War with Israel and Internal Repression Push Iran’s Online Businesses to the Brink
Amid the fallout from the recent 12-day war between Iran and Israel, Iran’s already fragile digital economy has taken a severe hit. With the regime shutting down internet access across large parts of the country, the damage to online businesses has been catastrophic. According to Sattar Hashemi, the regime’s Minister of Communications, the sector has suffered losses amounting to 15 trillion tomans—a figure he compared to the annual budget of several ministries.
Hashemi disclosed the figures during an open session of the Iranian parliament on Tuesday, July 22, painting a bleak picture of the consequences of internet blackouts. He noted that nearly 10 million Iranians work directly or indirectly in the digital economy. However, during the conflict, employment in this sector fell by 30%, and many businesses sustained significant losses.
Internet Shutdowns by “Security Discretion”
Hashemi acknowledged that the shutdowns and restrictions were imposed “at the discretion of security authorities,” further confirming what critics have long alleged: that the regime views the internet as a security threat rather than a development tool. He estimated the economic damage from internet restrictions at 15 trillion tomans per month.
In addition to internal restrictions, Iran’s infrastructure came under external pressure. Hashemi reported that more than 20,000 cyberattacks targeted Iran’s communications networks during the war. While some were neutralized, others penetrated key systems. One high-profile example, as reported by The Wall Street Journal, was an alleged cyber operation by the hacking group “Raven Sparrow” that resulted in the destruction of crypto wallets linked to the Islamic Revolutionary Guard Corps (IRGC), reportedly worth $90 million.
VPNs Blamed, But Investment Lacking
Instead of addressing the core infrastructural vulnerabilities, Hashemi deflected responsibility by blaming the widespread use of VPNs. He claimed that VPN traffic “contaminates” the national network, causing 30% of data requests to fail. Nonetheless, he also admitted that the deterioration in network quality is largely due to the lack of investment in recent years.
Iranian media and tech platforms have been more forthright. In a report by the popular online marketplace Divar, the internet disruptions were described as an “attack on the heart of Iran’s digital economy.” The platform noted that internet blackouts not only affect financial transactions but also cut Iran off from global security updates, making critical systems more vulnerable to cyberattacks—a phenomenon they termed “security self-sanctions.”
Divar also warned that the disconnection from international cloud infrastructure caused artificial intelligence systems to break down, reducing their ability to prevent fraud and service interruptions.
Broader Impact: Tech Exodus and Loss of Trust
The Internet Business Association echoed these warnings in a letter to the Minister of Communications. It warned that DNS manipulation and protocol-level filtering have devastated the startup ecosystem, putting more than 400,000 small and medium-sized enterprises at risk of total collapse. The association calculated the cost of total internet outages at over $1.5 million per hour.
Beyond economic damage, the association warned of deeper consequences: the migration of tech talent, erosion of public trust, and the steady loss of human capital. These issues, it argued, pose long-term threats to Iran’s digital future.
“Internet in Iran has become a ‘security suspect’ rather than a tool for national development,” the letter stated.
A Pattern Since 2019
Experts and critics argue that the damage is not solely the result of the war but also stems from long-standing internal policies of filtering and repression. Since the nationwide protests in November 2019, Iran has witnessed a pattern of increasing internet restrictions during times of crisis, contributing to declining public confidence in the regime’s digital policymaking.
Despite the Ministry’s announcement that two trillion tomans will be allocated to compensate for the damages, business leaders and private sector stakeholders remain deeply skeptical. Many believe the government’s pledges are neither sufficient nor trustworthy.
Isolation or Connection?
Once aspiring to become a regional hub for digital innovation, Iran now faces a defining crossroads. As Divar’s report concluded, the country must choose between “connection” and “isolation.” It’s a choice that extends far beyond economics—it will shape the prospects of a generation that seeks to build its future in the digital world.
