Amid worsening stagflation, currency depreciation and the comprehensive US sanctions campaign moving in the past month from oil to other exports and assets controlled by Supreme Leader Ayatollah Ali Khamenei’s multibillion-dollar religious foundation, the Tehran stock market index recently reached a record 240,000 after initial public offerings by poultry and chemical companies.

In dollar terms it still had outperformed the Morgan Stanley Capital International Frontier Index at the end of April with a 7% loss versus MSCI’s 12% on an annual basis, with price-to-earnings ratios at eight times, or half the average of the broader emerging-market universe.

In the earlier stages of the Donald Trump administration’s self-described economic “maximum pressure” for renegotiation of the anti-nuclear pact, banks long struggling with undercapitalization and double-digit bad-loan portfolios were still relative stock-exchange buys. Iranian President Hassan Rouhani had campaigned on a re-election platform of modernizing and strengthening the sector, including through more independent central-bank oversight and capital-market diversification.

In March, four banks linked to the powerful military were merged, following a move last year to bring unregulated credit providers, some associated with the Islamic Revolutionary Guard Corps (IRGC), under supervision after poor practice triggered depositor runs. Toward the end of the last fiscal year through March, system deposits rose one-third to more than US$150 billion at the prevailing exchange rate, with even Ansar Bank, newly targeted by Washington as IRGC-owned, reporting steady inflows.

However, the full onslaught since, including the Guard’s official designation as a terrorist organization placing financial-institution holdings at greater risk, has reinforced the domestic “resistance” revolutionary philosophy originally driving bank nationalization four decades ago. Instead of recognizing and incrementally addressing a “slow-motion crisis,” in the words of a June analysis from the Washington-based Peterson Institute for International Economics, the regime has indefinitely shelved reform. It will be difficult to revive even after the siege passes, and may invite outright collapse that neither the Rouhani nor Trump administration planned for in ratcheting up the confrontation.

Iran’s official statistics reported that gross domestic product shrank 5% last fiscal year and inflation was almost 40% in June, with staple food and medicine prices rising even more. The International Monetary Fund and World Bank predict worse output contraction and 50%-plus inflation this year, in part due to non-stop currency devaluation. The government exchange rate is around 40,000 rials to the dollar for defined essential imports, and the parallel one it has tried to muffle with dealer raids has fluctuated between three and four times that level in recent months.

Oil sales with the end of waivers to US allies were an estimated 500,000 barrels per day in May, one-quarter the total after ramping up in the immediate aftermath of sanctions relief two years ago. The US Treasury Department added steel shipments to the prohibited list, in a push championed by White House national-security hardliners while separately applying tariffs on China. Unemployment figures have not been updated, with the youth rate already 30%, as big European carmakers Daimler and Peugeot shut local operations. France, Germany and the UK devised a non-dollar alternative payment structure, Instex, to allow cross-border commerce, but it has not yet been tested and will focus initially on pure humanitarian transactions.

The Peterson Institute paper points out that inflation is also due to 20% annual money-supply growth, mainly from central-bank liquidity injections to state and private lenders over the past year’s sanctions-aggravated crunch. Its lines also fund the budget deficit, estimated to exceed 3% of GDP this year in contrast with previous balance.

Central Bank of Iran head Abdolnaser Hemmati has considered issuing bonds to outside retail and institutional investors as another outlet, as he also received new authority several months ago to experiment with open-market operations in monetary policy. However, his priority now is on tightening the central bank’s grip on the payment and foreign-exchange systems, and wholly or partially state-run institutions to overcome US pressure magnifying the “bad situation already” in 2018, according to the Peterson research.

Capital adequacy at 4% of assets is half the Basel-recommended standard, and non-performing loans are conservatively estimated at 20-30% of the total if international classification norms apply. Iran has relatively low domestic debt at 30% of GDP, and critics argue that it may be able to throw money at the problem, as reform chances are also thrown away for the foreseeable future amid the renewed sanctions squeeze.