Context

• The civic unrest that unfolded in Iran in late 2025 has played out amid intense media polarisation and competing geopolitical narratives.
• While the crisis is often filtered through simplified binaries of regime repression versus foreign-instigated dissent, a more granular analysis reveals that the underlying drivers are deeply structural, socio-economic and political.
• Given Iran’s strategic weight in West Asia, its proximity to India’s extended neighbourhood, and the cascading effects on global markets and regional security, the episode warrants careful examination.

Economic Origins of the Unrest

• The immediate catalyst for the protests was the collapse of the Iranian rial and deteriorating economic conditions.
• The unrest began on December 28, 2025, when Tehran’s merchant class, the Bazaaris, launched a shutdown protesting a currency regime that made basic imports unviable.
• Although the official exchange rate stood at 42,000 rials per U.S. dollar, the market rate had plunged to 1.45 million, a 35-fold gap and a staggering 20,000-fold decline since 1979.
• The rial’s 45% depreciation in 2025 alone eroded profit margins on staples such as rice and oil, sparking broader socio-economic anger.
• What began as an economic grievance rapidly escalated into a cross-class protest movement involving unemployed youth and low-wage workers.

The Regime’s Four-Stage Playbook

• Since the Islamic Revolution, Iran’s leadership has developed a distinctive playbook for containing mass unrest, honed during crises in 2009, 2019 and 2022. The pattern consists of:
  • Initial repression via stern police action and information control.
  • Dual messaging, combining conspiracy rhetoric with conciliatory gestures.
  • Attrition tactics, including social media shutdowns, pro-government rallies, and organisational fragmentation of protesters.
  • Post-crisis retaliation, including arrests, show trials and executions.
• By early 2026, the unrest appeared to have entered the third stage.
• The government announced token economic relief, a monthly cash transfer of 10 million rials (approximately $7), and deployed symbolism through funerals of security personnel and mass rallies denouncing foreign interference.
• Crucially, the Pasdaran (IRGC) and conventional military remained loyal, the oil sector was uninterrupted, and no coherent alternative leadership emerged among the protesters.

Structural Vulnerabilities Exposed

• Breakdown of the Bazaar-Clergy Nexus
  • Historically, the Bazaaris were a decisive political force, their withdrawal of support contributed directly to the fall of the Shah in 1979.
  • Their erstwhile symbiosis with the clerical elite was built on preferential access to imports and arbitrage between fixed and market exchange rates.
  • However, U.S. sanctions, internal corruption and competition from IRGC-linked businesses have eroded this alliance.
  • Whether the IRGC, now central to regime survival, will cede lucrative economic space to appease merchants remains uncertain.
• Socio-Political Disconnect Between State and Society
  • Two-thirds of Iranians are post-Revolution citizens with aspirations shaped more by the consumerist Gulf than by revolutionary austerity.
  • They witness systemic corruption among elites, lack of economic opportunity, and social restrictions affecting women, minorities and the secular middle class.
  • The election of a technocratic moderate in 2024 briefly raised hopes, yet regional instability and entrenched clerical power blunted reform.
• Foreign Pressures and the Externalisation of Conflict
  • U.S. President Donald Trump and Israeli Prime Minister Benjamin Netanyahu openly encouraged protesters and threatened punitive action.
  • Yet direct intervention remains fraught. Iran’s political culture valorises resistance and martyrdom, enabling national consolidation against foreign aggression, as seen during Iraq’s 1980 invasion.
  • Moreover, despite losses in the June 2025 clash with Israel and the U.S., Iran retains capacities for asymmetric retaliation, particularly across the Persian Gulf and Strait of Hormuz.

Consequences for India

• Gulf Stability
  • Any escalation in Iran could destabilise the Gulf, jeopardising Indian energy security, remittances from its 9-million-strong diaspora, and bilateral trade.
• Strategic Geography
  • Iran provides India with access to Afghanistan and Central Asia via the Chabahar port, an alternative to Pakistan’s geostrategic chokehold.
• Domestic Social Linkages
  • India hosts the world’s second-largest Shia population after Iran; developments in Tehran resonate among Indian Shias and influence regional sectarian dynamics.
• Economic Opportunity
  • Post-sanctions reconstruction of Iran could offer major commercial openings for India in infrastructure, energy, manufacturing and healthcare, particularly given Tehran’s indigenous industrial ambitions.

Conclusion

• The 2025–26 unrest in Iran reflects not merely episodic dissent but accumulated structural contradictions within a sanction-strained petro-religious state facing generational transformation.
• The regime has shown resilience through coercion, elite cohesion and the absence of viable opposition leadership.
• Yet its inability to address underlying economic and socio-political fissures ensures that instability will recur
• For external actors, including India, the crisis underscores the interplay between domestic fragility and regional geopolitics in West Asia.