Without even a single bullet being fired, US President Donald Trump has managed to unleash a tidal wave of economic misery in Iran that has left the ruling clergy reeling.

An increasingly strident war of words between Washington and Tehran is deepening the crisis while stoking fears of the closure of the Strait of Hormuz, the vital shipping route for oil exports from the Persian Gulf.

Yet despite bellicose statements by both sides, there is no sign of troop movements to indicate that a military confrontation is in the offing.

Oil markets are at ease with no unusual upswings resulting from threats to safe passage of shipping.

There is limited US appetite for a conflict with Iran, not least because of the difficulties its military faced in Iraq after the 2003 invasion.

There would also be incalculable damage to the global economy from high oil prices in case of a regional conflagration as Iran is likely to target neighbouring Arab Gulf states.

Iranian President Hassan Rouhani hinted at the "mother of all wars" if the US resorts to military force or succeeds in reducing Iranian oil exports to zero.

However, the interpretation of his words was stronger than his real message and Rouhani left open the possibility of peace with Washington.

Iran’s most powerful authority, Supreme Leader Ayatollah Ali Khamenei, ruled out negotiations with the US as an “obvious mistake”.

The US president, meanwhile, responded to the reports of Rouhani's comment and warned Iran on Sunday in an all-capitals Twitter post of unprecedented consequences if it did not tone down its rhetoric.

Trump’s words delivered an immediate punch in Iran by exacerbating a currency crisis, which shows little sign of respite.

The Iranian rial, which has lost almost half of its value since Trump tore up Iran’s 2015 nuclear deal, resumed its downwards spiral and hit a record low this week of 98,000 rials to the dollar, compared to 70 at the time of the 1979 Islamic Revolution.

The currency collapse, which has brought economic hardship to millions of low-income Iranians, has caught the leadership off-guard and with no effective policy to limit the damage.

Daily protests against rising inflation have become a familiar sight in many Iranian cities.

Those affected are mostly the poor, whom the ruling clergy has traditionally relied on as grassroots support.

Iran’s hardliners have blamed the protests on the Trump administration, which has launched an offensive of speeches and online communications meant to foment unrest and pressure Iran to agree a new nuclear deal.

At the same time, the rial’s disastrous performance is also compounding the afflicted oil industry.

Starved of billions of planned foreign investment in the face of US sanctions, and facing an uncertain future as buyers limit their purchase of Iranian crude, the oil industry is being hard hit by rising costs of imported material and give-away domestic refined products. Petrol sells for 10 cents a litre.

The National Iranian Oil Company is struggling to maintain ageing fields, while the government is forced to allocate precious hard currency to pay for vital imports.

Decades of mismanagement and rampant corruption have led to a neglect of public services, further worsening the dire economic situation.

Rouhani’s government has also been caught ill-prepared to tackle widespread power cuts amid scorching summer temperatures and an unprecedented drought affecting many parts of the country.

As the 4 November deadline for the US sanctions approaches, Rouhani will do his best to avoid an unwinnable war with the US and instead focus on rescuing a collapsing economy that perhaps more seriously threatens the very existence of an increasingly unpopular clerical leadership.

Weekly

Harsh rhetoric is hurting Iran