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The fate of the Iranian economy is increasingly shaping debates about the country’s future—one that may prove decisive regardless of how its current political struggles unfold.
Public frustration over rising living costs has once again spilled into protests across the country, shining a harsh light on how state resources are allocated and managed.
As demonstrations continue, economic indicators are emerging as a central measure of both state capacity and public confidence.
That tension is visible in Iran’s draft budget for the next fiscal year, beginning on March 22. The document offers a snapshot of priorities at a moment marked by military confrontation, diplomatic strain and widening economic pressure.
A budget shaped by security concerns
According to the draft, the government has projected just 1,850 trillion rials in oil export revenues for itself—equivalent, at the official exchange rate, to roughly $2 billion.
By contrast, allocations tied to military and security institutions account for at least 16 percent of total budgetary resources, while the share of oil export revenues linked to the Islamic Revolutionary Guard Corps is estimated to be several times larger than that of the civilian government.
Funding for religious institutions is projected at close to half of the government’s oil income.
At the same time, projected tax revenues have risen by 63 percent, signaling a heavier burden on households and businesses amid high inflation and weak purchasing power.
Taken together, the figures raise questions about how effectively state revenues are being translated into economic stability or improved living standards. They also complicate expectations that external relief alone—such as sanctions easing—would be sufficient to reverse economic decline.
An economy with untapped potential
Official data underscore the scale of resources involved.
Even under extensive sanctions, Iran’s crude oil export revenues over the past five years have totaled approximately $193.5 billion.
Yet over roughly the same period, Iran’s gross domestic product has contracted sharply, falling from around $600 billion in 2010 to an estimated $356 billion in 2025. The divergence between export earnings and overall economic output has become a central puzzle for analysts.
According to Iran’s Central Bank (CBI), the country earned $65.8 billion from exports of oil, petroleum products and gas in the last fiscal year, while total general government revenues projected in the new budget amount to about $45 billion.
Growth, allocation and the missing link
In purely arithmetic terms, current energy exports alone exceed projected state revenues, even before accounting for taxation, domestic fuel sales or other income sources.
The structure of Iran’s economy further complicates comparisons with other sanction-hit or conflict-affected states. Services account for more than half of GDP, and non-oil exports remain substantial, according to the CBI—a markedly different profile from countries such as Iraq, where non-oil exports account for less than 10 percent.
These figures suggest that Iran’s economic capacity, diversification potential and revenue base remain significant, even under constraint.
The unresolved question is not one of resources alone, but of how those resources are absorbed, allocated and converted into sustainable growth.
As protests continue and political outcomes remain uncertain, the condition of the economy—more than any single diplomatic or security development—is likely to shape Iran’s trajectory in the years ahead.
Prolonged economic exhaustion and a broader loss of confidence in the Iranian state after historic military and foreign policy setbacks in 2025 means 2026 may be the Islamic Republic's hardest ever year.
Popular unrest is not unfolding in isolation. It comes amid sustained external pressure, legal constraint and strategic exposure that have narrowed the Islamic Republic’s room for maneuver.
The protests are best understood not as a discrete domestic episode, but as the internal manifestation of a broader convergence: sanctions enforcement, legal isolation, military attrition and fiscal strain now intersect more directly with the regime’s ability to manage society.
At the center of this convergence lies a structural tension.
Tehran has long prioritized the maintenance of its coercive apparatus as the ultimate guarantor of regime survival, assuming it could continue to fund and mobilize those forces even as the wider population absorbed economic pain. The present unrest tests that assumption.
The question is no longer simply whether the state can repress protest—it has done so repeatedly—but whether it can sustain that approach under prolonged economic pressure.
The war that reshaped Iran’s strategic landscape
In June 2025, the Islamic Republic faced sustained direct military action against core elements of its nuclear and missile infrastructure, followed not by rapid diplomatic de-escalation but by heightened scrutiny and enforcement.
While Tehran avoided immediate escalation beyond the conflict, the war unsettled long-standing assumptions about deterrence, sanctuary and escalation control.
In its aftermath, the state’s survival was framed domestically as vindication. Yet continuity did not amount to recovery. Vulnerabilities exposed by the war could not be addressed simply through rebuilding or rhetorical reaffirmation.
Iran’s leadership has often equated endurance with strategic success. In this case, endurance masked erosion. The post-war environment became more constrained, not more permissive.
Sanctions and their toll
The reactivation of pre-2015 United Nations sanctions through the snapback mechanism in September 2025 constituted a second rupture—less visible, but no less consequential.
These measures reimposed binding legal constraints independent of the JCPOA framework.
Whatever Tehran’s posture toward negotiations, its obligations under revived Security Council resolutions and the Nuclear Non-Proliferation Treaty remain formally intact.
Iran’s refusal to comply with inspection-related understandings, alongside renewed threats to withdraw from the NPT, reflected a strategy of legal brinkmanship. But brinkmanship has limits.
Snapback has proven difficult to circumvent, constraining access to finance, insurance and energy markets. Even states inclined to engage Iran have struggled to shield it from the broader effects of renewed enforcement.
These constraints have translated into economic pressure. The protests now visible across Iran are therefore not only political acts; they are also the social consequence of legal and economic containment.
Missiles and strategic trade-offs
Under this pressure, Tehran has prioritized strategic reconstruction, particularly in its ballistic missile program. Facilities linked to missile development and solid-fuel production have shown signs of renewed activity, even as nuclear infrastructure remains under close scrutiny.
This reflects a belief that missile capability can restore leverage by raising the costs of external pressure.
Missile reconstruction aims to reconstitute coercive leverage and recover lost influence. Yet the strategic context has shifted. Measures once tolerated as incremental are now interpreted as preparatory, intensifying scrutiny and compressing decision timelines.
The domestic trade-offs are significant. Resources directed toward military-industrial reconstruction are resources unavailable for economic stabilization or social relief.
Iran’s rulers appear to have judged that sustaining coercive capacity outweighs the risks of popular discontent—a calculation that depends on continued loyalty within the security apparatus, even as economic conditions worsen.
A narrowing set of options
During the war, US President Donald Trump publicly raised the prospect of regime change—not as declared policy, but as a conceivable outcome should Iran prove unable to govern or stabilize the country.
While ambiguous, the remarks widened the range of interpretations available to Tehran.
As protests spread, that signalling evolved. In early January, Trump warned that violent suppression of peaceful protesters would provoke an American response. The emphasis shifted from missiles and enrichment to repression itself.
Taken together, these statements suggest a growing linkage in US rhetoric between Iran’s internal conduct and its external confrontation, though how far this would translate into policy remains uncertain.
For a system long reliant on compartmentalization—treating internal repression and external escalation as separate domains—this rhetoric further narrows room for maneuver.
Repression now carries not only domestic costs, but potential external risk.
Resilience—and its limits
None of this points to inevitability. The Islamic Republic has weathered previous crises, including acute pressure in 2009 and again in 2022, through repression, fragmentation of opposition and strategic patience.
Those precedents caution against linear narratives of collapse.
Yet the present unrest differs in one important respect: it is embedded in sustained economic degradation rather than episodic political mobilization. Repression can suppress protest, but it cannot substitute for economic viability indefinitely.
In 1978, prolonged disruption in Iran’s oil sector did not immediately bring down the state, nor did repression collapse. What faltered was the state’s capacity to function as revenues declined and administrative coherence eroded.
The parallel should not be overstated. But it underscores a familiar pattern: regimes rarely fail at the height of coercion; they falter when the material foundations of governance erode to the point that authority can no longer translate power into control.
Whether the Islamic Republic is approaching such a threshold remains uncertain. What is clearer is that its margin for error has narrowed. The 12-day war did not end Iran’s confrontation with its adversaries, it reshaped it.
The unrest now visible across the country is not separate from that confrontation—it is one of its most consequential domestic expressions.
Unlike his predecessors who largely stayed silent in the early days, Donald Trump issued an unusually blunt warning over the killing of demonstrators in Iran, a message Tehran appears unable to dismiss lightly given its speed, tone, and source.
On the second day of protests, he condemned the Iranian government for firing on demonstrators. On day six, he went further, warning that if the killing of protesters continued, US forces “will come to their rescue.”
This amounts to the fastest and most explicit reaction by an American president to a wave of unrest in Iran in the past 45 years. The question is whether this posture translates into concrete diplomatic steps or credible military pressure—or remains a largely symbolic deterrent message.
Within a week of the outbreak of protests in Iran against the Islamic Republic and its rulers, US President Donald Trump weighed in twice with direct comments.
On the second day of protests, he condemned the Iranian government for firing on demonstrators. On day six, he went further, warning that if the killing of protesters continued, US forces “will come to their rescue.”
This amounts to the fastest and most explicit reaction by an American president to a wave of unrest in Iran in the past 45 years. The question is whether this posture translates into concrete diplomatic steps or credible military pressure—or remains a largely symbolic deterrent message.
In 2009, former US president Barack Obama responded cautiously to Iran’s Green Movement protests. At the time, he had sent a second letter to Iran’s supreme leader, Ali Khamenei, and had yet to receive a reply. Obama feared that open support for protesters could undermine the secret backchannel he was attempting to establish with Khamenei to resolve the nuclear standoff.
At the same time, his advisers warned that overt US backing could backfire: protesters might be branded as “foreign agents,” giving the government a pretext to crack down even harder.
Those concerns are far less salient for Trump, at least for now. On one hand, there is currently no meaningful or active diplomatic channel between Tehran and Washington that a sharp US stance could weaken or shut down.
On the other hand, Iranian officials have for years accused protesters of being agents of hostile powers—a charge repeated by Khamenei himself in a recent speech on the unrest—rendering the label largely meaningless. There is little indication that demonstrators now fear either foreign support or accusations of outside ties.
Years later, Obama acknowledged that his cautious approach to the Green Movement had been a mistake, arguing that the United States should support popular, pro-freedom movements wherever they arise. Trump’s swift and blunt reaction suggests he has avoided a similar error.
The Obama administration’s experience also underscores another lesson: firm rhetoric is not enough. In 2012, Obama declared that the use of chemical weapons by the Syrian President Bashar al-Assad constituted a US “red line.”
Yet a year later, a sarin gas attack on Eastern Ghouta, a rebel-held suburb to the east of Damascus, killed hundreds of civilians, but the United States did not launch a military strike. Instead, Obama pursued a diplomatic route to remove Syria’s declared chemical weapons stockpiles.
That effort reduced—but did not end—the use of chemical weapons in Syria, and it significantly weakened Obama’s standing, and that of the United States, among Syrian opposition groups.
Trump, by contrast, appears keenly aware that unfulfilled threats erode both his personal authority and the projection of American power. He has acted on threats toward Iran twice: first, with the killing of Qassem Soleimani exactly six years ago, on January 3, 2020, and second, with a strike on Iranian nuclear facilities around 200 days ago.
On Saturday, Trump also followed through on recent threats against Venezuelan President Nicolas Maduro, announcing that the United States had carried out a major operation against Venezuela and detained Maduro and his wife, removing them from the country.
Tehran moved quickly to respond to Trump’s threat against the Islamic Republic’s repressive forces targeting protesters, suggesting that Khamenei is attentive to the speed and clarity of the message and the prospect of its implementation.
A phrase used by US President Donald Trump in support of Iran’s protesters carries a specific military meaning, analysts say, going beyond political rhetoric to signal a state of readiness for action.
International relations scholar Kamran Matin described Trump’s wording as an explicit threat that could be interpreted as readiness for military action.
Matin told Iran International that in Trump’s latest remarks, the scope of the threat appeared to expand beyond Iran’s missile or regional activities to include the government’s violent response to domestic protests.
At the same time, he cautioned that Trump’s personal style must be taken into account, noting that the president is known for shifting positions and statements that allow for multiple interpretations.
However, Matin said that verbal threats do not always translate into action.
Despite signs of military preparedness by the United States and Israel in the region, Matin emphasized that there remains a significant gap between verbal threats, actual military readiness, and the political decision to launch a direct attack.
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