Iran’s reformist President Ebrahim Raisi faces a decisive test as nationwide protests over soaring inflation, a collapsing rial and dwindling oil revenues have forced a reshuffle of the central bank and cast doubt on the modest growth forecast that underpinned his economic agenda.

The unrest, which erupted in late December 2025 and intensified through early January 2026, has drawn shop‑keepers, bazaar merchants, university students and rural communities into the streets. At least six demonstrators have been killed, while markets and shops have shuttered across the country. The protests are a direct response to an economy beset by inflation running above 40 %, a record‑low rial and a sharp curtailment of oil exports caused by renewed sanctions.

Before the demonstrations, the International Monetary Fund projected a modest rebound, expecting GDP to expand by 1.1 % in 2026 after a sluggish 0.3 % in 2025. The World Bank, however, warned of a contraction, forecasting a 2.8 % fall in 2026. The protests have tipped the balance toward the latter view. Analysts now cite a “sharp contraction in the oil sector” and a heightened risk premium that has further eroded already fragile investor confidence.

The political fallout has been swift. Central bank governor Mohammadreza Farzin resigned amid the turmoil, and his successor, Abdolnasser Hemmati, was installed in a move described as a “political‑economic reset”. The government, which had announced a draft budget featuring modest reforms, is now forced to re‑allocate subsidies and contemplate emergency financing to stem the fiscal deficit, which stood at roughly 7 % of GDP in 2025. Reformist party secretary Hossein Marashi warned that the situation in the bazaars “does not have a bright outlook” and that a return to normalcy could not be expected within the next four to five months.

The protests have also laid bare the limits of Raisi’s reform agenda. While the IMF’s growth projection assumes a relatively stable sanctions environment and no major domestic disruption, the reality on the ground is a populace whose purchasing power has been “severely reduced” by stagnant growth—averaging just 1 % over the past two decades—and by relentless price pressures. The combination of sanctions, a collapsing currency and social unrest has pushed the economy toward a deeper recession, raising the spectre of further inflation and delaying the implementation of promised subsidy reforms.

In the short term, the outlook remains bleak. The World Bank’s forecast of a 2.8 % contraction reflects the immediate impact of the protests on oil revenues and fiscal stability. Without a rapid de‑escalation of unrest or a breakthrough in sanctions relief, Iran risks entrenching a cycle of economic decline that could undermine Raisi’s broader political objectives. The coming months will reveal whether the central bank’s new leadership can stabilise the rial, restore investor confidence and deliver the modest growth the IMF still envisages, or whether the protests will deepen the country’s economic malaise and stall any meaningful reform.

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