This piece was originally published by Project Syndicate. We have been granted permission to republish it here due to its insightful analysis concerning the ongoing protests in Iran.
### Currency Collapse and Economic Woes
The protests that unfolded in Tehran on December 28 and rapidly engulfed Iran were triggered by a specific grievance: the dismal collapse of the Iranian rial. The devaluation of currency is never a mere technical issue in Iran; it swiftly propels prices upward and diminishes purchasing power. Given that many wages are established annually, this becomes quite a problem. In December, while the rial’s value plummeted by 16%—leading to an overall decline of roughly 84% over the past year—food inflation escalated to an annual rate of 72%, almost twice its recent average.
### Impact of Sanctions and Oil Revenue Decline
These developments come after long years of economic isolation. Beginning in 2011, Iranian oil sanctions sharply curbed the nation’s foreign-exchange earnings, dragging GDP growth from a respectable 5-9% annually in the early 2000s to below 3% thereafter. The dwindling oil revenues led to chronic budget deficits. This deficit was financed through monetary expansion, which fuelled inflation.
### Recent Conflicts and Economic Instability
Iran’s economic woes deepened last year as tensions shifted from sanctions to open confrontations. The 12-day skirmish with Israel and the US in June 2025 caused limited physical damage but revealed Iran’s vulnerability to sudden escalation, undermining the regime’s claims of stability. This increased the nation’s risk premium significantly, dampening investment, which was already lacking to counterbalance the rial’s depreciation due to fears of further US and Israeli attacks.
### Response by Government and Economic Reforms
Iranian President Masoud Pezeshkian’s efforts to enforce delayed economic reforms have intensified these pressures. His proposed budget for the new Iranian year (starting on March 20, 2026) presented to parliament in November, was notably restrictive. Planned were an increase in taxes from 42% to 57% of government revenues, partly due to the anticipated fall in oil income. However, public-sector wages were slated to increase by less than half of the projected inflation rate of 46% for the following year.
### Public Discontent and Social Unrest
Austerity measures, though challenging in any situation, become especially inflammable in societies perceiving pervasive official corruption, confronting conspicuous displays of wealth. These perceptions of rampant inequality are exacerbated by Iran’s distorted system of multiple exchange rates. As oil exports dwindled, the government allocated a portion of its scarce foreign exchange at heavily subsidized rates to cushion Iranians from the sanctions’ impact. This system, however, enabled rent-seeking and capital flight as beneficiaries used the foreign exchange not for essential imports but for luxury or overseas travel, or speculated by reselling at market rates.
### Reforms and Subsidy Eliminations
Pezeshkian was ready to abolish this visible source of corruption by eliminating the multiple exchange-rate system, risking backlash from powerful traders with privileged access. The initial strike among merchants in Tehran’s Grand Bazaar, possibly spurred by Pezeshkian’s reforms, ignited the wider protests. This reform strategy intensified unrest, as the broader populace perceived these attempts as a reduction in their living standards without immediate tangible benefits.
### Economic and Political Challenges Ahead
The economic challenges are matched by political ones. While reform efforts targeting revenue increase, deficit narrowing, and reduced reliance on money creation could bring down inflation over time, short-term costs are unavoidable. Ending foreign-exchange subsidies raises certain goods’ prices, potentially intensifying inflationary pressure and further weakening the rial.
### Addressing Public Discontent
To offset the economic pain, the government initiated monthly transfers of ten million rials per person (approximately $7, or $40 in purchasing-power-parity terms). These payments have been disbursed to about 80 million individuals, excluding the wealthiest decile. Still, the sufficiency of this measure to quell the protests remains uncertain.
### Historical Context and Societal Movements
The objectives of Iran’s previous nationwide uprising—the “Women, Life, Freedom” movement of September 2022—were clearer. Triggered by the killing of 22-year-old Mahsa Amini, the protests faced a brutal crackdown but succeeded in halting the enforcement of the hijab law. Today, numerous Iranian women and girls opt not to wear the hijab publicly.
### Prospects of Cessation of Hostilities
By contrast, the benefits of Pezeshkian’s reforms are uncertain, likely to manifest only in the distant future. The government can’t credibly promise short-term stabilization of exchange rates or inflation control. Yet, the quickest potential relief could come from halting hostilities with Israel and the US, although this seems less achievable than compromising on hijab enforcement.
### International Relations and Trust Issues
Ordinary Iranians remain skeptical of any promises from Israel, especially after its actions in Gaza, its occupation of Syria, and bombings in Iran last year, reportedly killing over a thousand people. The US, too, is viewed with distrust, having demonstrated under President Trump that it can’t be trusted by even its closest allies.
### Conclusion
Iran’s protests reveal not only economic despair but also a tension between mistrust of internal reform and fear of external pressure. Hence, resolving them might not be straightforward.
Visit Project Syndicate for more insights from Djavad Salehi-Isfahani, a Virginia Tech professor and a fellow at the Economic Research Forum in Cairo.
Don’t Miss It: If you’ll be around Washington, DC, this month, attend a special live event at the Howard Theatre on January 20, 2026. It will feature Mehdi, Swin, Rep. Ro Khanna, Joy Reid, Jim Acosta, Sarah Matthews, and Miles Taylor. Click HERE for tickets.
### Explore More on Iran’s Developments:
– Iran Protests: Trump Threatens Military Action But It Won’t Get Him the Result He Wants
– Imperialism Is Inevitable? Well So Is Resistance to It
– Trump Changes His Tune on Regime Change: Watch Him Then and Now
