BLACKSBURG, VIRGINIA – The protests that erupted in Tehran on December 28 and quickly spread across Iran were triggered by a specific grievance: the collapse of the country’s currency, the rial. Currency devaluation in Iran is never merely a technical matter; it quickly drives up prices and reduces purchasing power, especially given that many wages are set annually. In December, as the rial’s value fell by 16% — for a total decline of roughly 84% over the past year — food inflation reached an annual rate of 72%, nearly double its recent average.

These developments follow decades of economic isolation. Starting in 2011, sanctions on Iranian oil sharply reduced the country’s foreign-exchange earnings and slowed gross domestic product growth from a respectable 5% to 9% annually in the early 2000s to less than 3% thereafter. The loss of oil revenues created chronic budget deficits that the government has financed through monetary expansion, fueling inflation.

Iran’s economic situation deteriorated further last year, when sanctions gave way to open confrontation. While the 12-day war with Israel and the United States in June 2025 caused limited physical damage, it exposed Iran’s vulnerability to sudden escalation, belying the regime’s claims to have things under control and raising the country’s risk premium. Investment, already too low to compensate for rial depreciation, fell further, owing to fears of additional attacks by Israel and the U.S.