Iran faces a tough year of confrontation with the incoming Trump administration while holding an exceptionally weak hand after 2024 left it with an acute economic crisis at home and setbacks in the Middle East.
The new U.S. administration plans to increase sanctions on Iran as part of an aggressive effort to contain its support for militant groups in the Middle East. Tehran’s strategy, less potent than it was, still threatens Washington’s allies and partners, especially Israel, and is also unpopular among many ordinary Iranians. President-elect Donald Trump ’s team is also weighing options, including airstrikes , to keep Iran from building a nuclear weapon.
Iran’s economy has already been crippled by a mix of bad management, corruption and existing sanctions. Power shortages have shut down government offices, schools and universities and disrupted production at dozens of manufacturing plants. At the same time, Iran’s military threat has been blunted by Israel’s battering of allies Hezbollah in Lebanon, Hamas in Gaza, the now-collapsed Assad regime in Syria and much of Iran’s air defenses.
The Islamic Republic’s difficulties represent the biggest challenge to its clerical leaders since 2022, when the country was rocked by widespread unrest sparked by the death of a young woman in police custody after allegedly wearing an improper veil. Authorities crushed the uprising with brute force that human-rights organizations said killed hundreds. While protests over the worsening economic picture remain limited, the regime appears more vulnerable to unrest now.
Iran’s leadership “is probably experiencing the most profound challenges of its own making” in years, said Sanam Vakil , director of the Middle East and North Africa program at Chatham House in London. That could also push Tehran to negotiate a compromise with the West as it seeks a way out of the crisis, she added.
Specter of social unrest
President Masoud Pezeshkian was elected in July on a platform of social reforms, economic revival and political opening to the West. But six months on, Iranians’ hopes of improving their daily lives are rapidly unraveling. The economic crisis has raised the threat of social unrest, a concern for Iranian authorities. Merchants have been demonstrating over spiraling inflation while pensioners and oil workers have been protesting over delayed or reduced payments.
Iran’s currency—a bellwether of economic sentiment—ended 2024 at a record low of 821,500 rials to the dollar, down 40% from where it started the year. Gross domestic product per capita has fallen 45% since 2012—when sanctions escalated over its nuclear program—to $4,465.60 last year, according to the World Bank.
Shoemakers and other merchants in Tehran’s main bazaar staged a rare strike on Dec. 29 over high inflation, said Hamidreza Rastegar , head of the Tehran Chamber of Guilds, which represents vendors. “Don’t be afraid, close up,” some of them said in videos posted on social media by Iranian trade unions. The protesters “feared that items priced at these exchange rates will simply be out of reach for most consumers,” Rastegar said in a statement on the Guilds’ website.
Protests over economic issues are becoming more frequent across the country and across industries. Nurses and telecommunications workers have protested delayed payments. Retired teachers have in recent weeks demonstrated in front of Parliament over delays in welfare payments, according to a teachers union.
The discontent is spreading to the oil sector, the country’s most strategic industry and its biggest foreign-currency earner. Workers at the Abadan petrochemical plant, one of the country’s biggest, protested over three months of unpaid wages, according to state-run media and Iranian trade unions.
The demonstrations are becoming increasingly politicized, with some people criticizing the regime for being too focused on its ideological agenda and not enough on the economy. “Enough of the warmongering, our table is empty,” read a banner carried by protesting retirees in the city of Ahvaz. “Leave the veil alone and think about us,” said another banner, in a photo that was published on Dec. 29 by the Free Union of Iranian Workers, a group of Iranian trade unions.
Energy shortages because of years of mismanagement and underinvestment have exacerbated the crisis.
Industrial facilities last month were producing at only 41% of their capacity because of shortages in the supply of electricity and natural gas, the Iranian Chamber of Commerce, Industries, Mines and Agriculture, said on Dec. 18. The resulting lower production among poultry and meat suppliers is threatening the country’s food security, the chamber said.
Pezeshkian recently said his government was addressing energy shortages by encouraging businesses and households to stop wasting natural gas and electricity as well as fighting fuel smuggling.
Factories are in the throes of “a deep recession,” Mahmoud Najafi Arab , the head of the chamber, which represents some of Iran’s biggest companies, said in a statement on the chamber’s website. “The activities of these enterprises can’t be economically profitable” at current utilization rates, he added.
The energy shortage has idled 22 cement plants and slowed pharmaceutical production, according to the semiofficial Iran Labour News Agency. Power issues are also set to hurt Iran’s harvest this year by shutting down water pumps and disrupting the supply of natural-gas-dependent fertilizers, Ali Gholi Imani , head of the National Wheat Farmers Association, told business newspaper Tejarat News on Wednesday.
Spiraling food prices
The energy crisis has fueled inflation, which was running at an annual rate of 37% in November, according to the country’s central bank. Food products have been hit the hardest. In the past three years, the price of meat has quintupled and potato prices have more than doubled, Iran’s Statistical Center said on Dec. 31. About 32 million Iranians—more than one-third of the population—are now living below the poverty line, according to the chamber of commerce, compared with 18 million people in 2017.
The sorry economic state worries Iran’s leadership. The Islamic Revolutionary Guard Corps, the paramilitary force tasked with protecting the Islamic Republic, warned on Dec. 30 of further unrest and criticized “attempts to portray the system as ineffective, and fearmongering within society.”
Ali Rabiei , Pezeshkian’s social-affairs adviser, said younger generations of Iranians are now rejecting the economic isolation and social restrictions that have characterized Iran in recent years. They are “showing signs of rebellion against the status quo,” he wrote in the reformist newspaper Shargh on Dec. 27. “Prolonged sanctions have significantly contributed to the prevailing sense of despair, leaving deep social and political scars.”
Pezeshkian’s administration has responded to discontent from young Iranians by easing some of Tehran’s most repressive policies. In late December, it lifted a ban on the WhatsApp messaging service and the GooglePlay application. But it maintained a block on Instagram and Telegram, two other social-media platforms widely used in Iran to criticize authorities.
The Iranian president also managed to block the implementation of a new law that introduced harsher punishments for women and girls for exposing their hair, forearms or lower legs. The existing restrictions—which include a compulsory wearing of the veil for women— helped trigger the nationwide protests in 2022.
“The regime is trying to put down fires rather than solve any problem,” said Behnam Ben Taleblu , senior director for Iran at the Foundation for Defense of Democracies, a Washington think tank that advocates tighter sanctions on Iran.
Even under the most crippling sanctions, Iran could still deter foreign attacks on its soil by leveraging threats from the Axis of Resistance, an informal Tehran-led alliance of Middle East militias.
But those allies have been largely defeated over the past year. The removal of Bashar al-Assad in Syria , in December, Iran’s main state ally in the Middle East, followed a cascade of events catalyzed by Hamas’s deadly attack on Israel on Oct. 7, 2023. Since then, Israel has devastated Hamas , Iran’s main Palestinian ally, and killed most of the leadership of Hezbollah, Iran’s most powerful ally.
Tehran is now betting on Iraqi and Yemeni allies to threaten Israel. But their bases are far from their targets, limiting their effectiveness.
The events leave Tehran with far less wiggle room as it prepares for what could be a momentous tug of war with Trump. The past year’s setbacks have raised concerns that Iran might accelerate its nuclear program to restore some deterrence against foreign attacks.
For months, Iranian officials have openly debated whether to increase nuclear efforts and whether to reconsider Iranian Supreme Leader Ali Khamenei ’s two-decade-old pledge not to procure weapons of mass destruction.
The Islamic Republic has struggled to demonstrate an ability to fend off attempts to destroy its nuclear program. Israel in 2024 launched two rounds of airstrikes against Iran , that struck military facilities and took out Russian-provided air-defense systems, in response to unprecedented direct Iranian attacks on its territory.
Trump has also been considering ways to stop Iran from being able to build a nuclear weapon , including possible preventive airstrikes that would break with the longstanding U.S. policy of containing Tehran with diplomacy and sanctions.
Bad blood with Trump
Facing the prospect of new sanctions, Iran’s foreign minister, Abbas Araghchi , said Friday that his country was ready to resume nuclear negotiations “without delay” in exchange for lifting the sanctions. But in November, he also said Tehran’s advancing nuclear program showed it could cope with any new restrictions.
“ ‘Maximum Pressure 1.0’ compelled ‘Maximum Resistance’ and ended in ‘Maximum Defeat’ for the U.S.,” he said, referring to sanctions imposed under Trump’s first tenure. “The proof? One example: Just compare Iran’s peaceful nuclear program before and after the so-called ‘Maximum Pressure’ policy.”
To reach a deal, both sides will need to move away from acrimony. Trump’s approach to Iran is likely colored by the knowledge that its agents tried to assassinate him , former Trump officials have said. Khamenei frequently evokes the memory of Qassem Soleimani , the Iranian military commander whose killing Trump ordered in 2020.
“There is a narrow window where the regime will be eager to negotiate and Trump will have momentum to get what he wants to sell,” said Chatham House’s Vakil. “But time is not on [Trump’s] side. The ideologues in the Trump camp will want compromise from Tehran it may not be ready to accept. So there is a lot more pain ahead for Iran.”
Write to Benoit Faucon at benoit.faucon@wsj.com
