Inflation was already rising, hitting 59% late last year, and talks to revive the 2015 nuclear deal and get some relief from U.S. sanctions were all but dead. European powers had given up on a separate mechanism to transfer funds to Iran for humanitarian aid. Prisoner-swap negotiations with the U.S. weren’t progressing either, keeping billions of dollars in overseas bank accounts out of reach. The Americans had also begun cracking down on flows of hard currency from neighboring Iraq, removing an important pressure valve.

“The economic situation is a major part of why right now the Iranians decided to make this de-escalation agreement with the Saudis,” said Alex Vatanka, director of the Iran Program at Washington’s Middle East Institute.

But while news of the deal helped ease the strain on the rial in the short term, pushing it off its historic low of more than 600,000 to the dollar, the currency has since lost value as the reality sinks in that, even with the Saudi deal, the country has few prospects for a turnaround unless it can escape sanctions over its nuclear program or build closer economic ties with China and Russia.

“It’s a thin market that lives and dies on headlines—and the headlines have been good the past few weeks,” said Henry Rome, a senior fellow with the Washington Institute for Near East Policy.

But, he said, “inflation, especially food, is very high and rising, and the government is doing little to reel it in.”

The approach of Nowruz—the two-week Persian New Year holiday that began Monday—was a flashpoint. Middle-class Iranians found themselves with much diminished purchasing power for the rice, meat and other ingredients for the holiday’s feasts, and retired teachers, social-security officials and military personnel were protesting economic conditions across the country.

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