Iran has entered 2026 facing another serious wave of anti-government protests, but this one began somewhere politically significant: Tehran’s Grand Bazaar. Shopkeepers began closing businesses and demonstrating in late December after the Iranian rial collapsed to record lows, reaching roughly 1.39 million rials to the US dollar, while inflation and rapidly changing prices made ordinary commerce increasingly difficult. The demonstrations have since spread beyond Tehran and broadened from economic demands into criticism of the Islamic Republic itself. President Masoud Pezeshkian’s government has taken a more conciliatory initial position than during several previous protest waves, acknowledging that economic grievances are legitimate and promising dialogue, even as security forces have confronted demonstrations elsewhere. What makes this episode important is not simply another fall in Iran’s currency. The bazaar helped provide money and organisational support to the 1979 Islamic Revolution; when groups once embedded in a political order begin questioning that order, an economic crisis can become something much more dangerous. The deeper issue is therefore one of political philosophy: people obey states partly because they regard their authority as legitimate, but legitimacy becomes increasingly difficult to sustain when a government demands political obedience while appearing unable to preserve the basic economic conditions under which ordinary people can plan their lives.
Inflation is politically corrosive in a way that ordinary recession sometimes is not because it damages the informational function of money itself. A shopkeeper can adapt to weak demand if prices remain predictable. It becomes much harder to operate when the currency loses value so rapidly that a product sold today may cost substantially more to replace tomorrow. Businesses stop knowing whether a nominal profit is a real profit, workers cannot tell what their salaries will purchase next month and households move savings into dollars, gold or physical goods. That behaviour then places additional pressure on the domestic currency. Iran’s problem is therefore not simply that goods have become expensive; the unit through which citizens organise economic expectations has become less trustworthy. This matters politically because modern states do more than police territory. They create predictable frameworks within which citizens make contracts, save, invest and exchange. When that predictability collapses, the state’s failure becomes visible in almost every transaction.
Iran’s government can reasonably point towards Western sanctions as one major cause. Restrictions on oil exports, banking and access to international finance have imposed substantial costs on the Iranian economy, and the military confrontation with Israel and the United States in 2025 increased uncertainty further. Yet sanctions cannot explain everything. Domestic monetary policy, corruption, inefficient state enterprises and the enormous economic role of organisations connected to the Islamic Revolutionary Guard Corps also shape the economy. This distinction is politically crucial. External pressure can strengthen a regime when citizens interpret hardship as something imposed by a foreign enemy; it weakens the regime when citizens conclude their own rulers have both provoked external isolation and distributed its costs unfairly. The same sanctions can therefore produce either nationalism or anti-government anger depending on whom citizens hold responsible for the sacrifice.
The bazaar’s participation is especially important for this reason. Iran’s traditional merchant class was historically part of the coalition that helped overthrow the Shah, linking commercial networks with religious institutions and revolutionary politics. But the economic structure of the Islamic Republic has changed substantially since 1979, with the Revolutionary Guards and politically connected organisations accumulating influence across construction, energy, transport and other sectors. If independent merchants increasingly believe that politically connected actors receive preferential access to contracts, foreign currency or sanctions-evasion networks while ordinary businesses absorb inflation and isolation, the conflict becomes partly horizontal rather than simply vertical: not merely citizens against government, but economically excluded insiders against a privileged state-connected elite. That is more dangerous for a regime because political systems often survive opposition from outsiders more easily than defection from groups that once benefited from the system.
Pezeshkian’s decision to recognise legitimate economic grievances therefore makes strategic sense. A government confronting protests has two broad instruments: coercion and accommodation. Coercion raises the cost of protesting; accommodation reduces the perceived benefit of continuing. Iran has historically relied heavily on the first. Dialogue can be more effective if protesters’ demands are narrow enough to satisfy through economic policy. The difficulty is that once demonstrators move from demanding currency stability towards questioning the political system itself, concessions become harder. A government can change a central-bank governor. It cannot easily negotiate over whether the political order should continue existing. Economic protests become regime crises when material grievances merge with a belief that the institutions responsible for solving them are themselves the problem.
This is where legitimacy differs from popularity. Governments do not need every citizen to like them. They need enough citizens to accept their right to govern, enough bureaucrats to implement decisions and enough security personnel to enforce them. The Islamic Republic has survived enormous protests before because its coercive institutions remained cohesive. The 2009 Green Movement, the 2019 fuel protests and the 2022–23 demonstrations following Mahsa Amini’s death all produced serious challenges without causing decisive fractures inside the security establishment. That history should make predictions of imminent regime collapse extremely cautious. Large demonstrations can reveal widespread dissatisfaction while a government remains durable if the institutions carrying weapons, collecting taxes and administering the state continue functioning.
The more useful indicator is therefore not simply the number of people in the streets but whether elite and institutional loyalty begins to fracture. Do merchants finance strikes for weeks rather than days? Do oil workers join? Do civil servants refuse instructions? Do provincial elites defect? Do units of the security forces decline to repress demonstrations? Revolutions occur when opposition becomes coordinated and the state loses confidence in its own capacity to compel obedience. Until that happens, even deeply unpopular regimes can survive. This is one reason authoritarian systems often appear simultaneously brittle and durable: they can tolerate enormous dissatisfaction until a tipping point arrives, but nobody can identify that tipping point reliably in advance.
Foreign intervention could complicate this further. After the Israeli and American strikes of 2025, Iranian leaders possess a credible narrative that external powers want to weaken or overthrow the Islamic Republic. If Washington openly treats domestic protests as an opportunity for regime change, Tehran can portray demonstrators as instruments of foreign enemies, potentially persuading some citizens who dislike the government that national sovereignty nevertheless requires opposing external interference. This is the nationalism paradox of foreign pressure: an adversary can weaken a regime economically while strengthening the regime’s political argument that dissent threatens the nation during a period of external danger.
For this reason, outside governments should distinguish support for Iranians’ civil liberties from attempting to select Iran’s next government. The latter would reproduce one of the region’s recurring mistakes: assuming that because an authoritarian regime is unpopular, an externally accelerated collapse will automatically produce a stable and more liberal successor. Iran is a country of more than ninety million people with ethnic, ideological and regional divisions, powerful security organisations and substantial military infrastructure. A disorderly collapse could produce outcomes very different from the democratic transition many protesters want. Opposing authoritarianism does not remove the need to think seriously about the institutions that would govern the morning after authoritarianism ends.
The Iranian leadership faces the inverse problem. Repression may restore street order without restoring legitimacy. A government can prevent demonstrations through arrests and force while leaving untouched the inflation, corruption and institutional distrust that produced them. This creates negative stability: the absence of visible protest because protesting is expensive, rather than because citizens believe the political system works. Such stability can persist for years, but each subsequent economic shock begins from a lower reservoir of trust. The state therefore becomes increasingly dependent on coercion precisely because previous coercion reduced the possibility of voluntary consent.
Iran’s current crisis is therefore about much more than the rial. It is testing the social bargain underlying the Islamic Republic. Revolutionary legitimacy cannot remain permanently revolutionary; generations born decades after 1979 eventually judge the government according to contemporary performance rather than historical struggle. A state that once justified itself through independence, religious authority and resistance to foreign domination increasingly confronts citizens asking more ordinary questions about wages, prices, corruption and opportunity. Political legitimacy eventually becomes mundane. Governments survive not only because citizens believe in the founding story, but because the electricity works, money retains value and tomorrow feels sufficiently predictable to build a life around.
That is what makes the Grand Bazaar protests worth watching. The Islamic Republic has survived demonstrations before and may survive these as well. The critical question is whether the state can still separate economic dissatisfaction from political rejection by improving material conditions and persuading citizens that reform remains possible within the existing system. If it cannot, every future economic shock will carry a larger political charge than the last. A currency can recover through monetary policy and foreign exchange. Trust in a political order is much harder to recapitalise once citizens begin treating the institutions issuing the money as part of the reason it no longer holds its value.
