08.01.2026

The government has pursued a strategy of class- differentiated concessions

Divided regime, divided opposition

Faced with a currency crisis, asphyxiating sanctions, soaring inflation and mass protests, the Islamic Republic also has Trump, who says the US is “locked, loaded and ready to go”. However, Yassamine Mather warns: the left is weak, divided and often hopelessly compromised

B eginning on December 28, with Tehran’s shopkeepers and bazaar merchants closing their businesses and marching in the streets, the recent protests have once again exposed the deep divisions within the regime. The immediate trigger was the sharp fall of Iran’s currency, the rial, to an historic low and rapidly rising inflation, which made basic goods increasingly unaffordable for large sections of the population. Although no longer headline news in the western media, protests have spread to at least 27 of the country’s 31 provinces.

Compared to December 2024, the rial has lost a substantial portion of its value against the US dollar. This reflected a year of accelerating currency instability rather than a sudden or unexpected shock. The prolonged decline sharply increased the cost of imported goods and raw materials, which are central to the functioning of the bazaar economy and to the circulation of everyday commodities.

A significant political aspect of the initial protests is that the bazaar has historically been a key social and economic ally of the Shia clergy and the Islamic Republic. It played a crucial role both in the 1979 revolution and in the consolidation of the post-revolutionary state. The regime’s loss of bazaar support therefore marks an important political turning point. However, given the bazaar’s structural dependence on imports and its vulnerability to currency fluctuations, as well as the continuous depreciation of the rial over the preceding months, such protests were inevitable rather than exceptional.

Within about two days, demonstrations spread beyond Tehran to other parts of the country. Ordinary residents, workers, small traders and shopkeepers joined in. As a result, this developed into one of the largest protest waves since the ‘Women, Life, Freedom’ protests of 2022-23, although the number of demonstrators in most cases has been fewer than on previous occasions.

Protests quickly took on a broader political significance. Slogans criticising the government and the supreme leader, as well as demands for systemic political change, spread rapidly. These echoed themes and demands from earlier protest movements, showing a continuity of grievances rather than a purely spontaneous outburst.

By December 30, the protests had extended to university campuses. Students at several universities took to the streets or organised solidarity rallies. Their participation injected renewed youth mobilisation and political energy. Students were drawn into the movement not only because they are directly affected by inflation, unemployment and declining living standards, but also because universities have historically functioned as key centres of political activism and opposition.

Resistance

The government’s initial response is a significant departure from its handling of previous waves of unrest. This shift reflected not only tactical manoeuvre by the state, but also changing class pressures within Iranian society. Unlike earlier protest cycles, when state media largely denied or ignored the demonstrations, official newspapers and broadcasters acknowledged them, albeit in a tightly managed and selective manner.

This shows that the regime recognises that effective information control has become virtually impossible. Workers, students and small traders now routinely access protest footage through social media platforms, encrypted messaging services and foreign-based satellite television. Denial of information and free speech no longer suppresses unrest: instead, it risks further delegitimising the state in the eyes of broad social layers.

Alongside this limited media recognition, the government pursued a strategy of class-differentiated concessions. Measures such as the appointment of a new central bank governor and promises of dialogue were not aimed at the population as a whole. Instead, they were carefully targeted at the bazaar - long a core social base.

Not that the mass were ignored. Members of the Majles (Iran’s parliament) proposed increasing the minimum wage by more than 40%. The government also announced that state financial assistance and the use of purchasing cards - allowing access to government-run stores - would be expanded. The administration reportedly deposited four months’ worth of this assistance into the accounts of heads of households. The promised reforms have two key parts: (1) partially converting huge hidden subsidies into direct cash transfers to poor households; and (2) tackling corruption. However, it carries a high risk of inflation and, if mismanaged, it could actually worsen the structural imbalances it aims to correct.

On January 6, speaking at a government ceremony, president Massoud Pezeshkian stated: “It is the banks that are causing inflation … the parliament and the government are responsible for these problems … I repeat, it is not the fault of one person. We all brought the country to this point together. We are to blame. That is, you are to blame, me, and the parliament.”¹

From a class perspective, the bazaar’s participation was driven less by ideological opposition to the regime than by material pressures. The bazaar’s structural dependence on imported goods, raw materials, and currency stability made it particularly vulnerable to the prolonged depreciation of the rial. The regime’s concessions temporarily restored this alliance, and protest activity by the bazaar has largely subsided.

However, this partial stabilisation clearly highlights the limits of the government’s strategy. Popular anger extends far beyond the parameters of the bazaar. The deepest sources of unrest lie among working class households, precarious labourers, unemployed youth, students and the urban poor. For these groups, inflation, wage erosion and housing costs are not episodic shocks, but permanent conditions.

Protests have continued across the country, often becoming more scattered, less coordinated, yet more intense. In terms of confrontation with the protesters, the government has pursued a two-part strategy: while adopting a more conciliatory approach toward the most powerful bazaar and business groups, it has relied on repression to control those accused of participating in “riots”. This has included deploying security forces, using tear gas and making a large number of arrests.

On January 3 Iran’s supreme leader, Ali Khamenei, addressed a public gathering, acknowledging that protesters’ economic concerns were valid, while simultaneously warning of the “hand of the enemy” behind the unrest. This approach reflects a government attempting to hold together its core social base rather than addressing the structural causes of crisis. That said, the scale of foreign intervention should not be underestimated. This includes both Mossad-funded Persian-language satellite television stations and those operating inside the country.

On the same day, former US secretary of state Mike Pompeo tweeted: “Happy New Year to every Iranian in the streets. Also to every Mossad agent walking beside them.” This came just one day after Donald Trump issued a statement warning Iran that the United States would intervene if Iranian forces violently suppressed peaceful demonstrators. He stated: “If Iran shoots and violently kills peaceful protesters … the United States of America will come to their rescue. We are locked, loaded and ready to go.”

Mossad and CIA

While the Iranian government often exaggerates foreign interference in domestic protests, it would be naive to deny that Mossad and the CIA have repeatedly attempted to infiltrate protest movements. Reportedly, some individuals killed during the unrest were members of the government-affiliated Basij militia. A revealing statement came from Sima Shine, former director of the Iran Department at Israel’s Institute for National Security Studies, who criticised Israeli and US officials: “We are exposing ourselves and have confirmed the narrative that the riots in Iran are the work of the Mossad and the CIA!”

Sections of the British press reproduced Israeli propaganda with little scrutiny. The Sunday Times (January 4) and The Independent (January 6) repeated claims - originally circulated by the Times of Israel - that ayatollah Khamenei planned to flee to Moscow if unrest intensified.

Nevertheless, it would be wrong to attribute the continuation of protests primarily to foreign intervention. The deeper cause is a profound crisis of trust, created by years of economic mismanagement, corruption and systemic privilege for regime-connected elites. While international sanctions have worsened economic conditions, they are not the primary source of popular anger. The core issue remains the unequal distribution of burdens: working and poor classes bear the costs, while well-connected groups are protected.

That said, recurring currency devaluations are indeed uniquely shaped by US sanctions. Typically, a currency crisis emerges when a country exhausts its foreign reserves and can no longer finance imports. Yet Iran’s Central Bank holds reserves exceeding $120 billion. The problem is not the absence of reserves, but their inaccessibility. Most of these funds are frozen in foreign bank accounts due to US secondary sanctions, even when held in non-dollar currencies.

Economy

According to International Monetary Fund estimates, only around 25% of Iran’s reserves are readily accessible - a figure that is likely an overestimate. In 2024, Iran’s total imports amounted to approximately $72 billion. Imports have risen sharply in recent years, while reserves remain frozen, exerting sustained pressure on the rial. If Iran were able to access its reserves under normal conditions - something that would require a political détente with the US - its reserve-to-import ratio would approach 20:1, compared to a global average of around 9:1.

This has two major implications. First, from the standpoint of foreign-exchange management, Iran is facing an imposed crisis. While protesters’ demands extend far beyond currency values, many political crises are downstream from the collapse of purchasing power, caused by currency devaluation and inflation. This erosion affects not only household consumption, but also the state’s ability to maintain welfare spending and invest in the future.

Second, there is very little the Central Bank can do to address the crisis without access to reserves. Attempts to unify exchange rates, regulate the foreign exchange market or improve currency allocation cannot overcome financial isolation. Iran is attempting to manage a large, complex and thoroughly globalised economy with severely constrained liquidity.

For many years, Iran has operated with multiple exchange rates - a system that has deeply damaged the economy and entrenched class inequality. There is an official or preferential rate, supposedly reserved for essential imports, such as food and medicine, alongside a much higher market rate faced by ordinary people, small businesses and most producers. This means that the same dollar buys less for ordinary citizens than for those with privileged state access. This gap is not accidental: it is a political mechanism for allocating privilege.

Entities with access to cheap dollars typically include companies linked to the regime’s Revolutionary Guards, religious foundations, regime-connected traders and import cartels. When these groups receive dollars at the official rate, they can import goods cheaply, while selling them at prices based on the market rate, generating enormous markups that consumers ultimately pay for.

In other cases, importers declare shipments of essential goods, but bring in lower-quality substitutes and pocket the difference, or they fail to import altogether and instead sell the cheap dollars on the informal market for an instant profit. This is rent extraction created and sustained by state policy.

Ordinary people lose even when goods are officially described as subsidised. In practice, prices follow the market exchange rate rather than the official one. Inflation rises, wages fall behind, shortages emerge and subsidies flow upward to well-connected groups rather than downward to the poor. This is why hoarding, artificial scarcity and black markets are widespread.

Sanctions intensify this system rather than correcting it. By reducing the overall supply of foreign currency, sanctions increase the value of political connections and exemptions. As a result, only groups with political protection, smuggling networks and security backing can operate. Small importers, independent traders and ordinary manufacturers are pushed out.

Consequently, factions within the state become the primary gatekeepers for currency, licences and trade routes. Economic power becomes increasingly centralised, commerce becomes militarised and normal economic activity is criminalised. This explains why sanctions enrich institutions such as the Revolutionary Guards, while workers and salaried employees grow poorer.

Last week, Iran’s so-called ‘reformist’ president, Massoud Pezeshkian, announced plans to abolish the system of subsidised and preferential foreign-exchange rates. He argued that the multi-tiered currency structure encourages corruption and rent-seeking, and fails to protect ordinary citizens.

Under the proposed reform, the state would discontinue offering dollars at artificially low rates that had previously been allocated for specific imports to privileged groups. The stated goal is a transition toward a unified, market-determined exchange rate. The proposal has been opposed by powerful military and financial factions within the regime. Even if the government succeeds in abolishing the official exchange rate, this reform may reduce one channel of corruption, but will not address the deeper structural problems. Prices may rise immediately, inflation may spike, and workers and pensioners are likely to suffer first.

Over time, the same privileged groups can retain control through other mechanisms, such as import licences, state contracts, smuggling routes, preferential credit and access to foreign currency abroad. The form of privilege changes, but the underlying structures remain intact.

International

Venezuela was considered Iran's primary gateway to Latin America, serving as a base for influence, sanctions evasion, and logistical cover for oil exports. The kidnapping of president Nicolás Maduro - an allied, defiant leader - could embolden anti-government protestors and expose the regime’s vulnerabilities. In addition the disruption of joint ‘shadow fleet’ oil operations with Venezuela will inevitably tighten the sanctions pressure, reducing its revenues at a time of a major economic crisis. For Iran’s leadership, the core unsettling message is that the US might be willing to take direct, decapitating military action against a regime it views as hostile, regardless of geographic distance.

Meanwhile, the Iranian opposition is in a lamentable state. The exiled left has little support inside the country, while opposition forces operating within Iran remain divided, ineffective and often vacillate between reformism and abstract calls for revolutionary change.

In response to sanctions and frozen reserves, sections of the so-called left - including some who were among the most ardent supporters of the Soviet Union in the 1980s - now echo former foreign minister Mohammad Javad Zarif. They call for negotiations with the US, an end to “defying the hegemon” and even the abandonment of slogans opposing the Zionist state. It is difficult to understand what kind of left would propose such capitulation after two years of genocide in Palestine, especially given recent examples of imperial aggression in Venezuela.

On the opposite side are those who advocate full confrontation with the US and complete reliance on China and the Brics bloc. This too is an illusion. China has its own strategic interests and has shown no willingness to jeopardise them for Iran’s sake. Even regarding the genocide of the Palestinians, the Chinese leadership has limited itself largely to rhetorical gestures.

As Promise Li explains in a Jacobin article,² while the United States remains Israel’s primary military backer, Israel also receives crucial support from China through deep economic, military and technological ties.

Meanwhile, two Persian-language satellite TV channels - Iran International and Manoto - both linked to Israeli intelligence via funding, manipulated protest footage by altering the slogans being chanted. Demonstrators originally shouted: “No to dictators - whether Shah or Rahbar [Khamenei]”. In broadcast versions, the audio was replaced to make it sound as though crowds were chanting “Javid Shah” (‘Long live the shah’).

Western media outlets, including The Independent and the BBC, initially repeated these doctored clips without verification. Iranian social-media users quickly circulated original footage alongside the manipulated versions, exposing the deception and severely undermining the credibility of these outlets.

Class response

Among working class activists, there is a clear awareness of the need to continue struggles against the capitalist state, while remaining vigilant against US and Israeli intervention. This perspective is reflected in a statement by imprisoned trade unionist Reza Shahabi: “The main purpose of my comments has been to emphasise the necessity of defending independent workers’, leftist and socialist movements … confronting warmongering, anti-worker and fascist forces is a vital and urgent part of the class struggle.”

Before the nationwide unrest, several sector-specific labour protests took place:

Workers at Hamadan’s Rad Steel Complex walked off the job after gas supplies were cut amid freezing conditions.
Industrial workers in Kavar (Fars province) staged strikes over unpaid wages and insecure contracts.
Retirees, medical staff and municipal workers held rallies in Tehran, Kermanshah, Rasht and Shush demanding wage justice.

These protests were explicitly economic, focusing on unpaid wages, inflation, energy cuts and deteriorating working conditions. While the international media emphasise bazaar closures and political slogans, labour struggles remain a central (but underreported) dimension of the unrest.

The left, however, remains weak and divided, failing to offer a coherent strategy beyond abstract calls for regime overthrow. In the absence of a revolutionary alternative rooted in working class organisation, it is difficult to be optimistic about the trajectory of the current situation.