Iran: Rial Collapse and the Return of Bazaar-Led Protest
Fars News Agency via AP
(Ajit Kumar Singh)
In the closing days of December 2025, Iran was shaken by its most serious wave of public unrest since the nationwide protests of 2022. The immediate trigger was a dramatic collapse of the national currency. On December 28, the Iranian Rial fell to a historic low of about 1.42 million to the USD on the open market, briefly weakening further the following day. The speed of the fall, rather than its scale alone, turned long-standing economic hardship into open protest.
The Iranian Rial traded at around 70 per USD before the 1979 revolution but entered a prolonged decline from the 1980s onward, crossing 1,000 Rials per dollar by 1995 and 10,000 by 2010. The currency experienced brief stability near 32,000 Rials following the 2015 nuclear agreement. However, after the United States withdrew from the deal and re-imposed sanctions, the Rial resumed its fall, reaching about 572,000-578,000 per dollar in early February 2025 and plunging to historic lows beyond 1.4 million per dollar later in 2025, precipitating a severe economic and political crisis.
The unrest began in Tehran’s commercial heart. Shopkeepers in the Alaeddin and Charsou mobile phone markets shut their stores, followed by traders in the Grand Bazaar and surrounding commercial districts such as Saadi Street and Shush. Within hours, market closures turned into street demonstrations. Similar scenes soon appeared in other major cities, including Isfahan, Shiraz and Mashhad. Security Forces were deployed in large numbers and used tear gas to disperse crowds, signaling official concern over protests emerging from economically central and politically sensitive areas.
At its core, the unrest was driven by a deepening economic crisis that had reached a breaking point. The Rial had been losing value for years under sanctions and economic isolation, but its late-2025 collapse sharply intensified existing pressures. Official inflation stood at 42.2 per cent in December, while food prices had risen by roughly 72 per cent over the previous year. For many traders, the rapid currency swings made it impossible to price goods, secure imports or continue normal business operations. What had been declining profitability turned into the threat of outright closure.
External pressure played a decisive role. In September 2025, United Nations nuclear-related sanctions were re-imposed through the “snapback” mechanism, freezing Iranian assets abroad and further restricting trade and financial transactions. These measures compounded existing United States sanctions that have sharply limited Iran’s oil exports, the country’s main source of foreign currency. The loss of oil revenue reduced the state’s ability to stabilise the currency, widened fiscal deficits and accelerated capital flight, directly contributing to the Rial’s collapse.
Domestic economic policy amplified these pressures. Iran’s economy remains tightly controlled, with limited trade liberalisation, extensive subsidies and a growing role for state-linked conglomerates, many associated with the Islamic Revolutionary Guard Corps. Against this backdrop, President Masoud Pezeshkian’s proposed budget for the coming year, which included a 62 percent tax increase to address a large deficit, fuelled fears of further hardship. Parliament’s rejection of the budget on December 28 added to uncertainty and reinforced perceptions of economic mismanagement.
The participation of the bazaar merchant class gave the protests unusual political weight. Historically, the bazaar has been a cornerstone of the Islamic Republic’s social and economic base and played a decisive role in mobilising opposition during the 1979 revolution. Its open protest in 2025 therefore marked a significant break. Chants calling for unity and collective action echoed slogans heard during the 2022 protests, suggesting that economic grievances were increasingly blending with broader discontent over governance and the state’s economic direction.
The official response reflected internal divisions. President Pezeshkian publicly called for dialogue and instructed the Interior Ministry to listen to what he described as “legitimate demands”, while pledging to protect purchasing power. He also replaced the central bank governor Mohammadreza Farzin, appointing Abdolnasser Hemmati, a 67-year-old reformist economist who previously served as Central Bank of Iran Governor from 2018 to May 2021, in an effort to restore confidence in currency management. In contrast, security institutions framed the unrest as a national security issue, warning that it could be exploited by foreign adversaries and describing it as a form of “cognitive warfare.” This gap between economic pragmatism and securitised control risked hardening positions on both sides.
Inside Iran, the immediate impact was economic disruption and growing uncertainty. Market closures restricted supply and pushed prices higher, reinforcing inflationary pressures. Continued instability threatens to accelerate capital flight, discourage investment and widen social inequality, as those with access to foreign currency are better insulated than wage earners and small traders. Politically, repeated protest waves driven by economic causes place cumulative strain on regime legitimacy, particularly when they involve groups once seen as reliable supporters.
Beyond Iran, the unrest carries regional consequences. Economic strain limits Tehran’s fiscal room to sustain regional activities and support allied networks, potentially affecting dynamics in parts of the Middle East where Iran has long been influential. At the same time, Iranian security officials have voiced concern that internal weakness could invite external pressure, particularly from Israel, a fear shaped by the June 2025 Iran-Israel conflict. Such perceptions raise the risk of miscalculation in an already volatile region.
Globally, the crisis highlights the complex interaction between sanctions, domestic governance and international security. As a major energy producer, prolonged instability in Iran adds uncertainty to global oil markets and feeds into wider risk assessments. For international actors engaged in nuclear diplomacy, the December 2025 unrest in Iran underscores how economic pressure can generate internal instability with unpredictable regional and global consequences
Author Ajit Kumar Singh is Senior Fellow at Institute for Conflict Management.
(The views expressed in the above piece are personal and of the author. They do not necessarily reflect Bharat Fact views.)
