Iran starts 2026 facing protests, inflation and sanctions

To protest Iran's dire economic situation, shopkeepers in the capital, Tehran, have kept their stores shuttered since last weekend. Large street protests have spread across the country in recent days.

Iran's economy is struggling with high inflation and sanctions related to the government's nuclear program. According to the International Monetary Fund, inflation in Iran reached 32.5% in 2024. The IMF estimates that consumer prices will have risen by 42.4% in 2025 and will not fall below the 40% mark in 2026. By comparison, the European Central Bank is targeting an inflation rate of 2% in the eurozone. The value of Iran's national currency, the rial, had previously plummeted to a historic low on the black market.

The economy suffers from chronic structural weaknesses. These can only mitigate the impact of declining oil export revenues, but cannot eliminate it in the long term. The difficult outlook for Iran comes as a consequence of the government's nuclear and missile programs, Hossein Marashi, secretary general of the reformist Executives of Construction Party, wrote to fellow members early December.

Economic growth in Iran has only been about 1% over the past two decades, Marashi wrote. The lack of economic growth has severely reduced the purchasing power of the population. Importing staple foods with foreign currency is proving very difficult.

"The economy in Iran has been held hostage by the nuclear issue for the last 20 years," he wrote.

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Iran's government considers Israel, which it does not formally recognize, its archenemy. The countries have fought for decades.

Officials in Israel say Iran may have resumed production of ballistic missiles following the 12-day war in June, when Israeli and US airstrikes severely damaged military installations in Iran. Now, reports suggest that Israel is working on new plans for military action.

Israeli intelligence has also reported the reconstruction of uranium-enrichment facilities in Iran, which officials call a major threat. In addition, Iran continues to finance armed proxy groups in the Middle East, such as Hezbollah in Lebanon and the Houthi rebels in Yemen, to exert pressure on Israel and the United States.

In December, US President Donald Trump warned Iran not to rebuild its missile and nuclear programs. However, he also indicated that he would be willing to engage in possible talks with Iran.

"But, if they do want to come back without a deal, then we're going to obliterate that one, too," Trump said. "You know, we can knock out their missiles very quickly: We have great power."

In 2025, the United Kingdom, France and Germany reinstated the UN sanctions that had been suspended following the 2015 nuclear agreement.

From 2006 through 2010, the UN Security Council adopted six resolutions, imposing measures including an arms embargo, a ban on uranium enrichment and reprocessing, a ban on the launching and developing of ballistic missiles capable of carrying nuclear warheads, the freezing of assets abroad, and travel bans on individuals from Iran.

The country will remain internationally isolated in 2026, said Damon Golriz, a researcher with The Hague Institute for Geopolitics. At present, Iran's government receives support largely from Russia and China, the No. 1 buyer of Iranian oil. However, Beijing downplays its relations with Iran, which is subject to international sanctions.

Golriz said Iran's support for Russia during the war in Ukraine might not be reciprocated in a totally useful way. Although Iran is supplying combat drones to Russia and receiving economic goods in return, Russia would likely bow to international pressure and abandon Iran if a ceasefire in Ukraine were reached in 2026, he said.

The United States continues to insist on its demand that Iran completely abandon its nuclear program.

Israeli media report that Iran's supreme leader, Ayatollah Ali Khamenei, is very ill. Official sources in Iran deny these reports.

Khamenei, who would turn 87 in April, has had the final say in Shiite-dominated Iran, where the power structure is highly personalized and centralized since 1989. The absence of the "revolutionary leader" would render the country incapable of acting, Golriz said.

Legally, the so-called Council of Experts is responsible for appointing the new leader. Eighty-eight members of this constitutional body are elected directly by the people, but must first be approved by the Guardian Council, a powerful ultraconservative body with six clerics and six jurists as members.

The supreme leader plays a decisive role in determining who sits on the council. Back in 2023, Khamenei appointed a three-member selection committee consisting of his confidants to resolve the question of succession. The revolutionary leader in Iran is elected for life.

From hard-liners or reformers, the various alliances within Iran's power structure all have their preferred candidates. The powerful Revolutionary Guards also seek to exert influence. Two names have been leaked as possible successors: Khamenei's son Mojtaba is one, and Hassan Khomeini, a grandson of the Islamic Republic's founding ayatollah, is the other.

Mojtaba Khamenei supports his father's hard line. Hassan Khomeini sympathizes with the reform movement. In 2016, the Guardian Council rejected Hassan Khomeini's candidacy for the Council of Experts.

Iran desparately needs water. The drastic decline in groundwater reserves, the drying up of rivers and increasing land subsidence threaten the livelihoods of millions of people, especially in the central and southern regions of the country.

Chronic air pollution contributes to one death every 13 minutes and, especially in the big cities, is putting pressure on the health care system as respiratory and cardiovascular diseases are on the rise, according to the Tehran city newspaper Hamshahri.

In December, schools in Tehran had to be closed. Anyone outside had to wear a masks. The crisis is blamed on increasing urban traffic, outdated cars and coal-fired power plants with extremely high fine-dust emissions.

Iran's government has not steered its policies toward sustainability. The authorities raised heavily subsidized gasoline prices at the end of 2025, but experts say it may take years before the sky over Tehran turns blue again.

This article was originally written in German.