The current demonstrations in Tehran and other major cities mark a significant shift in Iran’s protest landscape. While previous unrest often centered on civil rights, the current mobilization is deeply rooted in a rapidly declining standard of living. To understand this instability, it is important to look at the structure of Iran’s subsidy mechanism, the corruption factor, international sanctions, contracting economy, and environmental factors that have turned everyday life into a constant financial battle for many Iranians.

Internal Structural Failures and Mismanagement

From an economic perspective, Iran’s current instability reflects a classic case of rent-seeking behavior. Public Choice theory suggests that when the state creates artificial price distortions, it incentivizes politically connected actors to capture economic rents rather than invest in productive activity. Over time, this erodes institutional capacity, deepens inequality, and leaves the broader population exposed to inflation and external shocks.

This dynamic is clearly reflected in Iran’s domestic economic structure. The subsidized multi-tiered exchange rate system has facilitated rent-seeking by certain entities, allowing them to capture wealth while ordinary citizens bear the cost. The adverse effects of internal structural failure have been compounded by a five-year-long drought, which has diminished agricultural production and increased the nation's reliance on expensive imports. These domestic failures have not only pushed prices higher but have weakened the government’s capacity to protect the population from external shocks.

External Shocks and Financial Isolation

The crisis reached a tipping point in late 2025. The invocation of the UN Snapback mechanism in September 2025 reactivated six Security Council resolutions, effectively re-imposing a global blockade on Iran's financial system.

Further complicating the supply chain was the June 2025 conflict with Israel, which damaged domestic fuel depots and energy infrastructure. This was followed by the departure of the Savola Group, the largest Saudi investor in Iran, which formerly controlled over 50% of the cooking oil market. Their exit, which liquidated $188 million in assets, shattered the domestic edible oil supply chain, leading to the current 1.8 million toman price tag for basic staples.

Macroeconomic Contraction

These measures of pressure have forced the Iranian economy into a state of extended contraction. Between 2010 and 2025, Iran’s Gross Domestic Product (GDP) fell from approximately $600 billion to an estimated $356 billion. While oil exports continue to play a crucial role in the economy, Iran has not been able to sell up to its potential, and ambitious plans to increase output remain unrealistic without foreign investment. Consequently, the World Bank’s previous forecast for slight growth in 2025 has reversed; the economy is now expected to contract even further in 2026.

Currency Collapse and Hyper-Inflation

The culmination of these factors is the collapse of the national currency. As suggested by structuralist inflation dynamics, the Iranian rial has lost nearly half its value over the past year, falling from 0.79 million per dollar in January 2025 to nearly 1.5 million in early January 2026. This depreciation has driven inflation to approximately 43 percent, one of the highest rates in the world. With foreign reserves depleted and import channels restricted, rising import costs are passed directly to households, whose purchasing power has been severely eroded.

Conclusion: The Road Ahead

In response to the current protests, the government has appointed a new central bank governor, promised to end subsidies for the corrupt multiple exchange rate system, and offered more subsidies for basic food and non-food items. However, with a contracting economy and ongoing geopolitical tensions, the road to stability is narrow. For the Iranian people, the primary challenge is now the sheer struggle for survival in an increasingly unstable financial environment.