Iran: economic crisis and social unrest, a weakened leadership faces new challenges

Iran is at the centre of an internal and external crisis as it prepares to negotiate with the Trump administration and faces an uncertain future

Internal unrest and collapse of allies Iran faces an unprecedented crisis, both within and outside its borders. On the one hand, the country is shaken by a deep economic crisis and growing social unrest; on the other, it is helplessly witnessing the collapse of its allies in the region. The leadership of Hamas and Hezbollah, historical supporters of Iran, has been severely hit by Israeli attacks, and the regime of Bashar al-Assad was recently deposed by a jihadist group, led by Abu Mohammed al-Jawlani. In this chaotic scenario, Iran is preparing to face a potentially hostile return of Donald Trump to the White House, with the threat of new sanctions and even pre-emptive raids to block its nuclear programme.

International pressure and sanctions

With the Trump administration considering new interventions, Iran finds itself in an extremely difficult position. According to Sanam Vakil, director of the Middle East and North Africa programme at Chatham House in London, the Iranian leadership is facing one of the most difficult challenges in decades. The Trump administration would be motivated to achieve significant results in terms of nuclear security and could seek a compromise with Tehran. However, tensions between the two countries remain very high, complicated also by the memory of the killing of Qassem Soleimani, an Iranian general killed in 2020 on Trump’s orders, an event that Ayatollah Ali Khamenei continues to evoke frequently.

Economic crisis and internal protests

On the domestic front, Iran’s economic situation is dire. The national currency, the rial, hit an all-time low at the end of 2024, falling 40 per cent since the beginning of the year. The gross domestic product per capita has plummeted by 45% in the last ten years. This dramatic drop has triggered widespread protests across the country, with sectors of civil society, from pensioners to telecommunication workers, demonstrating against the regime due to growing social discontent.

The oil sector, the backbone of the Iranian economy, is also in turmoil. Workers at the petrochemical plant in Abadan, one of the largest in Iran, have been protesting for months against delayed salary payments. Some demonstrations have taken on highly political overtones, criticising the regime for prioritising its ideological agenda over solving the country’s economic problems.

Energy crisis and food shortages

In addition to economic problems, Iran is also grappling with a severe energy crisis. Industrial production has dropped dramatically, with plants operating at only 41% of their capacity due to the lack of electricity and natural gas. This situation has also hit the food sector hard, with increasing risks for food security as meat and poultry production is drastically decreasing. The lack of energy has brought several factories and plants to a halt, including 22 cement and pharmaceutical plants, further aggravating the industrial recession already plaguing the country.

Future prospects: negotiations with the West?

In an attempt to avoid further sanctions and stem the economic collapse, Iran has expressed readiness to resume nuclear negotiations, as stated by Foreign Minister Abbas Araghchi. However, the situation remains tense, with Tehran also saying it is ready to resist new restrictions. The window for a compromise with the West is narrow, and the risk is that the negotiations will become a difficult tug-of-war between Trump and the Iranian leadership, with the latter in a much less advantageous position than in the past.

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