The protests over Iran’s economic crisis are putting the regime under severe strain. They risk acting as a detonator for an already highly unstable mix: the heavy impact of sanctions, the collapse of the rial to historic lows against the dollar, and an unprecedented energy and water crisis. These factors, compounded by systemic inefficiencies, are driving inflation to around 40 percent year on year.
Taking to the streets are Tehran’s bazaar merchants, a group long decisive in determining whether power in Iran holds or collapses. It was the same in 1979, when the bazaar sided with the rebels against the tyrannical Shah, Reza Pahlavi. Their entry into the fray has also pushed university students and supporters of the “Woman, Life, Freedom” movement to mobilize, with the aim of turning protest into outright defection.
The various factions that make up the Islamic Republic’s oligarchic power structure now face a dilemma. One option is to crush the protests—knowing full well how politically difficult it is to repress figures from the bazaar, a historic center of economic power and influence that has not yet fully embraced the goal of regime change. Such repression could be justified by pointing to Israel’s declared support for the demonstrators, with claims that Tel Aviv, via the Mossad, is fueling a “fifth column” narrative on X by saying “the time has come” and that it stands with them. Even among the less hardline wing of the regime, associated with President Masoud Pezeshkian, this kind of backing evokes the darkest memories of the “twelve-day war” and triggers a reflex of unity: the president himself has called for national cohesion in the face of “enemy pressure.”
Those fears were also revived by the end-of-year meeting between Israeli Prime Minister Benjamin Netanyahu and U.S. President Donald Trump. Netanyahu has never hidden his belief that the collapse of the Islamist rulers in Tehran would seal a regional war—and turn it into a complete strategic triumph.
The alternative path is the one sketched out by Pezeshkian’s tentative gestures of openness. Though largely ignored, the president has urged Interior Minister Eskandar Momeni—who answers to the hard core of power aligned with Supreme Leader Khamenei—to open a dialogue with protesters. He has accepted the resignation of central bank governor Mohammad Reza Farzin, replacing him with Abdolnaser Hemmat, a former finance minister and ex–central bank chief who is nonetheless seen by many, precisely because of his past roles, as one of those responsible for the current economic collapse. Pezeshkian has also launched a review of the margins of the state budget.
Yet the government’s political and economic room for maneuver is extremely limited. Adjustments to exchange rates, taxes, or subsidies offer only short-term relief. Only Iran’s return to the “international community”—which would require an end to sanctions and thus a negotiated solution to the nuclear issue—would allow the country to breathe again. But neither the domestic nor the international outlook seems to be heading in that direction.
Meanwhile, religious and military leaders alike are watching with growing concern the emerging bond—even if only tactical—between young people, women, and the bazaar. If the “system” fails to divide the different strands of the opposition, the situation—already shadowed by the risk of serious clashes between police, militias, and demonstrators, which have reportedly claimed the life of a young Basij officer—could spiral out of control. And if the protest movement solidifies, the absence of credible leadership—Reza Cyrus, the son of the former shah forced into exile, is rejected by those opposed to dynastic restoration, while the leadership of the “Woman, Life, Freedom” movement remains elusive—could be filled by the activism of the bazaar merchants. At that point, with U.S. support shedding its remaining hesitations and Israel firmly on board, the scenario would sharply accelerate.
This article was originally published by the Italian newspaper Domani, on January 1, 2026.
Cover photo: Shopkeepers and traders walk over a bridge during a protest against the economic conditions and Iran’s embattled currency in Tehran on December 29, 2025. Some shopkeepers in Tehran closed their stores on December 29 in protest against economic hardships and sharp swings in Iran’s embattled currency, Iranian media reported, following similar demonstrations a day earlier. (Photo by Handout / Fars News Agency / AFP)
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