Iran Protests: Why the Economic Crisis No Longer Spares Anyone
Mahdi Ghodsi on why the latest wave of protests in Iran signal a deeper malaise among traditionally conservative sections of society.
Under current conditions, marked by a deep collapse in the value of the rial, more than 13 years of economic stagnation, and inflation exceeding 40 percent, real wages and purchasing power have fallen sharply across all segments of Iranian society. The demand-side recession is no longer confined to the poorest groups; it has spread to much broader sections of the population, particularly as a result of domestic price increases driven by repeated exchange-rate shocks. The decline in demand for goods that are largely imported into Iran, such as mobile phones, laptops, consumer electronics, food products, animal feed, and medicines, is now clearly visible.
The contraction in market demand is not only the result of widespread impoverishment, but also of extreme exchange-rate volatility, sharp price increases, and the long-term erosion of the rial’s value. For the first time in the history of the Islamic Republic, these dynamics have turned the bazaaris, traditionally a more conservative social group, into key initiators of protest. At the same time, severe currency fluctuations are partly driven by rising war threats and the increasing probability of conflict, and partly engineered deliberately by the government and the Central Bank to manage deep fiscal and monetary imbalances. The state is effectively unable to finance its public budget and has resorted to continuous borrowing, repaying its debts in ever more expensive dollars – a vicious cycle that relentlessly deepens the crisis. Even the appointment of Abdolnaser Hemmati as governor of the Central Bank represents an emergency measure that may reduce exchange-rate volatility in the short run, but offers no credible solution to Iran’s more than decade-long stagflation.
As a result, the economic crisis is no longer limited to the poorest segments of society and now encompasses a much broader share of the population. What we are witnessing is a deep collapse of aggregate demand. Not only the poor – who, according to the latest official statistics, constitute around 40 percent of the population – but also higher income deciles have lost their former purchasing power. Simultaneously, the public sector (including the government, ministries, the IRGC, political institutions, banks, state-owned enterprises such as the National Iranian Oil Company, and semi-public firms), which together account for roughly 80 percent of GDP, has become materially smaller and increasingly dysfunctional. The small private sector – representing only about 10–15 percent of GDP and primarily active in industry, retail, and wholesale trade (where bazaaris operate) – has also been directly harmed. In short, economic hardship is no longer confined to the margins; it has become a pervasive experience across wide segments of society.
Under such conditions, broader unrest and protests are not only likely but structurally predictable. People from different social classes increasingly recognise that they are engaged in a shared struggle, and this shared awareness can serve as a powerful catalyst for collective action. Even those segments of society that previously considered themselves insulated, or partially benefited from the existing structure, are now beginning to feel the effects of the crisis. This widespread impoverishment is the outcome of a combination of sanctions and the incapacity – and in many cases ignorance – of political institutions that claim to govern. What exists today resembles less a system of governance and more a criminal, mafia-like structure.
As described by the conceptual framework of Daron Acemoglu and James Robinson in The Narrow Corridor, Iran has for decades effectively lacked an institutionalised and accountable ruler. An “unshackled Leviathan” and a form of anti-human legal chaos – emerging from the rise of quasi-mafia networks operating under the guise of the clergy and the IRGC – have dominated the country. Over the past half-century, this system has produced tens of thousands of deaths and millions of displaced people, including large numbers of Iranians living in exile today.
The time has come to consider a democratic political system whose core function is to provide a stable institutional framework within which political power is exercised by independent legislative, executive, and coercive institutions. For such a transition to be viable, opposition leaders both inside and outside Iran must demonstrate forbearance, find workable compromises, and prioritise a united and coordinated front capable of guiding protests toward meaningful political outcomes.
Absent such a path, the most likely outcome is continued bloody repression of protesters dispersed across society without organisation or leadership. Moreover, the ongoing destruction of Iran – whether through war or through the emergence of another unchecked and unaccountable political order – would almost certainly follow. Proposals of this kind should therefore be taken seriously as realistic, intermediate solutions for the opposition: solutions that enable a focus on shared objectives and help lay the foundations for a stable, institutionalised, and sustainable system of governance.
It is worth considering whether a comparable institutional “reset” might now be possible at this critical juncture – one that restores effective governance, delivers public services, and establishes a legitimate and democratic monopoly over the use of force. Only under such conditions can a fully democratic Iran emerge, one in which society is able to express its will and pursue prosperity.
Economist Dr. Dr. Mahdi Ghodsi is a CMEG Senior Fellow and head of its Economy Unit.
Photo by Inimafoto A
