By: Dr. Amirali R. Davoudpour

December 29, 2025

As of December 2025, the Iranian economy is grappling with unprecedented challenges. The value of the Rial has plummeted to a new record low, with the free market exchange rate exceeding 1,420,000 Rial per USD. This currency collapse, combined with rampant inflation and a shortage of essential goods, has ignited widespread protests across Tehran. Merchants and shopkeepers in key districts, including the Grand Bazaar and Jomhuri Street, have shuttered their businesses to take to the streets, where economic grievances are rapidly evolving into political critiques.

The fundamental question remains: Can these protests lead to a sustainable reduction in exchange rates and improve the livelihoods of the citizenry, especially considering the dominant role of external factors such as the conflict with Israel and sanctions imposed by the United States and the European Union? In this analysis, we examine these issues from an economic perspective, acknowledging the presence of “sociopathic” factors—socially pathogenic elements that harm national interests and fuel internal instability—while arguing that the impact of “external coercive elements” cannot be ignored.

Economic Context: Sanctions, Military Conflict, and External Pressures

In 2025, Iran’s economic landscape is dictated by a volatile mix of internal and external forces. Sanctions from the United States and the European Union, which intensified throughout the year, have been primary drivers of the currency’s depreciation. In February 2025, the U.S. implemented new measures focused on “maximum economic pressure.” By September 2025, the EU and the United Kingdom activated the “snapback” mechanism, reinstating United Nations nuclear sanctions that encompass trade, financial, and technological restrictions.

These sanctions have severely curtailed oil exports and restricted access to international markets. The direct consequences include a sharp decline in foreign exchange revenue, inflation exceeding 40 percent, and the ongoing collapse of the Rial.

Furthermore, the military conflict with Israel in 2025 has dealt a heavy blow to the economy. Israeli strikes in June and August 2025, targeting military infrastructure, led to a decrease in oil production and a surge in military expenditures. Reports indicate that Iran’s Gross Domestic Product (GDP) has contracted to approximately USD 341 billion, while public debt has seen a significant increase. These conflicts have not only incurred direct costs, such as the reconstruction of defense systems, but have also deterred foreign investment and disrupted supply chains.

Internally, smuggling and corruption act as intensifying factors, though these are often rooted in attempts to circumvent external sanctions. While the government has turned to informal oil exports to sustain revenue, these profits are frequently diverted, failing to improve general welfare. This combination of factors has pushed the economy to a breaking point where the currency protests of December 2025 became inevitable.

Can Protests Lead to Currency Stabilization and Improved Livelihoods?

From an economic standpoint, while protests exert short-term pressure on the administration, they are unlikely to result in a lasting reduction of the exchange rate. The core drivers of the crisis—sanctions and external military conflicts—remain outside the direct control of the protesters or even the internal government apparatus.

While the government may resort to temporary measures, such as injecting limited currency into the market or easing internet restrictions to quell unrest, these are not sustainable solutions. For instance, the potential resignation of Central Bank Governor Mohammad Reza Farzin amidst the turmoil reflects internal instability, but without the lifting of sanctions, such personnel changes only address the symptoms rather than the cause.

Economic analysis indicates that stabilizing the currency requires a significant increase in the supply of foreign exchange, which is contingent upon oil exports and the attraction of foreign investment. Sanctions and the ongoing conflict with Israel have effectively blocked these channels. Without geopolitical shifts, such as successful diplomatic negotiations, these economic barriers will persist.

The Inevitability of External Coercive Factors

It is impossible to ignore external factors, as they are the primary determinants of the current currency crisis. The U.S. and EU sanctions, as part of a maximum pressure strategy, have directly depleted Iran’s foreign exchange reserves. Similarly, the conflict with Israel has imposed heavy economic costs and increased investment risks.

Ignoring these elements renders any economic analysis incomplete and makes domestic-only solutions appear overly optimistic. While internal policies, such as the inefficient allocation of resources, play a role, domestic reforms will remain limited in efficacy without the mitigation of external pressures.

In conclusion, the currency protests of 2025 represent a critical juncture, but real economic recovery requires a diplomatic path toward reducing sanctions and ending regional conflicts. Without these changes, the cycle of inflation, currency devaluation, and social unrest will likely continue, and the standard of living for the population will not see meaningful improvement.

Dr. Amirali R. Davoudpour Secretary of the Law and Healing Association, Translated by Highlight AI from Persian

References:

Davoudpour, A. R. (2025). Currency Protests and External Coercion in Iran: A Nash Equilibrium Analysis of Sanctions, Conflict, and Economic Instability. Journal of Iranian International Legal Studies, 11(1), A1. https://doi.org/10.5281/zenodo.18087035