Iran has entered 2026 facing one of its most acute internal crises in years, as a collapsing currency, surging inflation and deepening poverty fuel protests that are spreading beyond Tehran into provincial towns and economically marginalized regions.
- •What began late last year as frustration over stagnant incomes and rising prices has evolved into a nationwide challenge rooted as much in economic survival as in political legitimacy.
- •Protests that began in Tehran have spread to provincial cities and poorer regions long marked by high unemployment and weak state support.
- •Lower oil revenues, the cumulative impact of US and European sanctions, and the economic fallout from last year’s regional conflict have reduced the government’s capacity for large-scale support, while recent fuel price increases have revived memories of the deadly 2019 protests.
The immediate catalyst has been a sharp deterioration in macroeconomic conditions. In late December, the Iranian rial fell to a record low of 1.42 million to the US dollar on the open market, down from roughly 1.14 million only weeks earlier. The speed of the devaluation has sharply eroded purchasing power, effectively cutting real wages in an economy where incomes were already well below subsistence levels for much of the population.
Inflation reached just over 42% in December, while food prices rose more than 70% year on year. Health and medical costs have also surged, placing additional strain on households with limited access to savings or credit. For many Iranians, particularly outside major cities, these figures translate into what economists describe as “effective hyperinflation” in essential goods.
The social impact has been immediate. Average monthly wages now hover around US $ 100, far below estimates of the minimum income required to sustain a small household. While the government has proposed a 20% increase in public sector pay, the adjustment falls well short of inflation, reinforcing perceptions that fiscal policy is worsening inequality rather than easing it.
Protests initially erupted in central Tehran, where shopkeepers and traders staged strikes in response to what they describe as “forced bankruptcy.” In major commercial hubs, including the Grand Bazaar and electronic market, merchants have closed their shops, arguing that selling goods at current prices guarantees losses and makes restocking impossible amid currency volatility.
In these areas, demonstrations are driven less by social policy debates than by rising hunger, joblessness and the cost of basic necessities.
For Iran’s leadership, the dilemma is structural. Raising wages risks fuelling inflation whereas austerity deepens unrest. As protests spread from urban centres to the economic periphery, the strain on the Islamic Republic’s social contract is becoming harder to contain through security measures alone, highlighting a broader erosion of faith in the state’s ability to deliver stability and opportunity.
