Executive Summary
This report assesses the drivers, dynamics, and strategic implications of the current wave of arrests and nationwide unrest in Iran amid acute economic collapse and heightened external pressure.
It evaluates the interaction between domestic socio-economic grievances, intra-elite power struggles, and foreign strategic postures, and outlines plausible future trajectories.
Key Points
- The protests stem from structural economic degradation and currency collapse, but are being amplified by external pressure and internal elite competition.
- Iran’s leadership faces an unprecedented compression of strategic options due to sanctions, military deterrence pressures, and erosion of the social contract.
- The risk of state fragmentation or coercive militarisation of governance is increasing, with significant regional and global repercussions.
Background Information
In the Islamic Republic of Iran, the current unrest began on December 28, 2025, when shopkeepers at Tehran’s Grand Bazaar protested against the rapid depreciation of the Iranian rial. These demonstrations quickly expanded into nationwide protests involving an unusually broad social coalition. Iran has experienced recurrent protest cycles since 1979; however, the present episode unfolds against a backdrop of severe macroeconomic stress and heightened external confrontation.
Over the past year, the rial has reached record lows and inflation has risen to approximately 40 per cent, driving sharp increases in the cost of basic goods. Long-standing structural issues—water scarcity, electricity outages, unemployment, and systemic corruption—have compounded popular discontent. The reactivation and expansion of United States sanctions, framed within a renewed policy of “maximum pressure”, have further constrained an economy already weakened by mismanagement.
Iranian authorities have responded to the unrest with mass arrests and the imposition of a near-total communications blackout. According to unconfirmed Western sources—and therefore to be treated with caution—at least 2,400 protesters are reported to have been killed during more than two weeks of unrest, alongside casualties among security personnel. The government initially attempted limited economic adjustments, including changes in central bank leadership and the replacement of preferential exchange rates with modest cash transfers, but these measures have not reversed public anger.
Externally, the situation has been shaped by the breakdown of nuclear negotiations that appeared, in mid-2025, to be approaching a workable outcome. A subsequent 12-day conflict involving Iran, Israel, and the United States, halted only by US intervention, has sharply elevated perceptions of imminent renewed hostilities. Attacking Iran and derailing promising nuclear talks is strategically logical and consistent with Israeli interests. While the intent cannot be conclusively proved, the 12-day conflict objectively terminated diplomatic momentum, regardless of intent.
Recently, Washington imposed further sanctions on any entity conducting business with Iran, effectively deepening Iran’s economic isolation. Specifically, countries doing business with Iran will face a 25% tariff on trade they do with the US.
Analysis
The current crisis is best understood as the convergence of three reinforcing pressures: economic collapse, strategic coercion, and elite fragmentation. A decade of comprehensive sanctions has largely severed Iran from global financial systems, eroding the Central Bank of Iran’s policy autonomy.
Capital flight—accelerated by a widespread shift of private savings into decentralised assets such as cryptocurrencies—has drained liquidity from the formal banking sector while simultaneously straining the national power grid. The state faces an acute foreign exchange shortage at the same time as defence expenditure has risen sharply, reportedly by around 145% year-on-year, reflecting deterrence imperatives rather than developmental priorities.
These dynamics have triggered a self-reinforcing cycle of decline. Liquidity contraction remains the authorities’ principal monetary lever, yet aggressive tightening risks deep stagflation in an already fragile economy. The result is the rapid erosion of the middle class and the emergence of a “survival economy”, marked by subsistence consumption patterns and the breakdown of the implicit social contract between state and society.
Politically, the unrest intersects with an internal power struggle. President Masoud Pezeshkian, elected on a reformist mandate to ease sanctions through diplomacy, is increasingly vulnerable. Hardline factions appear to be exploiting the protests to discredit his government and reassert control. Reformist administrations have historically been used as shock absorbers during crises and subsequently blamed for structural failures they did not create. This tactic carries inherent risks: sustained mass mobilisation may escape elite management and generate systemic instability rather than a controlled political realignment.
Externally, Iran’s unrest is unfolding within a broader strategic contest. Israeli strategic communications have shifted emphasis from Iran’s nuclear programme towards its missile capabilities, reframing the threat as immediate and existential. This narrative appears designed to secure continued US political and military backing. Statements by US officials and public claims by the United States and Israeli figures that Israeli intelligence operatives are active inside Iran, as well as assertions that foreign actors are arming protesters, remain single-source claims and cannot be independently verified; nonetheless, their circulation contributes to Tehran’s perception of coordinated external destabilisation.
From an intelligence perspective, foreign exploitation of unrest does not require direct arming or command. Information operations, financial facilitation, cyber-support, and narrative amplification are lower-visibility tools and are more consistent with historical precedent. For instance, former US Secretary of State and CIA Director Mike Pompeo has advocated robust rhetorical support, the use of tools such as Starlink to circumvent internet shutdowns, and kinetic action targeting the IRGC and Iran’s ballistic missile programme, echoing Israel’s shift in strategic narrative from nuclear facilities to missile capabilities.
The risk profile increasingly resembles that of earlier regional upheavals, notably the Arab Spring, where legitimate socio-economic grievances were subsequently instrumentalised by external powers, leading in some cases to prolonged state collapse. In multiple cases (Syria, Libya, Yemen), genuine socio-economic grievances preceded and enabled external manipulation, resulting in outcomes fundamentally misaligned with the initial popular demands.
Iran shows several comparable indicators such as broad, cross-class mobilisation rooted in material hardship rather than ideology, rapid securitisation of protests, high foreign strategic interest in regime outcomes rather than reform outcomes. In Iran’s case, a sudden fall of the civilian government could plausibly result in the consolidation of power by military or security factions rather than a liberal transition, with outcomes ranging from a securitised authoritarian order to prolonged internal conflict. In fact, from a risk-assessment perspective, the danger is not democratisation failure but state deformation, including militia capture or security-state consolidation.
Still, while the risk exists, Iran differs structurally from Arab Spring states in three key ways: a highly institutionalised security apparatus with national reach, strong state identity and territorial cohesion, absence, so far, of sectarian fragmentation on a mass scale. These factors might reduce, but do not eliminate, the probability of full state collapse. A militarised authoritarian consolidation is currently more probable than fragmentation.
At the systemic level, US strategy appears to extend beyond Iran alone. By exerting pressure on multiple hydrocarbon-producing states, Washington constrains China’s energy supply chains while simultaneously increasing European dependence on US-aligned energy flows. While not officially articulated, the convergence of energy control, alliance dependency, and adversarial containment is a recognisable strategic pattern of US strategy.
This recalibration is viewed with apprehension by Gulf states, which have openly signalled opposition to a US-led military intervention in Iran due to the risks of regional spillover.
The current crisis should be assessed primarily as information-centric rather than purely kinetic or economic. At present, control of perception is more decisive than control of territory: competing narratives directly shape the legitimacy of sanctions, the cohesion of elite factions, and the durability and scale of protest mobilisation. Public confidence, elite loyalty, and external alignment are being influenced less by material facts on the ground than by how events are framed, amplified, or suppressed across domestic and international information spaces.
Failure to achieve information dominance—whether by the Iranian state or by external actors—carries a high risk of escalation disproportionate to objective developments, as misperception, signalling errors, and narrative hardening reduce room for de-escalation. Available evidence indicates that Western actors are conducting an intensive information campaign aimed at exploiting genuine internal socio-economic discontent to delegitimise Iranian governance and shape conditions conducive to regime change. While this does not negate the authenticity of domestic grievances, it significantly alters the strategic environment by accelerating polarisation, narrowing diplomatic off-ramps, and increasing the likelihood that informational escalation precedes or substitutes for direct military action.
Conclusion
The current arrests and unrest in Iran are not an isolated episode of domestic dissent but the manifestation of a structural crisis intensified by external coercion and internal elite rivalry. Absent a de-escalation of sanctions and regional military tensions, Iran’s leadership faces narrowing pathways between repression, fragmentation, and militarisation of governance.
The trajectory of this crisis will have profound implications not only for the Islamic Republic’s internal stability, but also for regional security architectures and the evolving balance of power in global energy and geopolitics.
Escalating repression combined with declining protest intensity, without accompanying economic stabilisation measures, would suggest temporary regime survival through coercion rather than restoration of legitimacy, increasing medium-term instability.
