As Donald Trump gets settled in the White House, Iran finds itself at a critical juncture, facing both economic pressures and economic challenges. The recent memorandum signed by Trump on February 4, aimed at applying "maximum pressure" on Tehran through enhanced sanctions enforcement, has reignited concerns about the Islamic Republic's future trajectory and its ability to maintain regional influence.

Iran's memories of Trump's first term (2016-2020) remain vivid: the US withdrawal from the nuclear deal, extensive sanctions and the assassination of General Qasem Soleimani, a decision that significantly altered the regional security architecture. Since then, Iran's position has weakened considerably, with Hezbollah's influence diminishing in Lebanon, pro-Iranian forces withdrawing from Syria and regional dynamics shifting dramatically.

The economic outlook presents significant challenges. According to IMF projections, Iran's economic growth rate for 2025 is expected to reach only 3.1%, falling below the regional average of 3.9%. The country's GDP is predicted to increase by $29bn, reaching $463bn, while inflation, though declining, remains high at 29.5%. The Iranian currency has plummeted, with the US dollar exchange rate exceeding 90,000 tomans (IRR900,000), compared to 60,000 tomans merely five months ago.

For President Masoud Pezeshkian, a heart surgeon by training, the economy is in ICU. His approach to economic "cardiotherapy and surgery" stresses long-term solutions over temporary fixes like those that previous administrations have tried to effect, focusing on structural imbalances and sustainable economic stability. However, the potential US actions to block Iran's oil exports could prove critical for the country's economic survival.

"Those who underestimate Trump's potential impact do not understand the complexities of the global economy," warns Seyed Hamid Hosseini, head of Iran's Union of Oil, Gas and Petrochemical Exporters. "His return will undoubtedly increase pressure on Iran, and we must actively seek solutions now."

The nuclear programme remains at the heart of tensions. A classified IAEA report indicates that Iran's uranium stockpile has reached 6,604 kg, with 182.3 kg enriched to 60% – a level that can be readily enriched to weapons-grade material. Iranian officials present varying perspectives on this matter. Kamel Kharazi, a senior foreign policy adviser to Supreme Leader Ayatollah Khamenei, notably claimed that "Iran now has the capability to produce nuclear weapons, but the only obstacle is a religious decree (fatwa) prohibiting it."

The strategic landscape has shifted significantly for Iran throughout 2024. The country remained at the centre of global news: missile strikes on Israel, the deaths of several IRGC generals, the assassination of Hamas political bureau chief Ismail Haniyeh, the deaths of Iranian President Ebrahim Raisi and Foreign Minister Hossein Amir-Abdollahian, Israeli retaliatory strikes and the loss of Syria as a key regional ally.

Mohammad Mehdi Mazaheri, a Tehran University professor, argues: "Denial and baseless slogans will not heal the country's wounds. They can lead to apathy and weak planning in addressing real threats" he said in Donyaye Eqtasad newspaper. He suggests Iran should focus on strengthening its domestic "social capital" and adapting to the pragmatic self-interest of global powers.

Ali Nikzad, Deputy Speaker of Iran's Parliament, reflects the regime's defiant stance: "Global arrogance has never accepted our Islamic Republic, which was established with 98% of the people's votes. They will never accept religious democracy, independence, freedom, and the discourse of resistance."

Vladimir Sazhin, a senior researcher at the Moscow Institute of Oriental Studies, suggests that Trump's strategy might have broader objectives: "Trump will likely offer Iran partial sanctions relief in exchange for reduced cooperation with Russia. This is also what the EU hopes for, as European companies are eager to enter the Iranian market," he said to Vedemosti.

The Middle East World Affairs Council stresses that previous coercive approaches have had counterproductive effects, pushing Iran towards more aggressive postures rather than compliance. They argue that diplomacy, not coercion, is the path forward for sustainable US-Iran relations, something Trump and his cohort are not famous for­.

The situation in the Strait of Hormuz remains particularly sensitive. Iran has repeatedly threatened to block this vital waterway if its interests are threatened. The Islamic Revolutionary Guard Corps' (IRGC) naval forces demonstrated this capability in April 2024 by seizing an Israeli cargo vessel passing through the strait. The conservative newspaper Kayhan described this action as a signal to the United States regarding Iran's ability to block the strait, suggesting similar measures could be implemented against Israeli-linked vessels as seen in the Red Sea.

Tehran-based economic analyst Reza Tahmasebi offers a measured assessment in local media: "Trump may not be able to intensify sanctions, but he can reverse concessions made under Biden's administration and reduce Iranian oil sales, dealing a significant blow to government revenues." Iranian analyst Masoud Barati, however, argues that Iran's experience in circumventing sanctions means the worst is over, suggesting that growing disagreements between the US and its allies could undermine the sanctions regime.

The path forward appears to require a delicate balance between pressure and diplomacy. A step-by-step trust-building approach could potentially address Iran's security concerns while encouraging regional cooperation. As suggested by multiple analysts, direct negotiations facilitated by effective mediators like Qatar could significantly contribute to this process.

The success of any diplomatic initiative will largely depend on both sides' willingness to prioritise dialogue over confrontation. While Iran's new administration has expressed openness to negotiations regarding its nuclear programme and broader issues, it has simultaneously affirmed its readiness for confrontation if necessary.

Abbas Araghchi, Iran's Foreign Minister, recently warned that any attack on the country's nuclear facilities would result in catastrophe for the entire region. While Iran may lack the military and technological capabilities to match US and Israeli military power, it retains significant deterrence tools, including the ability to accelerate its nuclear programme, strengthen ties with Russia and China, bolster regional proxy forces, or engage in asymmetric warfare targeting US interests and those of its regional allies.

The coming months will prove crucial in determining whether diplomacy or escalation will characterise this new chapter in US-Iran relations. As one Iranian think-tank concluded, "Trust-building through gradual, reciprocal diplomacy remains the most effective way for the United States to achieve its strategic objectives. Coercive diplomacy often leads to more coercion."