP) — In the heartland of Iran’s famed carpet-making industry, manufacturing has ground to a near halt. Dairies struggle to find packages for milk and butter. Giant steel mills that once drove Iran’s economy have gone silent. Hundreds of thousands have lost jobs, and millions more are at risk.
Over more than five weeks of bombardment, U.S. and Israeli strikes hit thousands of factories. The damage is reverberating across Iran’s economy, threatening increasing waves of layoffs, even as Iranians face skyrocketing prices. The cost of chicken is up 75% the past month, and beef and lamb jumped 68%. Many dairy products have increased by half.
It could get worse as the United States blockades Iranian ports, choking off many imports and oil exports that bring in billions of dollars. Economic woes sparked the mass protests that were crushed before the war and could again push Iranians into the streets.
Still, Iran has its own weapon pointed at the global economy, with its grip on the Strait of Hormuz. Iran’s leaders say they will only reopen the key waterway for global energy if the blockade is lifted and the war ends. They are betting that an economy built to be self-reliant under decades of international sanctions can endure the pain longer than U.S. President Donald Trump.
Iran has lost at least 1 million jobs directly because of the war, Deputy Labor Minister Gholamhossein Mohammadi said, according to state media.
But the ripple effects put some 10 million to 12 million jobs at risk — half of Iran’s labor force — warns Hadi Kahalzadeh, an Iranian economist.
Steel and petrochemical production crippled
Israel claimed to have struck the industrial base of Iran’s paramilitary Revolutionary Guard. But the strikes went well beyond, hitting facilities not owned by the force.
Airstrikes damaged 20,000 factories, some 20% of the country’s production units, according to Kahalzadeh, a research fellow at Brandeis University. The stricken facilities included Tofigh Daru, Iran’s largest pharmaceutical holding, producing anticancer drugs among other things. Optics and chemical developers, and aluminum and cement factories, were also hit.
Perhaps most damaging, Israel hit Iran’s biggest steelmaking and petrochemical factories, most of them in a wave of strikes just before the April 8 ceasefire. The two biggest steel producers, Mobarakeh Steel and Khuzestan Steel, as well as smaller mills, halted production. More than 50 petrochemical complexes have been shut down, according to Iran’s semiofficial Jamaran news agency.
That has crippled Iran’s two biggest non-oil exports, and higher prices have affected everything from plastics to pipes, to fabrics and packaging for groceries like milk, butter and cheese.
Strikes are not the only cause of economic woes. The internet has largely been shut down since the protests, gutting small and medium-sized businesses reliant on online sales. Even before the U.S. blockade, Iranian strikes on the United Arab Emirates, on which it relied for around a third of its imports, led that country to cut off trade.
Ripple effects
Around 80% of rug and carpet manufacturers have stopped operations in the industrial zone of the city of Kashan, the center of Iran’s rugmaking industry, said the son of a rugmaker. His family factory, which employs 20 to 30 people and used to machine-make hundreds of rugs a month, is among those that shut down, though his father still goes to the facility every day.
“Never have I heard my father so upset,” said the son, who lives in the United States and spoke on condition of anonymity for his family’s security.
Kashan, home to hundreds of carpet manufacturers, “relies on the rug industry and unfortunately it’s been crippled,” he said. Exports plummeted since the war began, and domestic sales are almost zero. Prices for synthetic fibers have leaped 30%- 50% — partly a downstream effect of hits on petrochemical facilities, he said.
Mehdi Bostanchi owns a ventilation and air conditioning factory, and a second producing household fans, with a total of more than 1,130 employees. Both still operate. But the HVAC factory heavily depends on the construction industry, and “construction is facing a massive shock,” he said.
Most new building is on hold, while the price of iron sheeting has more than doubled.
Bostanchi, a member of a council representing Iranian industrialists, said “all the country’s industries in some way rely on our petrochemical industry.” Even companies that don’t directly need steel or petrochemical products have contracts with those that do.
A chemical engineer working at one of Iran’s biggest private construction contractors said it laid off half of its 180 headquarters staffers and had to shut down a project with Mobarakeh Steel, costing 1,000 jobs.
A Tehran resident quit his job as a consulting engineer just before the war, and the new job he had lined up is now uncertain.
“I am at the top 1% (of society), and I am without a job. I am super worried about my future,” he said, adding that people’s savings will start to run out in the coming weeks.
Both he and the chemical engineer spoke on condition of anonymity out of security concerns.
Projecting resilience
Millions took to the streets in January’s protests that were triggered by worsening inflation but turned into calls for the end of the Islamic Republic, bringing a bloody crackdown.
Officials are trying to reassure the public that Iran can withstand the economic pain. The government has promised to increase unemployment insurance. But the burden on Iran’s social security system is rising even as its funding is gouged, since it depends heavily on its stakes in petrochemical companies and other key industries, Kahalzadeh said.
The U.S. blockade threatens to cut off export revenues: Iran sold some $98 billion in exports in 2025, just under half of it from oil.
But a complete blockade is difficult; around half of Iran’s non-oil trade goes overland or through Caspian Sea ports, according to Esfandyar Batmanghelidj, an economic expert.
Iran has also built up significant resilience and “readiness for worst-case scenarios,” Batmanghelidj wrote for the Bourse and Bazaar Foundation, a research group he heads on economic development in West and Central Asia.
Iran maintains large reserves of vital supplies. At the end of 2025, Iran had stored up enough electrical machinery for nearly eight months, cement to last nearly six months and enough steel and iron for four months, he wrote, adding that supplies could be further stretched by rationing.
Bostanchi, the factories owner, said he believes Iran’s economy could bounce back once the war ends. But how much depends on whether Iran can win an end to international sanctions.
“If we cannot lift the sanctions in any agreements, then no, the optimistic forecast … will not happen,” he said.
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El Deeb reported from Beirut.
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