Iran’s New Year’s Day demonstrations came at the conclusion of a year of war, economic strain, and political uncertainty.
Israel launched a 12-day assault on Iran in 2025, killing senior military figures and destroying military and economic infrastructure. Following the assault, US aircraft launched strikes on Iranian nuclear sites in Fordow, Isfahan, and Natanz.
Beginning in the final week of 2025 and continuing into the first days of 2026, protests erupted in Tehran, the capital, and in cities all over central and southwestern Iran as the year came to a close.
These demonstrations were not previously reported. Since the middle of the 1990s, there have been countless demonstrations in Iranian society, with different levels of participation and scale. The causes of these demonstrations have varied over the years, from economic conditions’ deterioration to restrictions on social and political freedoms.
The interaction between domestic politics, governance, foreign policy, and the impact of sanctions, which both affect the state’s response to dissent in Iran, particularly given the ongoing tensions with Israel and the United States and the state’s continued use of sanctions.
The protests that ended the year came after a sharp decline in purchasing power was sparked by a strike by merchants and bazaar owners. The falling value of the Iranian rial, which lost roughly 50% of its value, and a rise in unemployment of 7.5 percent, contributed to this accelerated decline.
Not for the first time have economic grievances caused unrest. The bazaar erupted in protest in 2008, prompting President Mahmoud Ahmadinejad’s government to resign from carrying out the measure’s implementation.
After the Ahmadinejad government attempted to pass a law lowering the income tax rate to 70%, more limited demonstrations came after, before resuming their march under the influence of the media.
Economic issues have consistently been at the forefront of all Iranian protest movements, and they have all been opposed to mandatory hijab laws. Following the killing of 22-year-old Mahsa Amini while she was being detained over the hijab law and the authorities’ attempts to blame her for what happened, which sparked public outcry in 2022, these issues led to widespread demonstrations.
However, successive governments haven’t implemented significant reforms. In order to lessen Iran’s oil industry’s impact, President Mohammad Khatami (1997-2005) proposed an alternative economic strategy that focused on reducing oil revenues and developing non-oil sectors. However, these measures failed because the nuclear crisis grew worse after the first images of the Natanz facility were released in August 2002, putting more pressure on the country’s economy.
Ahmadinejad’s populist strategy, which included the redistributing oil revenues through the ‘oil-to-cash program’, was implemented between 2005 and 2013. In response to resolutions 1696, 1737, 1747, 1803, and 1929, this approach failed, drawing opposition from powerful domestic economic interests and a stricter sanctions regimeimposed by the UN Security Council. Building on years of unilateral US sanctions dating back to 1980, these measures curtailed access to international finance, froze financial assets, and slowed trade.
Sanctions or poor governance?
A recurring issue has resurfaced as a result of decades of expanding demonstrations: How much of the sanctions explain Iran’s economic crisis, and where does governance bear responsibility?
Since 1980, structural issues have plagued Iran’s economy for years because priorities relating to revolutionary ideology and the costs associated with implementing a resilient state economy have taken precedence over building a resilient state economy. Legislation in terms of economic and financial policy did not evolve with global trends. Iran’s isolation from global markets increased as a result, which caused internal crises and increased the impact of sanctions across nearly all industries.
Why have successive governments failed to develop economic policies and programs capable of reversing sanctions, the political and economic elite in Iran continues to question this.
In this context, Iran’s economic partnerships with China, most notably the $400bn strategic cooperation agreement, which covers transportation, infrastructure, and telecommunications, have failed to create economic stability. Iran’s economic situation has not been improved by the strategic partnership with Russia, which was established in early 2025 and is intended to improve cooperation over the course of 20 years.
These partnerships have failed to lessen the severe effects of US and European Union sanctions alone.
As demonstrated by protest slogans, Iranians have long associated foreign policy, particularly Iran’s involvement in the Middle East, with the decline in national income. Iran’s regional strategy has long been a component of its regional strategy, which includes funding, training, and logistical assistance from Tehran for proxies and armed groups, including those in Lebanon, Iraq, and Yemen as well as Palestine. The phrase “No Gaza or Lebanon, let my life be a scapegoat for Iran” was repeatedly used as a defining characteristic of demonstrations at the end of 2024 as living conditions deteriorated.
However, this linkage has ceased to be reliable as a rationale for Iran’s economic crisis since early 2025. The evidence that regional engagements are the main drain on state resources has significantly decreased in Lebanon, Syria, Gaza, and Yemen. Some Iranian military officials have even demanded that Syria pay around $50 billion in debt to Iran, a demand that the new interim government’s members rejected as they prepare a compensation bill against Tehran for the costs of its support for the regime during the civil war rather than accept repayment.
For the first time, President Masoud Pezeshkian and Supreme Leader Ali Khamenei have publicly acknowledged that sanctions alone cannot be held responsible for Iran’s economic situation. This admission clarified how the leadership views the protests that followed the US and Israeli attacks in the summer of 2025 and underscored the persistent importance of governance failures.
Diverse narratives and the potential dangers
The Iranian government is now using two opposing accounts to explain the demonstrations. The president and the supreme leader both made the first point, which emphasizes economic governance failures and acknowledges that sanctions alone cannot account for the depth of the crisis. The security establishment continues to emphasize the importance of external actors in provoking unrest and threatening the regime with the second.
The security narrative implicitly portrays the demonstrations as an existential threat, which creates confusion within state institutions. In doing so, it widens the gap between the ruling class and society and causes more social tensions.
The security establishment has historically been more effective in responding to protests because of worries about the regime’s survival. However, if the political system is to survive, a changed internal and regional environment places pressure on both political and security institutions to act differently.
Israeli decision-makers have begun to consider launching a new war on Iran because of the confidence and military prowess felt by Israel and what Iranian leaders perceive as unrestricted US support. Israel has effectively launched a second military operation by stating with certainty that it will not permit Iran to enrich any uranium and that it should dismantle the Iranian nuclear program in the same way that it did Libya in 2003. In terms of politics, economy, and security, a conflict like this would aim to make the regime fragile.
Iran’s internal conflict with its society has become more likely as a result of a prolonged state of conflict, even if it is only going to change over time, with the intention of finally removing what Israel calls the “Iranian threat” for good.
