On the ground in Iran: Ailing economy pushes nation toward a defining moment

Streets across Iran remain volatile as the government fails to offer a meaningful response to public grievances.

What began as anger over a collapsing economy has snowballed into broader unrest that mixes economic despair with political frustration and public defiance of state authority.

The government has introduced measures such as cash handouts and leadership changes to ease pressure, but these moves have so far failed to quell the unrest. Meanwhile, supreme leader Ayatollah Ali Khamenei has issued a stark warning to “rioters”, as public statements from US and Israeli leaders have fed into Tehran’s narrative of external interference.

With hopes of reviving Iran‑US talks over sanctions fading, economic pressure in the Islamic Republic has reached a breaking point, spilling into a test of survival as no solution appears in sight.

The first signs of public resentment emerged in late December within the narrow aisles of the Grand Bazaar. Traders and merchants in Tehran’s commercial hub closed their shops and took to the streets in protest. Merchants, traditionally a bellwether of Iranian economic sentiment, framed their action as an urgent plea to stabilise exchange rates and curb price hikes of essentials after the Iranian rial lost 7 per cent of its value overnight − declining to a record low of 1.45 million rials to $1.

While the rial crash was the trigger, experts point to a polycrisis − an accumulation of anger over corruption, a 42% inflation rate, water and electricity outages and pollution.

Hadi Mohammadi, an Iran affairs analyst, says the rial was the final straw. “This currency collapse was not a sudden anomaly but the culmination of prolonged pressures like snapback sanctions, which reduced oil revenue, as well as the Israel-Iran war in June last year, and chronic economic mismanagement,” he told The National.

A shop owner serves customers in Tehran. Sanctions have badly damaged Iran's economy. AFP

Iran has long downplayed the impact of sanctions, portraying them as a “blessing in disguise” that forces self-sufficiency.