Crisis in Iran: The Iranian Conundrum

The recent crisis in Iran has structural fault lines and a history behind the unrest. Despite repeated crackdowns and temporary stabilisation, structural causes remain unresolved, making crises cyclical rather than exceptional. Read here to learn more.

Iran is once again witnessing widespread unrest following bazaar shutdowns on 28 December 2025, triggered by a sharp collapse of the rial (≈1.45 million rials per US dollar in informal markets).

What began as an economic protest has reportedly expanded into nationwide anti-government agitation.

This episode reflects a deeper phenomenon often described as the “Iranian conundrum”, a recurring cycle where economic distress, political legitimacy deficits, and external pressure converge, producing repeated crises without long-term resolution.

Crisis in Iran: The Iranian Conundrum

The Iranian conundrum refers to Iran’s structural crisis trap, where:

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• Economic mismanagement and sanctions fuel inflation and currency collapse
• Political authority remains fragmented between elected institutions and unelected clerical bodies
• External pressure strengthens internal hardliners rather than reformists

Short-term repression or subsidies temporarily restore order, but root causes remain unaddressed, leading to recurring unrest.

Immediate Triggers of the 2025-26 Crisis in Iran

1. Bazaar-Led Economic Shock

• Bazaar closures historically signal serious legitimacy stress in Iran.
• Traders protested:
  • Currency volatility
  • Rising import costs
  • Erosion of purchasing power

2. Rapid Nationwide Spread

• Protests expanded beyond commercial grievances into:
  • Anti-corruption slogans
  • Governance criticism
  • Broader political dissent

3. Crackdown and Information Control

• Conflicting casualty figures reflect:
  • Tight media restrictions
  • Internet throttling
  • Competing narratives by state and external observers

4. Leadership Constraint

• President Masoud Pezeshkian (elected July 2024) operates with limited real authority, constraining economic or political reform delivery.

Historical Roots of Iran’s Political Fragility

Constitutional Awakening (1905-1911)

• First mass demand for constitutionalism and parliament.
• Undermined by royal power and British-Russian interference.

Pahlavi Monarchy (1925-1979)

• Rapid modernisation and Westernisation.
• Oil wealth coexisted with:
  • Deep inequality
  • Political repression
  • Elite corruption

Mossadegh and the 1953 Coup

• Oil nationalisation challenged Western interests.
• CIA-MI6-backed coup entrenched deep mistrust of foreign intervention.

Islamic Revolution (1979)

• Overthrew the monarchy, promising justice, sovereignty, and Islamic governance.
• Created a hybrid theocratic-republican system.

Post-Revolutionary Pattern

• Recurrent protests:
  • 2009 (elections)
  • 2019 (fuel prices)
  • 2022 (women’s rights)
  • 2025-26 (economic collapse)

The cycle of protests indicates unresolved tension between state control and societal aspiration.

Iran’s Governance Structure

Supreme Leader

• Ultimate authority over:
  • Armed forces
  • Judiciary
  • State media
  • Foreign and nuclear policy

Elected Institutions

• President and Parliament manage daily governance.
• Can be overruled by clerical bodies.

Guardian Council

• Screens election candidates.
• Vetoes legislation.

Clerical Oversight Bodies

• Assembly of Experts: appoints the Supreme Leader.
• Expediency Council: arbitrates institutional disputes.

IRGC and Bonyads (Deep State)

• Control major economic sectors.
• Operate with limited transparency.
• Dominate security and regional policy.

Economic Dimensions of the Crisis in Iran

• Chronic inflation and currency collapse
• Sanctions-driven isolation from global finance
• Capital flight and informal dollarisation
• Youth unemployment and the shrinking middle class

The bazaar unrest reflects the collapse of economic credibility, not merely price rise.

Implications of the Crisis

For Iran

• Governance fatigue
• Brain drain
• Capital flight
• Long-term state fragility

For India

• Energy Security: Any instability near Hormuz can spike oil prices, which will havea  direct impact on inflation and CAD.
• Diaspora and Remittances: West Asia instability threatens Indian workers and remittance flows.
• Connectivity Strategy: Chabahar Port and access to Central Asia face uncertainty under sanctions and unrest.
• Domestic Sensitivities: Developments resonate with India’s Shia community and wider public discourse.

Global Implications

• Oil and Shipping Risk: Hormuz-adjacent escalation raises insurance and freight costs.
• Great Power Contestation: Iran remains central to US sanction architecture and regional alignments.
• Norms of Intervention: External encouragement of protests hardens Iranian threat perceptions, justifying crackdowns.

Why the Cycle of Crisis Persists

• Sanctions weaken the economy but empower security elites
• Repression restores order but erodes legitimacy
• Reformists lack real power
• External pressure reinforces siege mentality

Thus, Iran oscillates between containment and eruption, without structural resolution.

Conclusion

The current crisis in Iran is no longer merely episodic unrest; it represents a structural stress test of currency credibility, governance capacity, and resilience under external pressure. While short-term containment may again succeed, the absence of durable economic normalisation and political recalibration makes repetition likely.

For India, the imperative lies in risk insulation, energy buffers, diaspora protection, and calibrated diplomacy, while preserving long-term connectivity options. Strategically, Iran remains too important to ignore, yet too unstable to rely upon without contingency planning.

Related articles:

• India-Iran relations
• Iran-Israel relations
• Iran nuclear deal