What happens if Iran’s economy collapses?

( NewsNation ) — Iran's currency has fallen to a new record low as the war stretches into its eighth month, raising questions about whether mounting economic pressure could play a role in bringing the conflict to an end.

More than 2.5 million Iranian rials are now needed to equal one U.S. dollar. Iran had already faced years of economic pressure from international sanctions. A U.S. blockade targeting Iranian oil, along with new sanctions imposed during the war, has added to that pressure.

Economist and professor of Economics at Washington State University Chris Clarke spoke with NewsNation's Laura Ingle about what would happen if the country's economy would collapse.

Clarke cautioned that there remains "a tremendous amount of uncertainty," noting that the exchange rate alone does not provide a complete picture of Iran's economic health. Iranian government data indicates inflation is rising and unemployment is elevated, Clarke said, but he added that the unemployment situation is "not catastrophic yet."

Why an Iranian recession may have little impact beyond its borders

Clarke said an Iranian economic collapse would likely have little direct effect on the U.S. economy because the two countries have had limited economic ties for years.

Clarke added that Iran is not a large enough economy to have an enormous global impact, adding that Iran ranks near the 50th largest economy globally with a nominal Gross Domestic Product (GDP) of approximately $300-400 billion, "basically the size of a small U.S. state…if you have a recession in Iran, it's not going to affect too much else," he said.

End to Iran conflict could deliver global economic benefits

But economic pressure could prove more important if it becomes leverage in negotiations over the war, Clarke said. If that pressure ultimately contributes to ending the conflict, he said, the consequences could be significant for Americans.

Gen. Hossein Mohebbi, spokesman for Iran's Revolutionary Guard, accused the United States of using Iran's nuclear program as a ruse to "plunder Iran's wealth" and to turn the country "back into a colony."

While Iran itself may not be a large enough economy for a recession there to have an enormous global impact, ending the military conflict and reopening trade in the Gulf, however, could provide an economic boost for countries dependent on the region's energy supplies.

Oil prices in the U.S. are swinging sharply. Asia and Europe could particularly benefit from renewed oil flows and lower energy prices, Clarke said, noting that European countries are also importing less energy from Russia.

Sanctions also come with limitations and costs, Clarke said. Iran has found ways to circumvent some restrictions, including moving oil and using cryptocurrency for transactions.

Americans can also feel the economic consequences of sanctions through prices at gas pumps and grocery stores. For example, sanctions or conflicts restrict foreign crude oil supplies, raising the global benchmark price. Also, higher diesel and fuel prices spike the cost to ship goods via trucks and trains.