Iran’s Unrest Beyond the Headlines: Economic Anger, Regime Tactics, and What It Means for India

The latest wave of civic unrest in Iran has unfolded amid heavy information fog and sharply polarised narratives. Yet reducing it to binaries — regime versus people, foreign hand versus domestic anger — misses the deeper structural story. What began as an economic protest over currency collapse has exposed the limits of Iran’s governance model, even as the state appears to have weathered the immediate storm. For India, located in Iran’s extended geopolitical neighbourhood, the implications are far from remote.

How an economic protest snowballed into nationwide unrest

The immediate trigger for the crisis was economic despair. On December 28, 2025, merchants in Tehran’s historic bazaars — the influential “Bazaari” class — shut down shops to protest the relentless devaluation of the rial. While the official exchange rate remained pegged at 42,000 rials to a dollar, the market rate had collapsed to around 1.45 million, reflecting decades of erosion since the 1979 Islamic Revolution.

In 2025 alone, the rial lost nearly 45% of its value, making it impossible for traders to import essentials such as rice, sugar and edible oil at market prices and sell them domestically at government-controlled rates. As losses mounted, the agitation spilled beyond merchants. Unemployed youth, low-paid workers and urban poor joined in, transforming a sectoral protest into a country-wide anti-government movement marked by arson, vandalism and violent clashes.

By January 13, Iranian authorities claimed over 2,000 deaths, attributing the violence to unnamed “terrorists” — a familiar framing in moments of crisis.

The regime’s well-rehearsed playbook for crushing dissent

Since the founding of the Islamic Republic, the Iranian state has developed a four-stage response to mass unrest, visible during the 2009 election protests, the 2019 fuel price agitation and the 2022 hijab movement. The current episode follows the same script.

First comes brute force: police and security agencies move swiftly to reassert control. If protests persist, a second phase unfolds — a calibrated mix of threats and empathy. Senior officials warn of foreign conspiracies, while others acknowledge “legitimate grievances”, promising dialogue and relief. Social media restrictions tighten.

The third stage is attrition. Confusion is seeded, organisers are divided, and pro-government rallies are mobilised. Once protests fade, the fourth phase follows quietly: arrests, long prison sentences and exemplary punishments. The current unrest appears to be entering this third phase, with token relief measures — including a temporary monthly cash transfer of 10 million rials — announced to blunt inflationary anger.

Why the system has held — for now

Despite the scale of unrest, the Iranian establishment has avoided immediate destabilisation. The oil sector, the backbone of the economy, remains operational. Crucially, the Pasdaran — formally the Islamic Revolutionary Guard Corps — and the regular army have stayed loyal, framing the agitation as a continuation of the June 2025 confrontation with Israel and the United States.

The political elite has not splintered, nor has a credible alternative leadership emerged among protesters. Funerals of fallen security personnel and orchestrated rallies have reinforced the narrative of external threat, a theme that has historically consolidated internal unity.

The deeper rupture: Bazaaris, sanctions and shrinking economic space

Yet beneath surface stability lie new vulnerabilities. The participation of Bazaaris is unprecedented in recent decades. Historically, this merchant class has been a decisive political bellwether — their withdrawal of support helped doom the Shah in 1979.

Their estrangement reflects long-term economic shifts. U.S. “maximum pressure” sanctions have squeezed margins, while the expanding economic footprint of the IRGC and the “bonyads” — powerful semi-charitable foundations — has crowded Bazaaris out of trade, manufacturing and contracting. Although President Masoud Pezeshkian has claimed that merchant grievances have been addressed, the opacity of any settlement raises doubts about whether the IRGC will relinquish its commercial dominance.

A young society trapped by an ageing political order

Iran’s deeper crisis is structural. Over two-thirds of Iranians were born after 1979. Their aspirations — shaped by global connectivity and the visible affluence of Gulf neighbours — clash with a gerontocratic politico-theocratic system. The leadership’s insistence on prioritising nuclear and missile programmes and regional proxies diverts scarce resources while inviting sanctions that deepen everyday hardship.

With radicals entrenched in the clergy, parliament and judiciary, and an executive with limited real power, women and non-Shia minorities feel particularly alienated. The election of a moderate president in 2024 briefly raised hopes, but regional turmoil has blunted any reform momentum.

Foreign encouragement, limited options and familiar risks

External encouragement of unrest has become unusually explicit. U.S. President Donald Trump and Israeli Prime Minister Benjamin Netanyahu have openly urged Iranians to challenge the regime, hinting at punitive military action. Yet history offers caution.

When Iraq’s Saddam Hussein invaded Iran in 1980, internal divisions evaporated in the face of foreign aggression. Iran’s Shia political culture, steeped in narratives of martyrdom, remains resilient to external threats. Despite losses in 2025, Tehran retains the capacity to retaliate — from targeting U.S. interests in the region to threatening closure of the Strait of Hormuz, through which a fifth of global oil supplies flow.

Washington appears aware of these risks. Rather than boots on the ground, the U.S. is leaning toward cyber operations and secondary sanctions on Iran’s trading partners. But Iran’s long experience with sanctions — from crypto transactions to shadow oil shipments — blunts their effectiveness. China and the UAE together account for more than half of Iran’s foreign trade, and such commerce is more likely to be obscured than halted.

Why turbulence in Tehran matters deeply to India

For India, Iran’s instability is not a distant concern. Any escalation threatens the Gulf’s security, directly affecting India’s energy supplies, remittances and its vast diaspora. Turmoil also allows Pakistan to posture as a security interlocutor between Iran, Gulf states and Washington.

Strategically, India needs Iran as a gateway to Afghanistan and Central Asia. Domestically, India hosts one of the world’s largest Shia populations outside Iran, estimated at around 25 million, making developments in Tehran socially resonant.

Finally, there is an economic horizon. Should decades of Western sanctions eventually ease, Iran’s revival would offer significant opportunities for Indian firms, especially as Tehran pursues its own version of economic self-reliance. The current unrest, therefore, is not just about Iran’s present — it is a window into the constraints shaping its future, and the stakes India has in how that future unfolds.