Iran's Capital Markets Shaken After Two Wars
Social unrest, war, and direct attacks on industrial sites have created an unprecedented challenge for Iranian investors.
By Sahand Sehatpour
Iran’s capital markets play a far larger role in the economy than is often appreciated from the outside. The Tehran Stock Exchange and the broader capital market today include more than 700 listed companies across more than 50 industries, while more than 50 million Iranians are tied to the market as shareholders or stakeholders through direct equity ownership, pension funds, fixed-income products, and government debt issuance. Around 70 percent of market turnover is driven by individual investors rather than institutions, a much higher retail share than in developed markets, where institutional investors typically account for most trading. This gives the market a broader retail and social footprint.
Over the past two decades, the market has repeatedly shown an ability to absorb shocks, including sanctions, inflation, currency depreciation and episodes of political unrest, while continuing to function as an important mechanism for savings, price discovery and capital formation. The last year, however, has presented a very different and unprecedented test, combining war, market closures, social unrest and direct damage to strategically important listed industries.
The first major disruption to Iran’s capital markets came during the 12-day conflict between Iran and Israel from 13 to 24 June 2025. During that period, the equity market was closed, while fixed-income instruments and fixed-income ETFs resumed trading only after being shut during the first week. Gold-backed ETFs remained suspended throughout.
The equity market reopened quickly on 28 June, soon after the ceasefire took hold. That reflected an important reality: despite the geopolitical shock, there had been little meaningful direct damage to most listed companies. The challenge was therefore less about destruction of earnings capacity and more about a sudden repricing of risk.
That repricing was significant. Investors who had been unable to access liquidity during the closure moved quickly to reduce exposure once the market reopened, while the conflict itself had raised the overall country risk premium. Much of the market opened at the daily down limit. The Capital Market Stabilization Fund intervened to absorb part of the pressure, but the market remained under strain through the end of August.
Overall, TEDPIX declined by roughly 20 percent in local currency terms in the weeks following the war. Because the index is weighted towards larger names, that figure understated the pressure experienced by many smaller and less liquid companies. Meanwhile, the free market USD/IRR exchange rate continued to rise, meaning the market fell by around 35 percent in dollar terms. Total market capitalization dropped to about $80 billion, one of the lowest levels seen in recent years despite several major IPOs since 2019.
Fragile Recovery
Once the immediate post-conflict selling pressure was absorbed, the market began to recover, supported by a combination of currency adjustment and policy change.
Following the snapback of UN sanctions on 27 September, the USD/IRR exchange rate resumed its upward move. In Iran, this has historically been one of the central drivers of equity performance, particularly for exporters, commodity-related businesses and investors seeking a hedge against inflation and currency weakness.
At the same time, the authorities moved away from the multiple exchange-rate system, including NIMA and other official rates that had traded at a substantial discount to the free market rate. These mechanisms had long distorted pricing, foreign-currency allocation, and corporate earnings. For many listed companies, especially exporters and producers linked to the Iran Mercantile Exchange, subsidized exchange rates had effectively meant monetizing revenues below economic reality. Their removal therefore improved transparency and, in many cases, strengthened the earnings outlook.
This became a major catalyst for the market. The TEDPIX index rose by more than 85 percent in the six months following the war and reached a new high near 4.5 million. In dollar terms, however, the rally was much more modest, at roughly 40 percent, and the market still remained below its pre-war level.
The foreign exchange reforms also created pressure elsewhere in the economy. The removal of preferential rates increased the cost of many basic goods and added to inflationary strains. By late December 2025 and early January 2026, protests had emerged in response to deteriorating purchasing power, the weakening rial and the wider economic environment. Although the demonstrations initially appeared limited in scale, they were geographically broad and reflected a deeper build-up of frustration over living standards. What began as economic protest gradually took on a more overtly political character as inflation accelerated and expectations of further hardship grew.
Iran’s authorities then responded with a much harsher crackdown, which materially increased the domestic political risk premium. At the same time, the external dimension became more serious. Donald Trump signaled that a violent response by the Iranian authorities would not be tolerated and warned of possible consequences if the crackdown continued. That raised fears that domestic unrest could evolve into a broader geopolitical confrontation, particularly against the backdrop of regional military build-up.
At the same time, Iran’s risk-free interest rate rose from around 33 percent before the conflict to above 40 percent by January as fiscal and monetary conditions tightened. That was a meaningful headwind for equities. These factors together triggered another leg down in the market. Equities declined by roughly 20 percent in rial terms and around 30 percent in US dollar terms. As a result, measured in dollar terms, the TEDPIX index fell to a level even lower than in the immediate post-war period.
Direct Impacts of War
While Iran’s capital markets were still recovering from the impacts of the 12-Day War and the January protests, a new war began. The market was open on 28 February when the attacks began, but trading was halted and the day’s trades were cancelled. Since then, cash equities and equity derivatives have remained closed. Unlike the previous conflict, however, fixed-income instruments, fixed-income ETFs, and also gold- and silver-backed ETFs have continued to trade. Gold-backed funds have seen outflows of around $60 million, while fixed-income funds have attracted approximately $130 million of retail inflows.
The impact of the war on the capital markets will be substantial. U.S. and Israeli airstrikes have directly targeted major industrial facilities, including those operated by publicly traded companies. In the steel industry, the most important example is Mobarakeh Steel, the country’s largest hot-rolled coil producer. Other affected companies include Khuzestan Steel, Yazd Alloy Steel and Kavir Steel.
The directly affected companies represent more than 15 percent of the combined market capitalization of the Tehran Stock Exchange and the Iran Fara Bourse, the secondary exchange.
In petrochemicals, the larger issue is the damage to three centralized utility providers serving the Mahshahr and Assaluyeh regions: Mobin, Fajr, and Damavand. These utility facilities supply electricity, gas, oxygen, compressed air and other essential services to the surrounding petrochemical complexes. Because Mobin, Fajr, and Damavand have been put out of service, petrochemical plants across Mahshahr and Assaluyeh have also been affected and, in many cases, forced to cut production. Since more than 80 percent of Iran’s petrochemical output is concentrated in those two regions, the damage has disrupted a very large share of the country’s petrochemical production capacity.
At this stage, timelines for repair remain uncertain, though even constructive estimates suggest a multi-year process. There were also companies in other sectors that suffered damage, but steel and petrochemicals are clearly the most significant from both a market and macroeconomic perspective.
The broader economic implications are straightforward. These sectors are among Iran’s leading non-oil export earners, so disruption could reduce export receipts by close to $15 billion, placing additional pressure on the external balance. The impacted facilities also supply feedstock and industrial raw materials to a wide range of downstream industries. Any interruption therefore has second-order effects, either through lower domestic production or higher import dependence.
Careful Reopening
When the equity market next reopens, the process is likely to be more selective and more disclosure-driven than the reopening after June 2025. The directly affected companies represent more than 15 percent of the combined market capitalization of the Tehran Stock Exchange and the Iran Fara Bourse, the secondary exchange. If one includes listed holding companies with substantial exposure to the impacted companies, the effective share may rise to as much as 25 percent of the market.
The Securities and Exchange Organization will likely require operational updates from listed companies before reopening trading, particularly from those that may have been directly or indirectly affected. The market will need visibility on the extent of damage, the status of production, and the expected timetable for returning to more normal operations.
Once trading resumes, the market is likely to split into two very different stories. For companies directly affected by the conflict, a sizable correction is likely. For the broader market, however, the outcome will depend much more on the political and sanctions backdrop than on the conflict alone.
If the current ceasefire ultimately creates a path towards a broader understanding between Iran and the United States, followed by some degree of sanctions relief and reintegration into the global economy, the current dislocation could create a particularly interesting entry point for investors. It is still too early to determine the precise market reaction, but under such a scenario the period around the reopening could prove to be an important opportunity.
If sanctions remain in place, the adjustment is likely to be more demanding. Lost export capacity would weigh on the trade balance and probably push the USD/IRR exchange rate higher, which could support parts of the market in nominal rial terms but would still leave equities under greater pressure in US dollar terms.
Taken together, the events of the past year have left Iran’s capital markets at an unusually important juncture. Much now depends less on valuation alone and more on the political and economic direction from here: a deal could create a broad and meaningful opportunity set across much of the market, whereas in its absence, opportunities are likely to be narrower and more selective against a more negative outlook for the Iranian economy.
Sahand Sehatpour is a portfolio manager at Amtelon Capital focused on Iranian capital markets, with experience across both public and private investments. His work covers listed equities, market structure, and the broader investment environment in Iran.
Section: (vision-iran-initiative) Photo: Amir Ghoorchiani