As the local currency falls to record lows, inflation soars, and economic output shrinks significantly, Iran's economy is under increasing pressure.

On October 3, the exchange rate of the Iranian rial on the open market was approximately 1 US dollar to 2.688 million rials, continuing the sharp decline trend that has seen more than half of its value eroded over the past year.

The Iranian Central Bank subsequently announced plans to sell up to $2 billion in foreign exchange through state-owned banks in an attempt to stabilize the rial. However, so far, this intervention has not been able to restore market confidence.

Many Iranians have turned to foreign currencies and gold in order to preserve the value of their savings. At a time when this monetary crisis is occurring, inflation is putting even greater pressure on families.

Iran's peer-to-peer inflation rate rose to around 90% in September, while the broader annual inflation rate remains above 70%. Food, imported goods, and other daily expenses have become unaffordable for many families.

The Iranian economy has contracted under the pressure of the oil industry.

The issues are far more than just inflation and the money market. The latest economic data shows that Iran's gross domestic product shrank by 10.1% year-on-year between March 21 and June 20.

The oil and natural gas industries were particularly hard hit, with a contraction of over 26%; industrial and mining activities also saw double-digit declines. Even excluding oil, economic output still fell by about 4.6%.

At the time of this decline, sanctions, restrictions on trade with Iran, and disruptions to the country's oil exports are weakening Tehran's ability to obtain foreign exchange.

Washington also continues to increase economic pressure on Iran by targeting industries and networks that generate revenue for the government. As a result, Iran's economic problems are becoming increasingly intertwined.

Lower oil revenues have reduced the supply of foreign exchange flowing into the country, putting greater pressure on the rial. A weaker rial in turn raises import costs, drives up inflation, and encourages households to convert their savings into dollars or gold. This, in turn, exerts even more pressure on the local currency.

The Central Bank of Iran now faces a difficult task: to defend the rial against the backdrop of broader economic contraction.

Unless oil revenues recover, or the authorities manage to restore market confidence in their currency, Iran may continue to be trapped in a cycle of declining purchasing power, high inflation, and weakening economic activity.