Iran’s economy has already been crippled by a mix of bad management, corruption and existing sanctions. Power shortages have shut down government offices, schools and universities and disrupted production at dozens of manufacturing plants. At the same time, Iran’s military threat has been blunted by Israel’s battering of allies Hezbollah in Lebanon, Hamas in Gaza, the now-collapsed Assad regime in Syria and much of Iran’s air defenses.

The Islamic Republic’s difficulties represent the biggest challenge to its clerical leaders since 2022, when the country was rocked by widespread unrest sparked by the death of a young woman in police custody after allegedly wearing an improper veil. Authorities crushed the uprising with brute force that human-rights organizations said killed hundreds. While protests over the worsening economic picture remain limited, the regime appears more vulnerable to unrest now.

Iran’s leadership “is probably experiencing the most profound challenges of its own making” in years, said Sanam Vakil, director of the Middle East and North Africa program at Chatham House in London. That could also push Tehran to negotiate a compromise with the West as it seeks a way out of the crisis, she added.

Specter of social unrest

President Masoud Pezeshkian was elected in July on a platform of social reforms, economic revival and political opening to the West. But six months on, Iranians’ hopes of improving their daily lives are rapidly unraveling. The economic crisis has raised the threat of social unrest, a concern for Iranian authorities. Merchants have been demonstrating over spiraling inflation while pensioners and oil workers have been protesting over delayed or reduced payments.

Iran’s currency—a bellwether of economic sentiment—ended 2024 at a record low of 821,500 rials to the dollar, down 40% from where it started the year. Gross domestic product per capita has fallen 45% since 2012—when sanctions escalated over its nuclear program—to $4,465.60 last year, according to the World Bank.

Shoemakers and other merchants in Tehran’s main bazaar staged a rare strike on Dec. 29 over high inflation, said Hamidreza Rastegar, head of the Tehran Chamber of Guilds, which represents vendors. “Don’t be afraid, close up,” some of them said in videos posted on social media by Iranian trade unions. The protesters “feared that items priced at these exchange rates will simply be out of reach for most consumers,” Rastegar said in a statement on the Guilds’ website.

Protests over economic issues are becoming more frequent across the country and across industries. Nurses and telecommunications workers have protested delayed payments. Retired teachers have in recent weeks demonstrated in front of Parliament over delays in welfare payments, according to a teachers union.

The discontent is spreading to the oil sector, the country’s most strategic industry and its biggest foreign-currency earner. Workers at the Abadan petrochemical plant, one of the country’s biggest, protested over three months of unpaid wages, according to state-run media and Iranian trade unions.

The demonstrations are becoming increasingly politicized, with some people criticizing the regime for being too focused on its ideological agenda and not enough on the economy. “Enough of the warmongering, our table is empty,” read a banner carried by protesting retirees in the city of Ahvaz. “Leave the veil alone and think about us,” said another banner, in a photo that was published on Dec. 29 by the Free Union of Iranian Workers, a group of Iranian trade unions.

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