Title: The Collapse of the Iranian Rial and Trader Protests: Structural Economic Fragility, Sanctions, and Political Vulnerability (2025)
Abstract
This paper examines the collapse of Iran’s national currency, the rial, in late December 2025, and the resulting wave of protests by traders and shopkeepers in Tehran. Drawing on recent developments reported by Euronews and corroborated with financial data and scholarly analysis, this study investigates the macroeconomic, geopolitical, and structural factors underpinning the currency’s rapid depreciation. The analysis centers on the dual exchange rate system, hyperinflationary trends, U.S.-imposed and UN-reinstated sanctions, and the erosion of public confidence in state economic management. Furthermore, the paper explores the sociopolitical implications of the protests, particularly their location in historically symbolic commercial districts like the Grand Bazaar, and evaluates the potential for broader unrest. The study concludes that the currency crisis is not a transient shock but a symptom of systemic economic dysfunction exacerbated by isolation, mismanagement, and geopolitical volatility.
- Introduction
On 29 December 2025, Iranian traders and shopkeepers initiated a second consecutive day of protests in Tehran following the collapse of the Iranian rial to a record low of 1.42 million per U.S. dollar in the informal market. Demonstrations took place in central commercial zones such as Saadi Street and the Shush neighborhood near the Grand Bazaar — areas historically significant as epicenters of political upheaval in Iran. This paper analyzes the confluence of economic indicators, policy decisions, and external pressures that precipitated the currency’s free fall and the subsequent social mobilization. It argues that the weakening rial reflects not merely short-term market fluctuations but deep-seated structural vulnerabilities embedded in Iran’s rentier economy, compounded by decades of international sanctions and fiscal mismanagement.
- Macroeconomic Indicators: Currency Depreciation and Inflation
By late December 2025, the Iranian rial reached unprecedented lows, with the free-market exchange rate fluctuating between 1.38 and 1.42 million rials per U.S. dollar. This represents a devaluation of over 97% compared to the official rate of 32,000 rials per dollar at the time of the Joint Comprehensive Plan of Action (JCPOA) in 2015 (Euronews, 2025). The divergence between official and unofficial exchange rates underscores the artificiality of state-controlled pricing mechanisms.
Iran operates a dual exchange rate system:
Official rate: ~32,000–50,000 rials per USD, accessible primarily to government institutions and sanctioned imports.
Free-market (open-market) rate: ~1,400,000 rials per USD, reflecting actual supply-demand dynamics and used by ordinary citizens and private traders.
This bifurcation fuels arbitrage, rent-seeking, and distortions in pricing, particularly for imported goods. The widening gap indicates a loss of monetary credibility and capital flight, as residents convert savings into hard currency or assets.
In parallel, inflation has surged. According to Iran’s Statistical Center, annual inflation in December 2025 reached 42.2%, with food prices escalating by 72% year-on-year and medical goods by 50% (Euronews, 2025). Monthly inflation rose by 1.8%, suggesting accelerating price pressures. Economists define hyperinflation as monthly inflation exceeding 50% for at least 30 days; while Iran has not yet entered that zone, the trajectory signals an approaching tipping point (Hanke & Krus, 2013). The depreciation of the rial acts as a primary driver of imported inflation, as Iran relies on imports for essential commodities including medicine, dairy, and machinery.
- Geopolitical Context: Sanctions and Regional Conflict
The economic crisis cannot be divorced from the geopolitical landscape. The collapse of the JCPOA following the U.S. withdrawal under President Donald Trump in 2018 triggered a reimposition of comprehensive sanctions targeting Iran’s energy, banking, and shipping sectors. These measures severed Iran from the SWIFT international payments system and froze over $100 billion in overseas assets (Maloney, 2019).
In September 2025, the United Nations Security Council reinstated nuclear-related sanctions via the “snapback” mechanism after the U.S. certified Iran’s non-compliance. The renewed sanctions:
Prohibited arms transfers to and from Iran,
Re-froze Iranian assets abroad,
Imposed travel bans and asset freezes on designated officials,
Restricted technological transfers related to missile development (UNSC Resolution 2231, 2015 revival).
These actions deepened Iran’s financial isolation and discouraged foreign investment. Additionally, the 12-day conflict between Iran and Israel in June 2025 — involving Iranian drone strikes and Israeli F-35 retaliations — heightened regional tensions and investor anxiety. Though Iran later admitted to falsely claiming the downing of Israeli jets, the episode contributed to capital flight and speculative attacks on the rial.
The U.S. remains a central antagonist in Iran’s economic narrative. Despite fluctuating diplomatic overtures, the sustained “maximum pressure” campaign has eroded the Central Bank of Iran’s (CBI) capacity to stabilize the currency through foreign exchange interventions.
- Structural Economic Weaknesses
Iran’s economy remains fundamentally fragile due to several interlocking structural issues:
a. Rentier State Dynamics
Iran’s fiscal structure is heavily dependent on hydrocarbon revenues, which historically accounted for over 40% of GDP and 60% of government income (World Bank, 2023). This rentier model discourages diversification, weakens tax compliance, and fosters corruption. Sanctions have crippled oil exports, reducing export revenues from a peak of $90 billion in 2011 to less than $20 billion in 2024 (OPEC Annual Report, 2024).
b. Banking Sector Insolvency
Non-performing loans exceed 25% of total bank assets, with many state-owned enterprises (SOEs) insolvent and reliant on subsidized credit (IMF, 2023). This undermines monetary policy transmission and fuels liquidity overhang, further stoking inflation.
c. Fiscal Mismanagement and Tax Policy
Announcements of proposed tax increases for the Iranian New Year (starting 21 March 2026) have generated widespread concern among small businesses already struggling with collapsing demand and rising input costs. The government’s reliance on printing money to finance deficits exacerbates inflationary pressures, violating basic tenets of monetary discipline.
- Protests and Social Unrest: The Role of the Bazaar
The protests of December 2025 are notable for their leadership by traders and shopkeepers — key constituents of Iran’s traditional bazaari class. Historically, the Grand Bazaar has been a nexus of opposition to authoritarian rule, playing a pivotal role in the 1979 Islamic Revolution (Abrahamian, 1982). Its mobilization signals a fracture in the regime’s base of support.
The closure of shops and coordinated strikes reflect economic despair rather than ideological opposition. Traders face existential threats as inventory costs rise daily due to inflation and currency volatility, while consumer purchasing power plummets. Despite a heavy security presence, authorities refrained from large-scale raids during the protests, possibly to avoid provoking wider unrest.
Social media footage, though subject to censorship, revealed chants critical of government mismanagement, including slogans like “The people are poor, but the leaders live in luxury.” The absence of overt anti-theocratic rhetoric may reflect tactical caution, but the movement’s potential to expand remains high if living conditions deteriorate further.
- Policy Implications and Future Outlook
The currency crisis demands urgent structural reforms:
Unification of exchange rates to eliminate distortions and restore market functionality.
Central bank independence to prevent monetization of deficits.
Diversification of the economy away from oil dependence through private sector investment and export promotion.
Social safety nets to cushion the impact of subsidy reforms and inflation on the poor.
However, these reforms are politically challenging in a system where the Islamic Revolutionary Guard Corps (IRGC) controls vast sectors of the economy and resists privatization. Additionally, international reintegration depends on breakthroughs in nuclear negotiations, which remain stalled.
Projections suggest that without significant policy shifts or sanctions relief, the rial could depreciate further, pushing inflation into hyperinflationary territory by mid-2026. This would erode any remaining trust in state institutions and increase the likelihood of mass mobilization.
- Conclusion
The collapse of the Iranian rial in late 2025 and the ensuing trader protests are manifestations of a deeper systemic crisis. Decades of sanctions, economic mismanagement, and political isolation have hollowed out Iran’s macroeconomic foundations. The dual exchange rate, galloping inflation, and loss of public confidence in state institutions have created a volatile mix. The mobilization of the bazaar — a traditional pillar of regime support — marks a significant shift in the balance of social power. Without comprehensive economic reform and a resolution to the nuclear impasse, Iran risks descending into protracted economic stagnation and heightened sociopolitical instability.
References
Abrahamian, E. (1982). The Iranian Mojahedin. Yale University Press.
Euronews. (2025, December 29). Iran’s currency collapse sparks second day of trader protests. Retrieved from https://www.euronews.com
Hanke, S. H., & Krus, N. (2013). “World Hyperinflations.” In Routledge Handbook of Major Events in Economic History. Routledge.
International Monetary Fund (IMF). (2023). Iran: Staff Report on Economic Developments. Washington, DC.
Maloney, S. (2019). Iran Reconsidered: The Evolution of a Regional Strategy. Brookings Institution Press.
OPEC. (2024). Annual Statistical Bulletin.
United Nations Security Council. (2015). Resolution 2231 (2015) regarding the Joint Comprehensive Plan of Action.
World Bank. (2023). Iran Economic Monitor: Navigating Sanctions and Reform. Washington, DC.
Keywords: Iran, Iranian rial, currency collapse, hyperinflation, sanctions, exchange rate, economic protest, Grand Bazaar, macroeconomic crisis, JCPOA, U.S.-Iran relations.