From Revolution to Multi-Crisis: The Political Economy of Iran’s Present Conjuncture

[This article is part of the Jadaliyya Iran Page's dossier, "Iran in Crisis: Seven Essays on the Obstacles to Freedom." Click here to read the dossier's introduction and browse the rest of the dossier.]

Iran’s current economic and political crisis is often narrated as the cumulative outcome of international sanctions or authoritarian governance alone.^[1] Such accounts, however, obscure the deeper political-economic transformations that have unfolded since the early 1990s. This contribution advances a structural and historical framework for understanding Iran’s crisis-ridden present by tracing two key dynamics that shape it: 1) the neoliberal restructuring of the state and class relations from the early 1990s onward, and 2) the interaction between these domestic transformations and successive waves of sanctions.

Rather than treating sanctions as an exogenous shock imposed on an otherwise coherent economic system, this piece situates them within an already fractured and uneven process of neoliberal state formation and class restructuring. Sanctions did not simply weaken the Iranian state; they selectively empowered particular factions, institutions, and accumulation strategies, while deepening social differentiation, poverty, and political exclusion.  

By periodising these shifts and identifying the mechanisms through which welfare, privatisation, repression, and militarisation were restructured and combined differently over time, this history provides the necessary background for understanding why Iran’s crisis has repeatedly resurfaced over the past decade, culminating in the January 2026 uprising: the broadest, most geographically dispersed, and most socially diverse episode to date, marked by an unprecedented level of anti-state sentiment. This uprising reflects the long arc of neoliberal restructuring unfolding in tandem with debilitating international sanctions, which together gave expression to accumulated social frustrations. In doing so, this history also establishes a shared analytical baseline for the contributions to this roundtable, each of which engages a distinct dimension of Iran’s contemporary multi-crisis condition. 

Before examining these two key structural forces, the analysis turns first to the post-revolutionary social contract of redistribution and incorporation, which constituted the foundational terrain of the Islamic Republic’s political economy.

Repression, Redistribution, and Incorporation (1979-89)

The Islamic revolutionary state that emerged after 1979, led by Islamist forces loyal to Ayatollah Khomeini, was organised around two core objectives: independence from the United States and wealth redistribution in the name of social justice for the “downtrodden” (mostazafan). Nationalisation was central to this project. The assets of the former ruling elite were confiscated and reorganised as government property (dolati), managed by government ministries, or public property (omumi), placed under the authority of the Supreme Leader through religious-revolutionary foundations (bonyads), such as the Mostazafan Foundation. Together, these institutions formed the economic backbone of a new redistributive order aimed at uplifting the mostazafan.

Despite the violent suppression of leftist organisations and independent labour movements,^[2] Khomeini’s Islamist project resonated widely among the poor, rural populations, and segments of the working class, particularly non-industrial workers. Framed through an anti-imperialist discourse and a state-led redistributive vision, the new regime forged a social contract that materially incorporated large sections of the urban poor and working class. This incorporation, however, was predicated on the systematic curtailment of political pluralism, especially secular leftist and liberal-nationalist dissent.

More decisively, the marginalisation of non-Shiʿa and non-Persian constituencies, most notably in Kurdistan, proved integral to both the incorporation of subaltern classes at the centre and the consolidation of the emerging order. In Kurdistan, the rejection of the Islamic Republic and demands for regional autonomy, led by the Democratic Party of Iranian Kurdistan and Komala (the Society of Revolutionary Toilers of Iranian Kurdistan), furnished the pretext for Khomeini’s declaration of “jihad” against Kurdistan in August 1979. Drawing on a long-standing Persian-centred conception of territorial integrity, now fused with Shiʿi revolutionary ideology, the regime mobilised popular energies against what it framed as internal secessionism.^[3]

The eight-year war with Iraq (1980–88) further entrenched this securitised political order, reinforcing centralisation and the suppression of dissent under the banner of national defence. At the same time, the war accelerated the institutional consolidation of the Islamic Republic and deepened its redistributive orientation. Wartime conditions expanded the economic and political power of the bonyads and facilitated the provision of food rations, cash stipends, public employment, and basic services for low-income households, families of martyrs, and other vulnerable groups. In this way, millions of previously excluded Iranians were incorporated into a broad but rudimentary welfare state that secured the backing of a majority of the population, even as political repression intensified. 

This social order was governed by two competing factions within the ruling class. A state-bureaucratic faction, associated with the Islamist Left, controlled government-owned enterprises and prioritised redistribution, price controls, and national development under conditions of war and scarcity. Opposing it was a bonyad-bazaar nexus rooted in religious-revolutionary foundations and the traditional merchant class of the bazaar. Politically represented by the Traditional Right, they favoured charitable redistribution over state planning and resisted deeper government intervention in economic life. By the late 1980s, this authoritarian warfare-welfare state faced severe economic constraints. Poor industrial planning, wartime devastation, sanctions, and declining oil revenues produced stagnation and a sharp fall in living standards. The state’s ambitions for redistribution and military spending increasingly outpaced the economy’s capacity to generate surplus, creating a clear example of a crisis of accumulation. Confronted with this structural impasse, a powerful faction within the ruling elite, led by Hashemi Rafsanjani,^[4] advocated market liberalisation and integration into the global economy. By sidelining the Islamist Left, this faction ushered in a decisive break with the post-revolutionary distributive model.

From Wartime Statism to Market Reform

Under the presidencies of Hashemi Rafsanjani (1989–1997) and Mohammad Khatami (1997–2005), Iran undertook a sustained shift toward market-oriented reform. The government restructured the multiple exchange-rate system, reformed the financial sector, rationalised prices, reduced selected subsidies, tariffs, introduced legal and institutional reforms to attract foreign direct investment, reopened the Tehran Stock Exchange, and implemented policies to promote non-oil exports. Many of these policies aligned with the neoliberal “structural adjustment” norms that were imposed on many Global South countries by the IMF and WTO. 

Privatisation was presented as the centrepiece of this strategy. Across the Rafsanjani and Khatami administrations, roughly 750 government-owned firms were sold. In practice, most were transferred to investment arms of banks, pension funds, and quasi-government entities that rebranded themselves as non-governmental while creating nominally private subsidiaries. The result was the proliferation of “semi-private” enterprises, closely tied to ministries, government organisations, and politically connected bureaucrats.

This process transformed the original revolutionary state-bureaucratic faction into a new, Western-oriented faction of the ruling bloc, committed to integrating Iran into global financial, trade, and institutional networks centred on Europe and North America. As a result, by the late 1990s, the European Union had become Iran’s principal trading partner, accounting for 36 per cent of its exports and 40 per cent of its imports.^[5]

Politically, this faction was represented by moderate and reformist forces. The striking aspect of this transformation is that much of the Western-oriented faction had its origins in the Islamist Left, which, during the first decade of the revolution, championed independent national development, state intervention in the economy, and constituted the most vigorous anti-imperialist, anti-US force within the state apparatus. By the period conventionally referred to as the reformist era (1997-2005), when certain restrictions were relaxed and limited spaces for civil society began to emerge, the Islamist Left had been repositioned as reformists. Now promoting liberal ideas, they contended that political reform could and should be aligned with the state’s turn toward neoliberal, market-oriented policies.

The ascendancy of this neoliberal Western-oriented faction proved short-lived. With the election of Mahmoud Ahmadinejad in 2005, a rival project of neoliberal state formation gained momentum. His administration facilitated the dramatic economic expansion of the military forces and bonyads by transforming them into large conglomerates expected to combine profit-making with national development and charitable activities. This marked the beginning of a more aggressive phase of privatisation. 

The legal basis for this shift lay in the 2004 reform of Article 44 of the 1979 Constitution, which redefined the government’s role from ownership to regulation. A 2006 decree by the Supreme Leader further authorised “public and non-governmental entities” to own up to 80 per cent of shares in major state industries. This enabled the large-scale transfer of assets from government ministries to firms affiliated with the Revolutionary Guard (IRGC) and bonyads, including the Mostazafan Foundation, Setad, the Imam Reza Shrine Foundation, and the Martyrs’ Foundation. 

Many transfers bypassed competitive auctions under the guise of government debt repayment to the IRGC and the bonyads. In addition, under the banner of distributing shares in government enterprises to low-income populations through the “justice shares” scheme, provincial investment companies were established and placed under the management of bonyad-linked welfare institutions, turning redistribution into yet another mechanism of privatisation in favour of the bonyads and the military. 

Between 2005 and 2013, asset transfers under the banner of privatisation proceeded at nearly fifty times the pace of the Khatami era, accelerating the concentration of economic power in the hands of politically connected actors. By the late 2000s, this process had transformed the bonyad–bazaar nexus into a military–bonyad complex, now politically represented by the Principlists (osulgarayan). This current, encompassing several political parties, most notably the Front of Islamic Revolution Stability, broadly committed to defending what it regards as the foundational principles of the 1979 Revolution, anchors its authority in absolute loyalty to the Supreme Leader and the doctrine of the guardianship of the Islamic jurist (velayat-e faqih), the preservation of the Islamic Republic’s ideological character, economic self-sufficiency, and resistance to Western political, cultural, and economic influence. Through its entrenched presence in unelected bodies such as the Guardian Council, the judiciary, and the security apparatus and its pervasive influence within parliament, the Principlists emerged as the dominant political force, eclipsing not only the Western-oriented reformists and moderates but also the Traditional Right.

Sanctions and Economic Collapse

These transformations unfolded amid mounting U.S. and European pressure over Iran’s nuclear programme after its dossier was referred to the United Nations Security Council (UNSC) in 2006. The Ahmadinejad administration’s securitised foreign policy and uncompromising nuclear stance, strongly backed by the Supreme Leader, prompted four UNSC resolutions between 2006 and 2010. The first round of UNSC sanctions targeted entities and individuals associated with Iran’s nuclear and ballistic missile programs, including the Iranian Atomic Energy Organisation (UNSC Resolution 1737, 2006). The second resolution focused on IRGC-affiliated entities and key individuals connected to the nuclear program (UNSC Resolution 1747, 2007). Iran’s rigid stance prompted a third resolution, which extended sanctions to several Iranian banks linked to the nuclear program and imposed asset freezes on various state officials (UNSC Resolution 1803, 2008). The fourth resolution further restricted Iran’s access to proliferation-sensitive items, technical assistance, and related technologies (UNSC Resolution 1929, 2010). 

Iranian leaders publicly dismissed the sanctions and reframed them as an opportunity to construct an independent national economy. In parallel, the emerging military–bonyad complex advanced a “Pivot to the East,” promoting closer economic and geopolitical ties with China and Russia as alternatives to engagement with the West. In practice, however, these early sanctions dovetailed with the material interests of the military–bonyad complex. By slowing Iran’s integration into Western-centred financial and trade networks, sanctions legitimised the rapid expansion of IRGC and bonyad economic activities, enabling their consolidation under the discursive banners of “self-sufficiency” and “economic resistance.”  

The situation changed dramatically after 2010, when the United States and European Union moved beyond targeted sanctions to impose sweeping restrictions on Iran’s core economic sectors. Exploiting the broad language of earlier UNSC resolutions, the United States introduced far-reaching unilateral and extraterritorial sanctions between 2010 and 2012. These targeted Iran’s oil exports, financial system, and access to international banking, penalising foreign firms and banks that engaged with Iranian entities. Parallel EU measures culminated in the sanctioning of all Iranian banks, including the Central Bank, and Iran’s removal from the SWIFT system (Society for Worldwide Interbank Financial Telecommunication) in 2012. As the infrastructure of global finance, SWIFT enables secure international transaction messaging; exclusion from it effectively severed Iran’s access to the international banking system, constraining trade, investment, and the movement of capital, and isolating the country from much of the global economy.

Faced with these constraints, the Iranian state turned to sanctions evasion through smuggling networks, reflagged oil shipments, and discreet sales to Asian markets, particularly China. These strategies proved insufficient. Inflation and unemployment surged, the rial lost more than half its value, prices rose sharply, and purchasing power collapsed. This economic crisis paved the way for Hassan Rouhani’s election in 2013 and the negotiation of the Joint Comprehensive Plan of Action (JCPOA) in 2015, under which Iran accepted strict limits on its nuclear programme in exchange for gradual sanctions relief. 

That relief never materialised. Donald Trump’s withdrawal from the JCPOA in 2018 and the subsequent “maximum pressure” campaign delivered a new shock to an already fragile economy. By 2019, GDP had contracted by 6.5 per cent, and inflation had exceeded 40 per cent. Between 2012, when the Iranian rial traded at roughly 12,000 per U.S. dollar, and 2018, when it hovered around 55,000 per U.S. dollar, the currency lost approximately 358 per cent of its value, becoming about 4.6 times weaker against the dollar. This dramatic collapse sharply increased the cost of imports and eroded real incomes, while IRGC and bonyads-linked actors expanded their economic dominance under the rhetoric of “economic jihad”,^[6] with their intertwined networks by the late 2010s encompassing more than half of Iran’s GDP.

Renewed pressure following Trump’s return to office in 2024, combined with the military attacks by Israel and the US in 2025, foreclosed any remaining prospects for economic stabilisation. Between 2018 and 2026, when the Iranian rial reached around 1,400,000 per U.S. dollar, the currency lost approximately 2,450 per cent of its value, becoming about 25.5 times weaker against the dollar. Over the same period, annual inflation has averaged 40 per cent, producing one of the most prolonged inflationary episodes in the developing world and driving an unprecedented collapse in purchasing power.

Neoliberalism, Sanctions, and the Multi-Crisis

The neoliberal policies of successive Iranian governments, including factions that opposed each other electorally and differed on social policies, have, since the early 1990s, prioritised privatisation, labour deregulation, and the commodification of natural resources, while rolling back redistributive social measures. Sanctions have further transformed the Iranian state into a “Chicago School” regime of austerity, providing successive administrations with a rationale to cut subsidies, suppress wages, and dismantle social protections, thereby reinforcing neoliberal restructuring under the guise of crisis management.

Neoliberal restructuring of the Iranian economy has profoundly transformed labour relations, producing a vast and entrenched precariat. Temporary employment rose from just 6 per cent of the workforce in 1990 to more than 95 per cent by 2021, while unemployment became particularly acute among university-educated youth, whose share of total unemployment exceeded 50 per cent by the late 2010s. These labour-market transformations have been compounded by chronic inflation, repeated currency devaluations, and subsidy cuts, eroding not only the livelihoods of the poor and working classes, but also the economic security of the middle class. As a result, inequality has risen sharply, and poverty has deepened to such an extent that, by 2025, up to 40 per cent of the population was living below the poverty line, according to the World Bank. These dynamics have been especially pronounced in historically marginalised regions such as Kurdistan and Baluchestan, where social and economic vulnerabilities are most acute.^[7]

At the same time, neoliberal policy orientations have intensified environmental precarity, further reinforcing social inequality. The state’s emphasis on financially driven overconstruction, particularly of dams, highways, and other extractive infrastructure projects, alongside widespread deforestation and the commodification of natural resources, has produced overlapping ecological crises. Drought, groundwater depletion, wildfires, air pollution, and dust storms have become chronic features of everyday life, with their social costs disproportionately borne by low-income populations. Together, these labour, social, and environmental transformations reveal how neoliberal governance, in tandem with sanctions, has generated a multidimensional crisis that is unevenly distributed across class and space.

The result of this multilayered crisis has been successive waves of popular uprisings: the Dey protests of 2017–2018, the Aban protests of 2019, the Women, Life, Freedom movement of September 2022, and the January 2026 uprisings. With each successive mobilisation, the geographical reach of the protests has expanded, anti-state sentiment has intensified, and the state’s repressive response has grown increasingly brutal. 

Conclusion

Taken together, these trajectories point to a political economy defined less by rupture than by layered transformations. The Islamic Republic emerged from the revolution with a redistributive social contract that secured mass incorporation through an authoritarian, rudimentary welfare state. That order was progressively dismantled from within. Neoliberal restructuring did not roll back the state so much as reconfigure it, fragmenting ownership, hollowing out accountability, and producing a dense parastatal economy dominated by the IRGC and bonyads. Sanctions, in turn, did not interrupt this process but accelerated it by rewarding actors capable of operating in opaque, militarised, and transnational shadow economies while socialising the costs of crisis onto workers, women, minorities, and the poor.

The result is today’s conjuncture: chronic inflation, currency collapse, declining purchasing power, and political immobility coexisting with unprecedented concentrations of economic and coercive power. This is not merely an economic crisis, nor simply a crisis of authoritarian rule, but a compound crisis of accumulation, legitimacy, and material conditions of life produced through decades of selective and exclusionary state restructuring. Understanding this history is essential not only for diagnosing Iran’s present but for grasping why contemporary protest, opposition politics, and ideological projects take the forms they do.

Without a decisive break from neoliberalism, the crisis is likely to reproduce itself in ever more destructive cycles. The social devastation generated by inflation, dispossession and ecological exhaustion does not automatically yield emancipatory outcomes; it can just as readily produce forms of desperation susceptible to capture by a range of right-wing political projects, from pro-Western neoliberal currents to monarchist restorationism, as well as by foreign actors and securitised state narratives. External interventionism and right-wing alternatives offer no structural break with the present order. At the same time, the Islamic Republic instrumentalises the alignments of these reactionary forces with foreign powers, along with regime-change rhetoric, to consolidate coercive power under the rubric of national security and permanent emergency.

A viable alternative would have to emerge from below: from solidaristic alignments among subaltern classes, oppressed national and ethnic minorities, women, and precarious workers whose struggles already traverse the fault lines of the neoliberal-theocratic state. Such a project would require not merely political turnover, but a reconstitution of social relations and economic life beyond militarised patronage networks and extractive accumulation; an egalitarian restructuring grounded in democratic control, material redistribution and collective self-organisation. Only through such a reconfiguration could the cycle of crisis, repression, and instrumentalised external threat be decisively broken.