Washington Institute for Near East Policy
After decades of ideological expansion abroad and coercive control at home, Tehran’s rulers face a narrowed choice between two treacherous paths: Concession of power or deeper confrontation.
For forty-seven years, the Islamic Republic has anchored Iran to an ideology that promised dignity and independence but delivered isolation, economic decay and recurring crisis. What began as a revolutionary project hardened into a theocratic system sustained by confrontation abroad and repression at home.
Today, that closed strategic loop appears to be under strain.
January marked what many observers describe as a point of rupture. Security forces killed, wounded and arrested thousands during a nationwide crackdown whose brutality shocked even a society long accustomed to state violence.
The state crossed a political and social threshold, relying more visibly than ever on coercion to maintain control. Whatever legitimacy the regime ever claimed has gone.
Iran now faces a convergence of pressures: economic exhaustion, widespread public frustration, continued international isolation and a credible threat of force from the United States. The familiar formula—delay and deflect diplomatically, escalate through regional partners and expand military capabilities—no longer guarantees stability.
At the center of this crisis lies ideological overreach that has become financially burdensome and strategically counterproductive.
Tens of billions of dollars (or over $100 billion if we consider the entire economic burden) have been invested in uranium enrichment to preserve what officials describe as a “nuclear option.” Rather than delivering security, this path has triggered successive rounds of sanctions and intensified isolation.
Billions more have gone into hardened missile infrastructure and underground facilities designed to project deterrence beyond Iran’s borders.
Supporters call these systems defensive; critics see them as instruments of coercion that have deepened confrontation without producing durable stability.
The same logic shaped Tehran’s network of allied militias across the Middle East. Built to extend influence and encircle adversaries, this proxy architecture was intended to provide strategic depth at relatively low cost. Instead, it has drawn Iran into repeated confrontations with militaries vastly more powerful than its own and entrenched a cycle of escalation.
At home, the Revolutionary Guard and Basij remain the state’s primary instruments of control. Their central mission has increasingly been the suppression of domestic unrest.
Each protest wave met with force further widens the gap between state and society.Continued reliance on coercion risks destabilizing Iranian society and the wider region.
Meanwhile, the United States has shifted into what appears to be a posture of sustained coercive pressure. Strike aircraft supported by aerial tankers; strategic bombers waiting at home to embark on global strike missions; intelligence, surveillance and reconnaissance (ISR) aircraft; layered air and missile defenses, and a reinforced naval presence including two carrier strike groups near critical waterways signal both capability and resolve.
Washington now possesses credible means to target Iran’s air defenses, command structures, missile forces, naval assets and military and nuclear industries for major effects without repeating the large-scale ground wars of the past.
The message, however, is not that war is inevitable. Rather, it is that Iran’s long-standing brinkmanship strategy may be reaching its limits. It is time for Tehran to decide. This does not necessarily mean surrender, but strategic realism.
In 1988, after eight devastating years of war with Iraq, the Islamic Republic’s founder and first supreme leader Ruhollah Khomeini accepted a ceasefire he described as “drinking from poisonous chalice.” The decision was politically humiliating for many within the revolutionary establishment, yet it prevented further destruction and preserved the state.
Iran may now confront a comparable moment of transformation. Accepting strategic capitulation would not necessarily mean dismantling the state or abandoning national defense. It would mean relinquishing powers and institutions, such as IRGC and Basij, that have contributed to oppression and prolonged isolation, halting uranium enrichment, placing missile programs under verifiable constraints, severing relations with proxy militias as instruments of foreign policy and ending existential rhetoric toward regional adversaries.
In return, Iran could pursue what many of its citizens have long sought: economic recovery, sanctions relief and diplomatic normalization.
Yet, after the events of January 2026, those gains alone may not satisfy public expectations. A growing segment of Iranian society is demanding fundamental political change and a credible path toward secular democracy and free elections in Iran.
The alternative is military attrition layered atop economic fragility and domestic unrest. Infrastructure would degrade further. Isolation would deepen. Public anger would intensify. Repression might temporarily contain dissent but would likely compound long-term instability.
History is ruthless with rulers who mistake ideological stubbornness for strength.
Those ruling Iran still have a narrowing window to prioritize real national interests over ideological expansion. Durable power rests not only in centrifuge halls and missile tunnels, but in legitimacy, prosperity and social cohesion.
For decades, the Islamic Republic framed confrontation as strength and resistance as destiny. Now the shadow of war hangs over Iran. Whether it chooses a peaceful concession of power or renewed escalation with unforeseen consequences may determine not only its own future, but the trajectory of the country and the nation it currently governs.
The path less treacherous for Iran appears clear: stepping back from confrontation and allowing Iranians to choose their future, even if that means the end of an era for those ruling the country.
The protest movement in Iran is no longer selectively targeting certain symbols of the Islamic Republic, as it did a decade ago. It is now challenging everything the Islamic Republic represents, including the national flag itself.
One of the earliest visible signs of this state–society rupture emerged in 2009, when students set fire to a picture of Ayatollah Ruhollah Khomeini, the founder of the 1979 revolution. At the time, the act carried such a strong taboo that opposition leaders suggested it may have been carried out by elements linked to the security apparatus, to justify a harsher crackdown.
Around the same period, protesters began chanting, “No to Gaza, no to Lebanon — my life for Iran,” signaling a shift from the Islamic Republic’s transnational ideology to a national identity.
The Islamic Republic used such displays of anger in state television propaganda to discredit protesters. Yet each time, segments of the public repeated those same acts, turning them into a new front of defiance against the state.
The display of anger soon expanded to other figures — including Supreme Leader Ali Khamenei and senior military figures such as Qassem Soleimani, who had embodied Iran’s extraterritorial revolutionary doctrine. Their posters were torn down and burned.
Public anger even targeted the Iranian national football team during the 2022 World Cup in Qatar, which many Iranians viewed not as a sporting body but as a representative of the Islamic Republic.
For many Iranians, the team’s international presence risked strengthening the state’s domestic legitimacy and global image at a time when large segments of society felt alienated from it.
The depth of the rupture became particularly visible in June 2025, when many Iranians celebrated the killing of senior Iranian military commanders by Israel. Military figures who had been presented as national heroes four decades earlier during the war with Iraq were no longer seen as representing the nation.
Burning the flag
Students at several universities across Iran held protest gatherings for the third consecutive day on Monday, chanting slogans against Khamenei and in support of opposition figure exiled Prince Reza Pahlavi.
During their gatherings, they trampled on the flag of the Islamic Republic and threw it toward members of the security forces. At Amir Kabir University, the University of Tehran, and Alzahra University, students set fire to the flag of the Islamic Republic.
The Islamic Republic tried in 1979 to combine national and Islamic elements in the national flag. It took the colors from the pre-revolutionary flag and added the phrase “Allahu Akbar” in the middle. This is the part that many Iranians no longer sympathize with.
Iranian law does not explicitly criminalize insulting the national flag, but it can be prosecuted since the flag bears the word “Allah,” and insulting Islamic sanctities can carry severe penalties.
Islamic Republic vs. Iran
The Islamic Republic, from the very beginning, showed little regard for many Iranian traditions and symbols. Khomeini and his allies attempted to replace Nowruz new year celebration with Islamic religious holidays, although they failed.
While the White House displays a Nowruz table with traditional symbols, Khamenei delivers his New Year speeches without a Nowruz table, with only a photo of Khomeini in the background.
For many years after the revolution, the national flag did not occupy a central place in the Islamic Republic’s public symbolism.
That changed during the presidency of Mahmoud Ahmadinejad, when the display of flags expanded dramatically. Streets were lined with newly produced, brightly colored flags, and government buildings were draped in national symbols.
This was not merely aesthetic. It coincided with the intensification of the nuclear dispute and a deliberate effort to frame Iran’s nuclear program as a matter of national sovereignty rather than regime ideology.
After the 12-day war with Israel in June, the Islamic Republic made an attempt to revive some of the national symbols and motifs. At one point, after emerging from his war bunker, Khamenei asked a religious singer to perform a song about Iran. But many Iranians saw that as too little, too late.
The resentment between segments of society and the state — and anything associated with it — has intensified to such a degree that long-standing religious funeral traditions have begun to fade. The customary recitation of the Quran at funeral ceremonies has been largely replaced by music, and mourners have even danced at the funerals of victims killed during the January protests.
In certain instances, people have worn white instead of black, returning not to pre-revolutionary but pre-Islamic traditions.
Habib Arian, a financial markets researcher, told ISNA that the turning point came on January 10, when the market recorded a one-day outflow of 9.4 trillion rials ($5.8 million), at the time the largest daily withdrawal of individual investor funds.
“That figure showed that trust, which is the main asset of the capital market, had been severely damaged,” Arian said. “From that date onward, the Tehran bourse was unable to return to an upward trajectory, and any positive fluctuation was treated as an opportunity to exit.”
Outflows accelerated as regional tensions intensified and speculation grew about possible confrontation between Iran and the United States. Investors shifted from equities toward hard assets, pushing the dollar above 1,650,000 rials and lifting domestic gold prices sharply.
Between January 8 and February 21, the benchmark index fell 15% while 18-karat gold posted a 33% gain over the same period. Gold-backed funds rose 20%, emerging as a primary destination for funds exiting equities.
“The 48-percentage-point gap between gold and stocks explains why liquidity has fled the equity market at this speed,” Arian said.
On Sunday alone, the main index shed another 103,000 points as retail investors pulled out a record 41 trillion rials ($25.3 million) in a single session, according to market data cited by Arian.
He said the stock market was now driven less by economic fundamentals than by political risk. “The market today is more hostage to political tensions and the shadow of war than to economic variables,” he said. “As long as geopolitical risks do not subside, the capital market will continue to act as a liquidity provider for parallel markets.”
The exodus from stocks comes against a backdrop of broader capital flight and currency weakness.
The rial has traded around 1,630,000 per dollar in recent weeks, reflecting deep structural imbalances, falling oil income and persistent uncertainty surrounding nuclear negotiations and sanctions.
Analysts say the combination of record outflows from equities, a weakening currency and rising demand for gold shows the erosion of investor confidence, with households and businesses seeking safety in assets perceived as more resilient to inflation and political shocks.
“In this environment, investors prefer the security of gold and dollar-linked assets to the ambiguity of shares,” Arian said.