Key Points

• A former adviser to Iran's central bank disputes U.S. President Trump's assertion of impending economic collapse in Iran.
• The UAE's decision to sever trade ties could lead to a 5% contraction in Iran's economy this year, according to Mehrdad Sepahvand.
• Low-income Iranians and the youth are disproportionately affected by rising prices and job losses.

U.S. President Donald Trump has asserted that Iran's economy is on the verge of collapse. However, Mehrdad Sepahvand, a former economic adviser to Iran's Central Bank and current director at Daric Investment Group, has pushed back against these claims, offering a more measured perspective.

"We should be a little bit cautious about the view that the Iranian economy is simply on the verge of collapse," Sepahvand stated in an interview with CNBC.

His remarks come in the wake of Trump's vow of "economic warfare and isolation on an unprecedented scale" against Iran, characterizing the regime as "hanging by a thread." This intensified pressure campaign, dubbed Operation Economic Fury, aims to cut off Iran's alleged global terror financing and revenue streams.

The World Bank estimates that Iran's gross domestic product contracted by 2.7% in the year ending March. This contraction is attributed to economic disruption from widespread protests and increased regional hostilities. Inflation has surged, reaching 62.2% in February, with food prices hitting a record high of 99%. An Iranian official also estimated that recent conflicts have led to the loss of one million jobs.

Despite these challenges, Sepahvand observed that "shops are still full of food and basic goods, and there is no sign of panic buying." He also noted that public confidence in the banking system remains intact, with no significant bank runs, even amidst systemic imbalances and cyberattacks.

A significant development Sepahvand highlighted is the United Arab Emirates' decision to halt all trade and financial ties with Iran. The UAE, previously Iran's largest source of imports, made this move following claims of Iranian ballistic missile launches. "The UAE is one of the main Iranian financial gateways," Sepahvand explained. This rupture is expected to strain the exchange rate, increase trade costs, and fuel inflation in the coming quarters, potentially deepening Iran's economic contraction to around 5%.

Trump has warned that any nation providing Iran an economic lifeline will face severe repercussions. He specifically targeted channels like oil smuggling, currency swap lines, and exchange houses, emphasizing Iran's inability to acquire nuclear weapons.

Sepahvand cautioned that the stringent economic and political squeeze might inadvertently empower hardliners within the Iranian regime, making a diplomatic agreement with the U.S. more challenging. He stressed that the burden of these economic pressures falls heavily on low-income Iranians and the youth, who are grappling with soaring prices and diminishing job opportunities.