How Iran sanctions and a currency crash triggered mass protests
The country’s oil exports are still the mainstay of its economy
A SLOW-BURNING economic crisis in Iran reached a tipping point in late December after a slump in the national currency to a record low made even basic goods unaffordable for much of the population.
Shopkeepers and merchants were among the first to react, taking to the streets of the capital Tehran to vent their frustration at a government they accused of mismanaging the economy. By early January, the unrest had grown into a nationwide revolt involving students, workers and other groups calling not just for an improvement in living standards but an end to the theocratic regime of Supreme Leader Ayatollah Ali Khamenei.
Hundreds were killed and thousands injured as security forces tried to crush the protests, the biggest challenge to the Islamic Republic since it was founded in 1979.
What sparked the protests?
Iran buys many essential goods from abroad, including wheat, cooking oil and pharmaceutical ingredients. The rial’s slump has made those imports costlier for merchants, who raised their prices in response, making a range of basic items prohibitively expensive. Five years of drought have hit local food production, leaving the country even more dependent on expensive imports.
Inflation was expected to average around 42 per cent in 2025, accelerating from 33 per cent in 2024, according to the International Monetary Fund (IMF). Many Iranians were already struggling to feed themselves before the latest price surge, with local media reporting in 2022 that half of the population was consuming less than the standard 2,100 daily calories.
There’s also widespread anger over chronic pollution, gas and electricity shortages and mismanagement of the country’s natural resources. The government adjusted its mechanism of fuel subsidies in December, increasing pump prices for petrol and heaping additional costs on households and businesses.
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Why has the currency been weakening?
The rial has been under pressure for years due to Western sanctions and systemic corruption that’s undermined confidence in the economy. The rial slumped by around 45 per cent against the US dollar in 2025, according to Bonbast.com, as Iranians converted savings into foreign currencies, gold or property.
Iran’s economy has also been hit by falling oil prices. Brent crude fell by 18 per cent in 2025 to around US$60 a barrel – far below the US$165 needed for Iran’s government to break even on its budget, according to a May estimate from the IMF.
The currency turmoil has been exacerbated by a system of tiered exchange rates, under which the government subsidises imports of some goods for certain entities. The system has fuelled corruption, causing resentment among Iranians.
Why have Iranians been getting poorer?
While Iran sits on huge oil reserves, the crude is off-limits to most foreign buyers due to the sanctions imposed by the US and its allies. The penalties were first imposed in response to the seizure of the US embassy after the country’s Islamic revolution in 1979 and were gradually expanded in the following decades.
Reinforced in the 2000s in an effort to stop Tehran developing nuclear weapons, the sanctions have left Iran bereft of inward investment and modern technology as foreign companies and well-known brands pulled out.
National industries have withered due to corruption and mismanagement. Much of the country’s infrastructure has aged and deteriorated. Iranian agriculture is held back by inefficient farming and chronic water shortages.
Many consumer goods are produced by state-owned or semi-state entities, including large charitable foundations tied to powerful institutions that control swathes of industry and retailing with limited transparency.
Iran’s oil exports are still the mainstay of its economy. Most of the oil is shipped via opaque trading networks to Chinese refiners, who buy it at a significant discount because of the sanctions.
What’s been happening with the sanctions on Iran?
Sanctions imposed under the aegis of the United Nations were eased as part of a 2015 nuclear deal with the US and other nations. But Iran benefited little and US President Donald Trump quit the deal in 2018, reimposing a raft of US sanctions.
Iran held talks with the US last April over its nuclear programme that could have led to some sanctions relief. But these failed to yield an agreement.
Israeli and US airstrikes on Iran in June destroyed much of the country’s surface nuclear activity and curtailed the ability of the UN nuclear watchdog to verify the size and location of Iran’s highly enriched uranium. As a result, comprehensive UN sanctions were reimposed in September.
How are these protests different to those in the past?
Economic hardship has fuelled previous bouts of unrest, but the trigger was often social or political, such as the downing of a Ukrainian passenger plane in 2020 and the 2022 death in police custody of a young woman, Mahsa Amini, who had been arrested for allegedly failing to wear a hijab. This time around, the protests were sparked by rampant inflation and worsening living standards – problems that directly impact the majority of Iranians, whether they are middle and working class, liberal or conservative.
That’s made it harder for the authorities to calibrate their response, with different parts of the government apparently at odds over how to handle the unrest. President Masoud Pezeshkian, a political moderate, described the protesters’ demands as legitimate and urged security forces not to target peaceful demonstrators.
However, Supreme Leader Khamenei said “rioters must be put in their place”. As the protests intensified and the death toll mounted, Foreign Minister Abbas Araghchi accused international actors of inciting the unrest, namely Israel and the US, and the government imposed an Internet blackout to prevent detailed information about the demonstrations being reported.
State channels had initially aired coverage of the marches, albeit heavily censored. They later switched to broadcasting pro-regime rallies, saying they’d been organised to promote “national unity”.
Where does Iran go from here?
In more than four decades of theocratic rule, Iranians have endured military conflicts and sweeping restrictions on social freedoms. Joblessness and poverty have caused millions to emigrate, and many citizens have become convinced the leadership is incapable of improving their lives.
The regime was dealt a severe blow in June 2025 by the Israeli and US bombing campaign that destroyed much of the country’s nuclear infrastructure and killed dozens of military officials and scientists. Trump has warned repeatedly that the US will strike Iran again if the government kills peaceful protesters.
It’s unclear how this would aid the demonstrators. For now, no unified, organised opposition movement has emerged to seriously challenge the Iranian leadership, and the government’s bloody crackdown has drained some of the momentum from the protests. BLOOMBERG
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