The currency crisis behind Iran’s protest explosion

In early January, several currency trackers briefly displayed the Iranian rial’s value as “$0.00,” unable to process the speed and scale of the depreciation, making it unexchangeable on important international trading platforms. The fallout quickly translated into a protest in Teheran’s bazaar district and eventually led to a mass unrest.

Unlike the 2019 fuel price protests or 2022 women-led demonstrations, this wave was initiated by Iran’s commercial class and is being seen as a “battle for survival.” Their dissent over the worsening economic conditions drew in other groups around the country, producing widespread instability despite little coordination.

Even conservative Iranian government estimates acknowledge more than 3,000 deaths, with other sources placing the toll as high as 30,000. On January 23, 2026, the UN Human Rights Council issued an “urgent investigation” to look into the “brutal crackdown” on protests, which have been “described by UN officials as the deadliest since the 1979 revolution,” according to the Geneva Solutions.

The US also announced new sanctions in response to the violent measures and has threatened a military attack, which has led to “worry” in the region. “Hopefully Iran will quickly ‘Come to the Table’ and negotiate a fair and equitable deal—NO NUCLEAR WEAPONS—one that is good for all parties,” President Donald Trump said on the Truth Social platform on January 28. “Time is running out, it is truly of the essence!”

Looming over Iran’s unrest is the question of foreign involvement. Western states and their regional partners have long sought to limit Iran’s influence abroad, and exacerbating its internal turmoil creates an opportunity to apply additional pressure.

Yet visible interference, whether through a military strike or admission of operatives on the ground, risks validating Tehran’s claims of outside influence, intensifying repression and provoking wider regional instability.

Economic breakdown

Iran’s economic foundation, weakened by chronic mismanagement and decades of Western sanctions, suffered particularly severe strain in 2025. Beginning in February, energy shortages disrupted daily life and sharply reduced industrial output, compounded by Israeli targeting of Iranian energy infrastructure during the 12-day war in June 2025.

Extreme drought created “water bankruptcy,” raising fears Tehran could run out of water. Additionally, France, Germany, and the United Kingdom activated the “trigger mechanism” under the Joint Comprehensive Plan of Action in September of last year, resulting in the restoration of UN sanctions.

Tehran also faced increasing pressure from Washington. Executive Order 13902, issued in 2020 to weaken Iran’s oil, shipping, and financial networks, expanded through 2025, alongside tougher sanctions on Iran’s “ghost fleet” used to transport oil and evade sanctions.

American authorities have also targeted billions of dollars in Iran’s “shadow banking network” across China, Hong Kong, and the United Arab Emirates (UAE), disrupting its revenue channels. And though Iran managed to export more oil in 2025 than in prior years, the heavy reliance on intermediaries and steep discounts reduced profits. As access to hard currency narrowed, the rial fell roughly 50% over the first 11 months of 2025.

As the government’s ability to stabilize the rial through interest rates, public spending, and monetary policy faltered, black market exchange rates effectively became the benchmark, overtaking official pricing.

The crisis mirrors patterns seen in other countries under prolonged financial pressure; the Venezuelan bolivar’s collapse in the 2010s, for example, was a result of bad economic policies and years of US sanctions that began under the Obama administration and intensified under Trump, driving hyperinflation in 2017-2019 and mass protests.

After the bolivar’s redenomination in 2018 and 2021, informal dollarization took hold as the government stopped resisting the dollar’s use. US dollars became the default for major purchases, while the fast-depreciating bolivar was only used for small, everyday transactions. The bolivar continued to decline in 2025 amid renewed US pressure to remove then-president Nicolás Maduro, leading to further social upheaval in Venezuela.

Similar to Venezuela, the Iranian government has attempted various fixes to prevent a slide, financing deficits by printing money, which caused inflation to surge. As Eurasia Review stated, the government also implemented “a three-tier gasoline pricing system. This caused the price of non-subsidized fuel to jump to 50,000 rials per liter. … It triggered immediate disruptions in supply chains and sent food inflation soaring past 70%.”

While currency collapses are commonly imagined as sudden panics, they usually begin as credit failures. Iran’s managed currency system means the government tries to guide its value rather than letting it move freely with market demand. The rial is mostly inside money; accepted for wages, taxes, and domestic transactions inside the country.

But it has few users beyond Iran’s borders, where trade and savings depend on outside money, or hard currency, accepted almost everywhere, like the US dollar. As sanctions tightened, Iran’s access to dollars decreased and inflation accelerated, demand for the rial declined as people and businesses began avoiding a currency losing purchasing power and difficult to use for imports or savings.

The critical failure came in December 2025. For years, the government sold US dollars at discounted rates to certain importers and some merchants to make imported goods cheaper under sanctions, but dollars had become scarce.

At the same time, the official exchange rate set by the government remained largely symbolic and was rarely used in practice. Most people trade at the open-market rate, which was much higher and reflected the real cost of dollars and imported goods.

Subsidies, price controls, and multiple exchange rates helped the Iranian government buy time, but trust in the rial continued to erode as prices, costs, and contracts became increasingly unpredictable. What began as strain in financial markets spilled into daily commerce, leaving merchants unable to set prices.

As dollar scarcity increased, the government began rolling back subsidized access. By December 2025, soaring costs and collapsing profits forced many shopkeepers to close their doors rather than continue operating at a loss, and Tehran’s Grand Bazaar erupted in protest on December 28.

Potent protests

Although authorities moved to formally end the preferential exchange system on January 1, 2026, the symbolism of the merchant unrest was consequential. Historically, bazaar merchants lent legitimacy to the 1979 Iranian revolution and its aftermath while channeling economic and political support to the state.

While merchants had protested currency depreciation in 2018, those actions were more localized and occurred while preferential access to foreign exchange still functioned. The breakdown of that patronage system and the withdrawal of merchant support showed that the government had lost the confidence of one of its most loyal constituencies.

Protests quickly spread beyond the commercial class to include student groups, labor groups, minority communities, and more. Yet they did not coalesce into a single unified movement, which is partly deliberate.

During the 2009 Green Movement, protestors rallied around prominent political figures, which made the movement easier to crush. Years of repression have left much of Iran’s recognizable opposition imprisoned, exiled, or executed, with few others willing to risk stepping forward.

The recent protests spread through decentralized networks. Neighborhood groups and student circles produced local organizers without a central hierarchy or identifiable leadership, making the movement harder to dismantle.

At the same time, many of the groups differed significantly in priorities and outlook, limiting coordination and the development of a coherent political message, as well as complicating outside efforts to shape the movement.

Foreign involvement?

Iranian authorities have nevertheless insisted that the unrest was not purely spontaneous, with state media warning of “organized networks” and “coordinated sabotage.” Supreme Leader Ali Khamenei has explicitly accused the US and Israel as being behind the “foreign-backed saboteurs.”

Blaming foreign actors and terrorism is a familiar strategy for delegitimizing domestic dissent anywhere. But considering that Iran operates its own influence networks in the US and elsewhere, it would be naive to assume that Iran’s adversaries are not seeking to exploit the unrest without openly directing it.

During the 2019-2020 Venezuela crisis, for example, ex-US special forces and private military contractors were reportedly used in Venezuela in a botched operation to oust Maduro.

Reza Pahlavi, the Shah’s son in exile, is often mentioned as a viable challenger to replace Iran’s government, but his presence divides the opposition. Younger protestors who reject the Islamic Republic are also skeptical of a return to monarchy because of the authoritarianism and lack of democratic freedoms associated with pre-revolutionary Iran.

Pahlavi retains support among portions of the Iranian diaspora and is seen as a useful symbolic figure by some Western policymakers, yet faces doubts from influential figures, including Trump.

Instead, senior Iranian officials have repeatedly named the Mujahedin-e-Khalgh (MEK) exiled leftist opposition group as the major force behind arson attacks, assaults on security personnel, and general destabilization, with assistance from abroad.

The MEK has a complex history with both the Iranian and Western governments. After conducting attacks on Western targets during the Shah’s rule and initially allying with the Iranian revolutionaries in 1979, the group quickly fell out with the new theocratic government.

It relocated to Iraq but continued to operate in Iran, and its 2002 exposure of Iranian nuclear facilities boosted its credibility. Following the 2003 US-led invasion of Iraq, American forces disarmed MEK fighters but provided protection from Iranian operatives.

Ex-CIA operative Ray McGovern, stated in 2005, “Previously, we considered… [MEK] a terrorist organization. And they exactly are. But they are now our terrorists and we now don’t hesitate to send them into Iran. … for the usual secret service activities: attacking sensors, in order to supervise the Iranian nuclear program, mark targets for air attacks, and perhaps establishing secret camps to control the military locations in Iran. And also a little sabotage.”

The MEK was removed from the US terrorism watch list in 2012, having been on it since 1997. Through US-facilitated arrangements, the group also relocated to Albania in 2013, causing friction with Iran. The MEK’s political umbrella, the National Council of Resistance of Iran (NCRI), has spent the last few decades rebuilding legitimacy in Western capitals, and maintains a secretariat in France.

Public and indirect support for the MEK’s wider political motivations has continued to grow in the West. In 2024, thousands of European lawmakers signed a statement backing the NCRI as an alternative to the Islamic Republic. In the US, bipartisan support followed in May 2025 with House Resolution 166, endorsing the NCRI’s stated platform of being an alternative to the current regime.

While the MEK’s popularity within Iran remains questionable and its internal structure is widely criticized as authoritarian, it has demonstrated operational reach inside the country that is unmatched by most other groups, claiming almost 40,000 acts of defiance nationwide in 2025.

It has long been accused by Iranian authorities of conducting violent operations inside the country, and Israel has reportedly used MEK-linked networks for intelligence collection in recent years.

Rather than leading a unified opposition, the MEK uses Iran’s destabilization to challenge and harass the government. While external adversaries may not seek outright regime change, the protests have weakened Tehran and forced it to focus inward. Though the extent of foreign coordination remains unclear, the MEK is uniquely positioned to amplify pressure.

Western officials, including President Trump, have publicly urged Iran to halt the crackdown, threatening military action. In January 2026, Trump disclosed a private message from French President Emmanuel Macron stating “We can do great things on Iran,” offering a rare glimpse into the Western coordination and monitoring of Iran’s unrest.

Several Israeli media figures and officials have suggested that Israeli operatives were active in Iran amid the protests. Tamir Morag of Israel’s Channel 14 cited an unsourced report hinting that Israel is supplying weapons to protestors, while Heritage Minister Amichai Eliyahu claimed Israeli agents were operating inside the country.

The Mossad has previously acknowledged smuggling personnel and weapons into Iran during the 12-day war in 2025. On December 29, 2025, the Israeli Mossad’s X account meanwhile posted, “We are with you. Not only from a distance and verbally. We are with you in the field.”

Amnon Sofrin, former head of the Mossad’s intelligence directorate, stated that the agency’s efforts were focused on achieving “sustained attritional pressure” to steadily weaken the Iranian government’s authority over time, instead of seeking immediate collapse.

A January 11 report by Israel’s Channel 13 alleged that this included clandestine firmware updates to Starlink terminals to bypass Iranian jamming. Estimates suggest that roughly 50,000 to 100,000 Starlink terminals have been smuggled into the country in recent years, implying some level of external support.

Tehran has also previously accused Saudi Arabia of funding separatist movements in Baluchistan and other Iranian regions., though it has not claimed any current Saudi involvement.

Nonetheless, concern that instability in Iran’s Kurdish and Baluchi regions could spill across their borders prompted Turkey and Pakistan to increase security deployments to contain unrest and discourage similar protests among their own minority populations, while publicly signaling support for Tehran.

Meanwhile, Russia is suspected of providing technical assistance to Iran, including electronic jamming capabilities, helping the government disrupt protest communications.

But Iran’s government is still isolated and vulnerable. The currency collapse eroded support from a core part of its base, and efforts to suppress unrest have shut down much of the economy and only deepened the crisis. Even with Starlink terminals and other communications channels, visibility into events remains limited.

Economic frustration has clearly blended with larger social and political grievances in Tehran. Foreign powers have used the unrest to observe and test the Iranian government without openly pursuing regime change, treating the protests as both a measure of weakness and a way to distract Tehran from its nuclear program and supporting proxy forces abroad.

As the potential for an American strike approaches again, it must be noted that Iran’s political leadership is more entrenched than Venezuela’s leadership, backed by a stronger security apparatus and supported by institutions long tested against US pressure.

Yet Iran’s crackdown is costly and cannot last indefinitely, especially given its fragile financial situation. Easing controls to stabilize the economy, after the rial hit a record low on January 27, carries the risk of renewed unrest among its population. Any groups hoping for regime change could trigger far greater instability, as well as may create a more hostile Iranian government.

John P Ruehl is an Australian-American journalist living in Washington, DC, and a world affairs correspondent for the Independent Media Institute. He is a contributor to several foreign affairs publications, and his book, Budget Superpower: How Russia Challenges the West With an Economy Smaller Than Texas’, was published in December 2022.

This article was produced by Economy for All, a project of the Independent Media Institute, and is republished with permission.