Iran is entering a period of heightened political risk as economic collapse, environmental stress, and elite defection converge in ways not seen for decades. The latest wave of unrest, which began on December 28 in Tehran’s Grand Bazaar, has spread across more than 100 cities, evolving from local economic protest into a broader challenge to the Islamic Republic’s authority.
While demonstrations are not new in Iran, the participation of the bazaar merchant class marks a potentially decisive shift. In Iran’s modern political history, the withdrawal of support by the bazaaris has tended to occur at moments of acute regime vulnerability and has coincided with major political realignments — most notably in 1978–79.
The Bazaar as a Political Barometer
The Grand Bazaar is the backbone of Iran’s domestic economy. Its dense networks of traders, wholesalers and importers connect supply chains, liquidity and social influence across the country. Historically, bazaar merchants have not functioned as a permanent opposition force. Instead, they have acted as pragmatic political actors, aligning themselves with whichever system appeared capable of guaranteeing stability, access and predictability.
In 1979, they withdrew support from the Shah and aligned with the clerical opposition. For more than four decades thereafter, they formed part of the Islamic Republic’s core economic coalition.
That coalition now appears to be fracturing.
When bazaar merchants close their shops, the impact goes far beyond symbolism. Commercial shutdowns disrupt distribution networks, freeze working capital and send a powerful signal that confidence in the state’s economic management has eroded. In Iran’s political system, such signals matter — not because they immediately bring down governments, but because they indicate that the regime’s traditional mechanisms of consent are weakening.
Economic Breakdown as the Catalyst
The immediate driver of unrest is economic collapse.
Over the past year:
- The Iranian currency has lost approximately 60 per cent of its value
- Food prices have risen by around 72 per cent
- Medicine costs have increased by roughly 50 per cent
- Inflation is estimated to be near 50 per cent
For many households, life savings have been effectively erased. For merchants dependent on imports, business has become unviable. The government’s decision to abolish subsidised exchange rates, combined with higher taxes, has sharply increased costs while currency volatility has made price-setting nearly impossible.
Compounding the crisis is a breakdown in basic infrastructure. Water reservoirs in several regions are reportedly at critically low levels, electricity supply is unreliable, and public services are deteriorating. The state is increasingly unable to provide core public goods: water, power, food security or employment.
In practical terms, the implicit social contract between state and society has collapsed.
From Economic Stress to Political Exposure
The scale and composition of the protests suggest that this is no longer a narrow economic dispute. Demonstrations now include merchants, workers and middle-class families, while confrontations with security forces have intensified. Dozens have reportedly been killed in clashes with the Revolutionary Guard.
The government’s response has oscillated between repression and improvised economic concessions. One widely reported offer — a small monthly payment to encourage protesters to disperse — was interpreted less as relief than as an admission of fiscal exhaustion.
Externally, the regime also faces heightened geopolitical pressure. Former US president Donald Trump has publicly warned of retaliation should violence against protesters continue. While such statements should be interpreted cautiously, Tehran remains acutely aware of Washington’s capacity to escalate economic and strategic pressure.
Political Realignment and the Search for Alternatives
As confidence in the Islamic Republic erodes, political symbols long considered marginal are resurfacing. Reza Pahlavi, the exiled son of Iran’s last Shah, has declared that the current system is approaching the end of the road and has called 2026 “the year of change”.
There is no clear evidence that monarchist forces are directing the protests. But the re-emergence of such figures reflects a deeper vacuum: a growing search for legitimacy outside the clerical system itself. In moments of systemic stress, Iranian politics has historically gravitated toward realignment rather than reform.
Even within elite circles, unease is evident. Persistent reports of contingency planning by senior figures underscore the perception that the current unrest represents more than a temporary disturbance.
A Regime Under Structural Pressure
The Islamic Republic retains formidable coercive capacity, and regime change is far from inevitable. But the convergence of economic collapse, environmental stress and elite defection suggests that Iran has entered a phase of structural instability.
The withdrawal of bazaar support does not in itself determine political outcomes. Historically, however, it has signalled moments when existing power arrangements were no longer sustainable.
Iran may now be approaching such a moment.
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